FAQ: Why are the shipping rates so volatile?

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Q: Why are the shipping rates so volatile?

A: While there are several factors involved,

  • The primary is market demand.  Traditionally from Dec through April for imports, especially from Asia to the U.S., it is called the “slow season.” Because the retail market slows down after Christmas.  However from mid January through early February there is an upsurge of cargo moving to beat the Chinese New Year deadline whereby factories all over China shut down for weeks.  This usually keeps rates high as there is always space problems for cargo getting on vessels.  From May through November this would be the “peak season” where there is a big demand for cargo moving into the U.S., so the Carriers raise the rates during this period, with the GRI (general rate increase), and PSS (peak season surcharge).
  • Another factor is fuel, or what is called the Bunker Fuel factor.  This is a floating surcharge that the Carrier’s can change when oil prices rise or fall. It is called the BAF.

Shipping Rates

(Photo from www.wallcoo.com)

  • Another factor is when the Carrier has increases in costs such as when Terminal costs rise, especially with Unions, congestion problems, etc. Or when the U.S Rail costs increase for similar reasons.  This is where the Carriers can add in new surcharges which have happened in the past and eventually get absorbed into the “all in ” rate quoted.
  • Most recently the primary reason for rate increases, was a knee jerk response to the tremendous downturn in traffic and volume as a result of the current U.S. recession since ’08.  This downturn caused many carriers to lose about 50% of their previous volume and while their costs remained the same or higher, and their revenue all but disappeared, they found themselves the beginning of this year looking at an average of $500, 000,000 in losses per Carrier.  So from late ’09 until May of ’10, most Carriers put a large portion of their fleet out of commission off the coast of Singapore.  Thereby creating a vessel shortage, or a false space problem.  This gave them all excuse to raise their rates again, in order to salvage their businesses.  This type of thing is not normal.

See our Blog post about the dramatic rate increases during early 2010.

Source: Economy

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