Top Factors that Affect Container Shipping Rates
Container shipping ocean freight is considered as the key factor to sustaining modern economy with bringing in 90% of the international trade. The ocean freight industry is one of the biggest contributors for import and export in thousands and millions of companies across the globe which is why even slightest of the changes in it bring a noticeable impact in the demand and supply of the trade.
Even though the container shipping rates are mostly dependent on internal factors such as route, volume, and carrier chargers, there are some external factors as well that may affect the container shipping rates and are beyond the control of any shipper.
General Rate Increase (GRI)
The general rate increase (GRI) refers to the adjustments that are made by container shipping lines in the ocean freight prices. These adjustments are done to help carriers to recover from any low market movement that may occur in the seasonal cycle. Even though a GRI is usually applied once annually, there have been occasions when GRI had to be applied several times in a year as well.
Carriers have full control over which routes will be affected by the GRI as it can be added to any of the ocean freight rates. As per the rule of Federal Maritime Commission, the shipping lines are to inform the carriers regarding any increase in rates 30 days prior to the date it is to be followed. However, this rule is to be followed by ocean freight rates in the US only, the notice period may as well be less than a week in some other countries. Hence, in case your shipping
has not been locked a day before the new GRI kicks in; you might have to pay the increased price which could be double the previous cost.
Shipping during High Seasons
Just like every other sector, the shipping industry also has a seasonal time during which the ocean freight demand increases drastically. During the high season the container shipping lines are forced to act up which in turn affects a lot of factors like; global supply chain, vessel capacities and freight prices. Moreover, additional surcharge is also applied in order to fit in the logistics work that may be required to cater the increased demand.
Being one of the largest exporters in the world, the holidays celebrated in China including Chinese New Year (in January/February) and National Day Golden Week (first week of October) brings the production and supply to a halt, which massively impacts the global supply chain. Therefore, right before this time the shipping rate of merchandise increases dramatically which in turn impacts the freight prices as well.
Emergency Bunker Surcharge (EBS)
Used to tackle the rise of fuel cost, Emergency Bunker Surcharge (EBS) is a surcharge at disposal by shipping lines which they can implement when needed. Another surcharge is the Bunker Adjustment Factor (BAF) that is responsible for covering the varying cost of fuel that may occur due to the natural factors and movements in the market. However, the catch here is that BAF charges can be known in advance whereas the EBS charges are implemented in the time of
emergency without any notice which leads to unpredictable changes in the final shipping cost.
Since a while, the carriers have been applying the EBS charges as a response to the unpredictable rising fuel costs as the shippers have no control over the changing cost and consider it as an unfair practice. Nonetheless, a lot of people believe that the emergency bunker surcharge is used by the shipping lines to cover up the operational losses.
The shortage of trucks is an issue quite common and out of control for many of the shippers. Ever since the application of ELD in December, the truck shortage issue in the US has increased dramatically which in turn causes the supply chain to come to a halt. Due to the shortage of trucks, as a market reaction ultimately the ocean freight prices are increased as the capacity decreased along with the demand increasing.
This results in the shipper having to pay a hefty amount to the trucker in order to secure a place or face difficulty in your supply chain. Hence, it is always better to plan all your shipments in advance, using alternative routes to redirect the cargo, and having a backup plan can prove to be an effective way to avoid trucking shortages.
Extra Ocean Freight Cost
There are certain ocean freight costs like demurrage, detention, and custom inspection fees which in no way can be projected by the shipper which is why it is not counted in as a part of the container shipping cost even though it greatly impacts the overall rates. Hence, in order to try and avoid encountering such a situation the shipper would have to follow all the precautionary measures.
For this, the shipper has to make sure all the documentation is done and submitted accurately and on time so that they can avoid custom inspection and encountering delay fees. Another way to avoid any extra ocean freight cost is by planning your shipment in advance so that you can reduce the chances of any mistake or error that may cost you later on.
Even though external factors as such are not in the control of the shippers, they can still to some extent avoid encountering them and having to pay extra rates by planning and following precautions in the right way.