The freight industry is one of the most volatile markets globally, always subjected to fluctuations in rate, demand, and policy. In here, freight rate is a key consequential metric, which depends largely on the two other allied factors -- demand and supply.
Understanding the general rate increase (GRI) is crucial for freight forwarders in the business, allowing them to provide their shippers with ample information and timing to adjust logistics operations. Failure to communicate GRI details properly can impact the entire operation of shippers and cause them to lose their trust in forwarders.
This article delves into the fundamentals of general rate increase in 2024 and how freight forwarders can help their shipper clients understand its impact on their transport budget, allowing them to optimize transport routes and modes accordingly.
What is a General Rate Increase? The general rate increase is an adjustment (typically an increase) in the price and rate of shipping operations.
The GRI may impact pricing across a few trade routes or, in some cases, impact pricing across the board. It is typically controlled by large shipping lines and carriers and applied in response to certain factors that impact the demand and supply dynamics, like fuel costs, operational costs, regulatory changes, and shipping capacity.
GRI is a strategy that helps carriers and other stakeholders manage or mitigate the added costs that arise out of these factors. It is not uncommon and could happen multiple times a year. While successive GRIs are not levied in short intervals, there have been cases where it happens due to extraordinary market situations, like in May ‘24, which has seen two GRIs in the space of a few weeks . Quick, successive increases in GRIs usually indicate a tight market, which container liners are eager to capitalize on to realize higher margins.
There will always be a notice period between when a GRI is announced and its implementation, giving shippers and freight forwarders ample time to adjust.
Factors That Affect General Rate Increase Although the general rate increase is quite common and is expected to happen periodically, it depends on certain factors. These factors will inform the scope and length of the GRI.
1. Fuel Costs Fuel cost is one of the biggest harbingers of cost for shippers. The fuel market is quite volatile, and in many cases, it could get to a point where carriers will need to adjust to continue the shipping process seamlessly.
2. Capacity Supply and Demand The global freight rate average hit $3,900 per FEU in February 2024. Supply and demand dynamics play a key role in adjusting the GRI. Too much either way will typically call for a revaluation of the entire shipping rate and pricing to better reflect the current market conditions.
Shipping Capacity: Too much shipping capacity may suppress GRI depending on the demand. On the other hand, too much pressure on the shipping capacity will trigger higher GRIs.Economic Activity: More trade typically means more economic activity, leading to higher demand for shipping services and, inevitably, an increase in the GRI.3. Operational Cost Port services account for an estimated 10–20% of the total cost of shipping goods internationally. Operational costs are expenses carriers incur, while transporting the freight or cargo. When these costs get high, they typically trigger the GRI. Some of these costs include:
Port Fees: These are charges associated with post services, including loading, unloading, and storage. Higher port fees can and will influence the GRI.Labor Costs: Labor is a core operational cost; when carriers have to pay too much for it, GRI will typically rise. Some of the laborers could be dockworkers and crew members.4. Regulatory Changes Regulations and policies across multiple regions can impact the operation and investments of carriers into the business to adjust. Some examples of these are:
Environmental Regulations: Every now and then, new regulations force carriers to invest in cleaner fuel or new technologies, increasing operational costs.Trade Policies: Shipping routes and volumes can be impacted by tariffs, trade embargoes, or changes in trade agreements.5. Market Stability and Conditions The market dynamics, including carrier alliances and competition between shippers, can impact capacity, market control, and the ability to impose GRIs.
What Is Peak Season Surcharge? Is It Different from GRI? The peak season surcharge(PSS) is an additional or temporary cost imposed on shippers during the peak season.
It is temporary and is designed as a measure to help carriers manage the extra loads during the peak season. It’s removed after the peak season demand subsides.. The PSS is temporary and set up to manage the peak season demands while GRI is a general rate increase across shipping lines and routes.
Are Both FCL and LCL Freight Subject to GRI? The base rate of container shipping impacts the LCL and FCL freight.
However, the GRI is an adjustment to the base rate, which impacts LCL and FCL freight shipping. As GRI raises base rates for container shipping on specific or all routes, the costs of full container loads and less-than-container loads are higher, increasing expenses for shippers.
What is the 2024 General Rate Increase (GRI) in Shipping for Major Carriers? Major carriers have announced and implemented their GRI for 2024 due to current fluctuations and volatility. Some of these carriers are Maersk, MSC, CMA CGM, and Hapag-Lloyd. Here's a breakdown of their 2024 General Rate Increase (GRI):
UPS's average increase in UPS Ground, Air, and International service rates is 5.9%. However, Area Surcharges apply to changes in the list of ZIP Codes aligned to certain zones.
FedEx's average increase for FedEx Express, Ground, and Home Delivery shipping rates stands at 5.9%. However, there will also be increases in FedEx Ground Economy shipping rates and changes in surcharges and fees. FedEx Freight shipping rates will increase by an average of 5.9%-6.9%, dependent on the customer's transportation rate scale.
“The similarities of base price increases between the two aren’t a coincidence. If one of the carriers decided to implement lower rate hikes than its competitor, its network would be overwhelmed by a surge in demand that would hurt service levels. They will always be pretty similar, because right now, one of them can’t absorb significantly more customers than the other one can.”
Kevin Miller, Vice President Of Data Insights At Sifted How can Freight forwarders Manage GRI? The GRI is implemented by carriers, meaning freight forwarders have no direct control over it. However, there are strategies that freight forwarders can leverage to manage the general rate increase better. Here are some of them:
Strategic Negotiation Strategic negotiation happens when both parties have something to offer beyond price and service. This typically entails engaging the carriers in a long-term contract or applying the economies of scale principle. This way, the freight forwarder’s business is more attractive, and the shippers can get access to discounts on shipping fees. For instance, a freight forwarder might secure a long-term contract with a carrier by offering consistent high-volume shipments, which in turn allows them to negotiate lower rates even during periods of GRI.
Building Relationship Relationships open the door to more significant and strategic negotiations. Building relationships over time will help get priority treatments and better rates, even when there is a GRI. For example, a freight forwarder who has developed a strong relationship with a carrier over several years might receive priority bookings and preferential rates, helping to buffer against the impacts of GRIs.
Diversification Strategies Diversification plays a critical role in managing shipping operations, and it applies to modes of shipping, carriers, and other strategies. Diversifying the carriers allows the freight forwarder to build resilience in shipping operations, offering shippers a more robust service. By leveraging an intermodal strategy, freight forwarders can mitigate risks with disruptions due to unexpected GRIs in a certain modality.
Advanced Planning and Cost Transparency Shipping rates change based on demand, so securing containers and spots on the vessel as early as possible is essential. However, this can only be managed through solutions like demand planning and transparent communication. Through demand planning and communication, freight forwarders can work effectively to streamline operations and help shippers secure better costs.
Staying Informed Information is a key tool in trade, shipping, and supply chains. By staying informed, freight forwarders can better identify opportunities for cheaper freight. They can also collect and analyze data from various sources to stay ahead of GRI.
Staying informed can also be done through people networking. Engaging in industry forums, conferences, and workshops is essential to learn from peers and experts about coping with GRIs.
How Can Freightify Help With Rate Procurement? Acquiring and managing shipping rates can be complex and time-consuming for freight forwarders, especially with navigating market volatility that leads to GRIs, peak season surcharges, and more.
Freightify can tackle this challenge by providing a comprehensive on-demand rate procurement solution. Our freight forwarding software empowers the freight forwarder with access to live rates from over 30 ocean carriers and 90 airlines, and it even factors in inland charges – all on a single platform. Freightify eliminates the need to juggle spreadsheets and carrier websites, consolidating everything into a user-friendly format.
While Freightify doesn't directly handle GRIs, as these updates are typically provided by customers, it is developing a surcharge suite that addresses this need. This suite will draw attention to various surcharges such as peak season surcharges and other amendments frequently introduced by shipping lines. Essentially, it will function like a shopping cart, allowing customers to add these surcharges to their rates or quotes based on the carriers, thereby streamlining the rate procurement process.
Frequently Asked Questions How do shipping lines share the general rate increase? Carriers do not necessarily share this. Each carrier implements GRIs independently based on their needs and then posts on their websites, social media, and other avenues of communication.
How can freight forwarders forecast GRI trends and market dynamics to proactively plan and adapt their strategies? They can do this by leveraging platforms like Freightify to collect and analyze real-time information.
How long does a GRI last? The duration of GRI varies. Some are temporary, while others become the new base rate.
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