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What's a "Good" Ocean Freight Rate?

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

sea freight rate
If you’re a shipper, the immediate solution is that a ‘good’ freight rate is a low one, although your carrier will surely disagree. But today’s world of ocean freights and trade lanes can appear far more complex than it had been where both shippers and carriers should fully understand that changes are necessary in order to move container cargo worldwide mutually profitably.

Ocean freights certainly are a commodity. Similar to grain, oil, and the metals traded for the London Metal Exchange, ocean freights fall and rise based on supply and demand issues. With ocean freights, the supply & demand issue is primarily cargo volume measured against container and ship availability, plus bunker price changes, currency fluctuations, and insurance surcharges because of piracy in the major trade lanes.

Some of these are economic issues that can be either forecasted or hedged, government support of failing carriers skews supply & demand by giving bargain-basement freight rates designed more to raise cash than manage a going concern. Being the recipient of such a rate may be ‘good’ in the short term, however the ‘good’ disappears if the shipping line goes under as well as the remaining carriers increase the rates.

So if a rate that’s initially ‘good’ for a shipper may not be so great 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 - what is a ‘good’ rate?

A Zero-Sum Game?

Clearly the current shipper - carrier relationship is unhealthy and requirements to be examined by either side. Prolonged low rates that can cause carriers to lose money and threaten their financial stability are as unhelpful in the long run as are high rates that price the shipper’s products out of their intended markets.

While many companies ship bulk of TEU's globally, the effect of this volume is frequently diluted by the have to ship a wide array of products over an equally large number of shipping lanes and ocean carriers. This weakens management's power to negotiate competitive ocean freight rates and also making it difficult to know if the rates paid come in line with their competition.

There have been some worrisome indicators how the container business is now considered a zero-sum game where ocean freight rates and sailing times are considered 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, possibly the next concept adopted with the logistics world must be that of benchmarking, where ocean freight minute rates are compared and rated over trade lanes and periods of time.

Benchmarking: It’s All Relative

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

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

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Last updated 775 days ago by shippingrates6