What's a "Good" Ocean Freight Rate?

Shipping rates
An interest rate that’s initially ‘good’ for a shipper will not be so good in the long term if the carriers disappear, or try to stay solvent by interim measures for example slow steaming or cancelling voyages, the issue remains - just what ‘good’ rate?

container shipping rates
If you’re a shipper, the immediate answer is that a ‘good’ freight rates are a low one, although your carrier will certainly disagree. But today’s realm of ocean freights and trade lanes can appear far more complex than it was previously where both shippers and carriers have to fully understand that changes are necessary in order to move container cargo worldwide mutually profitably.

Ocean freights can be a commodity. Similar to grain, oil, and the metals traded around the London Metal Exchange, ocean freights go up and down based on supply and demand issues. With ocean freights, the provision & demand issue is primarily cargo volume measured against container and ship availability, plus bunker price changes, currency fluctuations, and insurance surcharges due to piracy in the major trade lanes.

Some of these are economic problems that can be either forecasted or hedged, government support of failing carriers skews supply & demand through providing bargain-basement freight rates designed more to boost cash than chance a going concern. Being the recipient of such a rate could possibly be ‘good’ in the short term, however the ‘good’ disappears in the event the shipping line goes under as well as the remaining carriers increase the rates.

Therefore a rate that’s initially ‘good’ for the shipper may not be so competent in the long term if the carriers disappear, or try and stay solvent by interim measures such as slow steaming or cancelling voyages, the issue remains - just what is a ‘good’ rate?

A Zero-Sum Game?

Clearly the present shipper - carrier relationship is unhealthy and needs to be examined by each side. Prolonged low rates that induce carriers to lose money and threaten their financial stability are as unhelpful in the lon run as are high rates that price the shipper’s products from their intended markets.

Even though many companies ship large volumes of TEU's globally, the effects of this volume is often diluted by the have to ship a wide array of products over a similarly large number of shipping lanes and ocean carriers. This weakens management's capacity to negotiate competitive ocean freight rates in addition to making it difficult to know if the rates paid will be in line with their competition.

There are some worrisome indicators how the container business is now considered a zero-sum game where ocean freight rates and sailing times are thought battlegrounds in the fight for freight rate supremacy.

But as shippers and carriers worked together as a way to develop the concept of Just-in-Time deliveries, probably the next concept adopted through the logistics world needs to be that of benchmarking, where ocean freight rates are compared and rated over trade lanes and routines.

Benchmarking: It’s All Relative

Benchmarking enables a shipper to accurately answer the main questions asked in the shipping business: “Am I making payment on the right freight rate? Is my rate competitive?”

Ocean freight benchmarking is most useful for both shippers and carriers; carriers often need independent verification how the rates requested from the shippers do in fact exist in order for the negotiations to be finalized, while shippers need independent verification how the rates they accept on their many smaller lanes parallel those reported by larger shippers on those self same lanes. Benchmarking provides the information essential to answer the question of what is a ‘good’ ocean freight rate: a ‘good’ rates are one which is lower, or otherwise the same, as your competitors.

Look at Q1 2016 Shippping Rates | How Do Your overall Rates Compare to the Market?

Join us for our Webinar on April 6 - "Q1 2016 Shipping Rates With a Glance".

Maecenas aliquet accumsan

Lorem ipsum dolor sit amet, consectetuer adipiscing elit. Class aptent taciti sociosqu ad litora torquent per conubia nostra, per inceptos hymenaeos. Etiam dictum tincidunt diam. Aliquam id dolor. Suspendisse sagittis ultrices augue. Maecenas fermentum, sem in pharetra pellentesque, velit turpis volutpat ante, in pharetra metus odio a lectus. Maecenas aliquet
Or visit this link or this one