James E. Devine Jr., President, Distribution-Publications

https://www.dpiusa.com
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James E. Devine Jr.

From my corner of the sandbox, I don’t see dramatic changes to the ocean shipping market coming in 2019, but I do believe the trend toward increased ocean freight rate volatility will continue, and this will contribute to commoditization pressures.

Freight rates that are effective for 15 days or less are increasingly common in the US trades, in both service contracts and in NVOCC negotiated rate arrangements (NRAs). This trend toward shorter rate durations contributes to rate volatility. It gives carriers the opportunity to increase rates almost every week. This forces freight rate payers to continuously monitor and negotiate freight rates.

While many carriers continue to sign service contracts valid for one-year periods, with minimum quantity commitments (MQCs) for the year, they populate these contracts with freight rates valid for much shorter terms, as short as 15 days. Once these contract rates expire, carriers offer a new set of rates for another short term, often with a general rate increase (GRI) applied, then warn shippers to accept these new increased rates promptly, or ship under much higher tariff rates.

Some carriers short-cut this approach by including wording in their service contract “boilerplate” that automatically applies general rate increases (GRI). For example: “Any GRI published in carrier’s tariff applicable to the trades covered by this agreement (service contract) shall be applied by the carrier automatically and the shipper consents to the carrier filing an amendment to this agreement with the Federal Maritime Commission reflecting said increase, without any further signature or consent of the shipper.”

These practices do not add value to carrier services. They create an adversarial relationship with shippers and put the onus on the shipper to relentlessly monitor, negotiate, and demand better freight rates.