What's a "Good" Ocean Freight Rate?

Shipping rates
A rate that’s initially ‘good’ for a shipper might not be so good in the long term if the carriers disappear, or make an effort to stay solvent by interim measures for example slow steaming or cancelling voyages, the question remains - exactly what is a ‘good’ rate?

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

Ocean freights are a commodity. Similar to grain, crude oil, and the metals traded for the London Metal Exchange, ocean freights rise and fall based on supply and demand issues. With ocean freights, the production & 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.

While most 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 improve cash than operate a going concern. Is the recipient of such a rate could possibly be ‘good’ in the short term, however the ‘good’ disappears if your shipping line goes under along with the remaining carriers raise the rates.

So if a rate that’s initially ‘good’ for the shipper may not be so excellent in the long term if the carriers disappear, or make an effort to stay solvent by interim measures including slow steaming or cancelling voyages, the question remains - what is a ‘good’ rate?

A Zero-Sum Game?

Clearly the existing shipper - carrier relationship is unhealthy as well as to be examined by each side. Prolonged low rates that cause 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.

While many companies ship large volumes of TEU's globally, the result of this volume is often diluted by the need to ship a wide array of products over a likewise large number of shipping lanes and ocean carriers. This weakens management's capability to negotiate competitive ocean freight rates in addition to making it difficult to determine the rates paid are in line with their competition.

There has been some worrisome indicators that 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 in order to develop the concept of Just-in-Time deliveries, perhaps 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 time periods.

Benchmarking: It’s All Relative

Benchmarking enables a shipper to accurately answer the most crucial questions asked in the shipping business: “Am I paying of the right freight rate? Is my rate competitive?”

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

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