Ocean Freight Rates: Keep Current on Variances

Posted by Jay Devers
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Whether gasoline or tickets for an airplane or a live event, we’ve become conditioned to the game of rapidly changing prices when it comes to certain things we buy as consumers. The increasing use of algorithmic pricing is reluctantly accepted by people wanting to book their vacation or see a sporting event. The tight capacity and current ocean freight rates that shippers are paying across all trade lanes is starting to feel like this model – but without the guarantees that a price paid today or tomorrow secures you – or in this case your cargo – a seat.

 

All About the Algorithm

The use of algorithms to align supply and demand in a variable pricing model can be perceived as ebbing and flowing at times of high and low demand. Think of open-tolling, where for “speedy” access during rush hour, prices to utilize stretches of road continue to move upwards until such time as the price tips from “facilitating” to “deterring” and those with either the financial wherewithal or who are facing a need to do so, will pay the premium while other cars sit motionlessly or crawl in adjacent lanes.

The increase of ocean freight rates from their nadir in March of last year is conservatively fourfold. Competing schools of thought think that we’ve peaked – or that we’re in this predicament until 2022.

The challenge that we are confronting on behalf of our customers today, though, concerns not just rate volatility – which is currently trending only in the upward direction – but also the near frenzy associated with securing both space and equipment weeks or months in advance. Worse, and out of our control, are the last-minute demands for a space guarantee or an additional premium for what was believed to be an agreed-to threshold in the not-so-distance past.

Bestway is trying to educate our clients on just what we are experiencing not just from large resellers of space, but from the carriers themselves. We share this in the interest of how we always represent our customers – with full transparency that this is the situation in the marketplace today.

 

Unequally Applied Premiums

We have signed time/volume contracts. These contracts guarantee a certain number of containers moved at an agreed-to rate. We sign these contracts based on what our customers provide us for three and six-month forecasting. When we are a part of a client’s purchase order workflow with the earliest visibility into anticipated shipping dates, we protect that space in our allocation.

When our clients – or potential new shippers to Bestway – come to us with a few week’s notice or less, oftentimes our allocations are already committed and we have to either ask the carrier for additional space or go to the secondary market to procure space. Those additional slots above and beyond our contracted amounts are where carriers are demanding extra cost and guarantees.

New this year are non-refundable space guarantees. Our ascertainment is that demand is so high right now if a shipper is a no-show, the carrier refuses to lose money on a slot that either goes unused or cannot be resold at the last minute.

 

The concept of reasonably identical ocean freight rates by trade lane is gone for the moment.

Usually, there would be a spread of a few hundred dollars between carriers for identical equipment and port or city pairs. Now, alliances and mega-carriers have created huge swings based on their respective health and equipment situations. For shippers, it creates even more difficult when trying to compare carriers or freight forwarders because the variances are so wide and the lack of a direct, ongoing relationship with a carrier who is already unable to carry all of their current customer cargo will be guided in this market by a grab at the brass ring of short-term monetary gain. 

 

What should shippers expect?

The worst if they’re unorganized and more predictable but nonetheless disappointing upwardly moving ocean freight rates if they’re forecasting well in advance of demand. Bestway is committed to protecting our customers’ cargo as fully as possible, whether with a far-in advance booking or a more costly and variable spot-rate in the short-term market. 

For new customers, we welcome the chance to show you the Bestway difference but know that difference will come in the transparency, honesty, and enhanced communication with your teams as we work diligently to procure space in the near term and to add your volumes to our allocations in the medium and long term.