This commentary appeared in the print edition of the Jan. 6, 2020, Journal of Commerce Annual Review and Outlook.
As a tariff publisher, I’ve observed the trend toward increased ocean freight rate volatility in the US trades and can’t help but conclude that it is contributing to the commoditization of ocean carrier services. Carriers that employ pricing tools to adjust their freight rates or surcharges up or down every two weeks force freight rate payers to continuously monitor and negotiate rates. This volatility increases the focus on rates to a point where other carrier efforts to add value may be overlooked.
Carriers that add new general rate increases (GRIs) or creatively named rate restoration surcharges to their tariffs every fifteen days are not winning long-term relationships with cargo owners. Similarly, carriers that enter into service contracts for one-year periods but refuse to commit to freight rates in these contracts that are valid for more than thirty days leave shippers in a position where they must continually negotiate freight rates.
While carriers attempt to add value and differentiate their services though equipment availability, reliable and convenient sailing schedules, efficient terminals, and error-free documentation, all these benefits may become secondary when the shipper is enraged over an unexpected and unbudgeted rate increase.
Resisting commoditization pressure is a tremendous challenge for carriers. Increased vessel fuel costs required to comply with the IMO 2020 low-sulfur fuel mandate effective Jan. 1, 2020, must be recovered by carriers through rate and surcharge increases. Carriers have already updated their tariff rules to provide a new IMO 2020 surcharge or a revised low-sulfur fuel charge, but this cost increase is not expected to be volatile.
More judicious use of the pricing tools that contribute to rate volatility is a strategy that carriers should consider as they focus on value-added services.