Ocean freight is one of the most common ways to transport goods across the world. Due to the high dependence on ocean shipping to transport goods, any change has the potential to impact supply, demand, and overall international trade. Here are a few factors that affect container shipping rates.
Destination: Where a container ship is headed plays a large role in determining ocean freight rates. Prices depend on how long (or short) of a trip it takes for goods to reach their destination. The longer time at sea means more fuel and resources are being used. This ultimately drives prices to increase or decrease depending on distance.
Container Capacity: The majority of ocean shipments are calculated based on weight or measure, whichever is greater. For a container carrying freight it is most advantageous to be completely filled. Unless the option of shipping Less-than-Container-Load (LCL) is chosen, there will be responsibility for paying the entire cost charged for the container, even if it isn’t completely full.
GRI: General Rate Increase (GRI) is described as ocean freight prices changes made by shipping lines themselves. GRI fluctuates depending on a variety of factors including season and market movement. According to Qafila, “GRI is usually performed to help the various carriers recover from the low market movement which is the part of the seasonal cycle.” GRI can be applied once a year, or several times throughout the year.
Season: There is a high season in shipping, and it’s when the demand for ocean freight spikes. Generally this season lasts from July to November and shipping lines raise freight rates during this time. Additionally, during different seasons specific goods may have higher cargo costs as well. Before big holidays in China (i.e., Chinese New Year and National Day Golden Week) there is a significant increase in shipping goods. During these holidays the production of goods and sales comes to a standstill, causing a large volume before this time.
Additional Costs: There are plenty of other costs that impact shipping rates including services charges, fines and fees, as well as terminal fees. A service charge is known as an extra cost brought by port authorities; one example of this is a security service charge. Fines and fees come into play where there is a delay in a ship reaching its final destination because of factors like overcrowding.
Emergency Bunker Surcharge: It takes fuel to move goods across the globe; surcharges like an EBS are put into place to cover any rise in costs of fuel. BAFs or bunker adjustment factor surcharges are also in place to address fuel prices. The main difference between the two is that BAFs are known in advance while EBSs are made in emergency situations, creating last-minute changes in shipping rates.
Truck Shortage due to Technological Shifts: Anything that can adversely affect the logistics of freight shipping on land can have a negative impact on container shipping rates. These logistical issues may cause significant delays (bottlenecks) and can be mainly caused when there is for instance a shortage in the available trucks. Technological shifts followed by new regulatory compliance like for instance the required use of Electronic Logging Devices in United States, have changed the way that trucking companies operate. As a result this has caused a new “modus operandi” that it will definitely take some time to be widely accepted.
Major Macroeconomic events: The impact of trade wars on global logistical supply creates disruptions that force trading partners to make adjustments in order to counter the effects from the imposed tariffs. The container line industry related tariffs are expected to have an impact on both Western and Chinese companies. However the levels of this impact may also differ as the performance of a country’s liner shipping industry is also affected by the country’s infrastructure developments and how these container shipping structures support the profitability of the industry as well as the offered service quality.
Currency: The majority of international shipping transactions standard is the U.S. Dollar However, exchange rate calculations, may influence container freight rates as they are affected by the international landscape.
As container shipping is very closely related to the overall economy, container shipping rates are formulated by several different factors. Global microeconomic and macroeconomic shifts can have a serious impact from time to time. Well organized planning of shipments in advance can be positive for shipping rate levels and overall volatility by minimizing any extra fees that don’t really benefit either the container companies or the end consumer. Technological and logistical advancements will be a key factor that will assist the optimizing of unnecessary costs in the coming years.