Why Are Freight Rates So Complicated?

Global shipping is by nature a complex process. Most of us take for granted how easy it appears to be to produce and ship something half way around the world in just a week or two. The truth is it’s only possible with a highly integrated and sophisticated global logistics infrastructure. However, it is the details that matter – like with freight rates and contracts.

Behind every global shipment are freight costs that are every bit as complex, or more as the shipment itself. Though there are dozens of complex issues that shippers and freight forwarders must take into consideration when quoting and booking a shipment, freight tariff and contract frustrations are ubiquitous.

Nowhere is this more true with ocean shipping. Many companies spend significant investments of time and staff just to read over contracts and make sure their own shipping rates can be calculated accurately. The problem in doing so is that it’s both time-consuming and it doesn’t truly add value to your business.

You might ask WHY ocean contracts are such a pain to deal with when compared to other industries.

Here’s one key reason:

Ocean Contracts Take Into Account More Variables Than Other Kinds of Contracts

For one thing, the simple fact that you’re shipping cargo across countries means you have to deal with tons of regulations.

You need to negotiate how long the cargo will take to get to its destination, the price of the service, plus the amount of cargo space needed. You also have to negotiate the ability to get out of a contract if you’re not happy with it, and how long you need to stick with it.

Risk is also an important factor.

Is the shipper liable for any damages, or is the ocean carrier? Some contracts may contain a “force majeure” agreement, which frees all parties from liability in the event of unexpected circumstances. These can benefit one party over the other.

Freight Surcharges

Do you pay for fuel, or is it included in the fee? Will the rates of the carrier go up if the market in general does? What else is included in the fee, and does that make it cheaper or more expensive than a competitor?

Besides having to deal with different surcharges for different ocean carriers, the freight market is notoriously volatile. That means the fees and rates can rocket upwards or drop suddenly, which can create plenty of problems if you haven’t ironed out the details with the carrier. So the contract has to take that into account as well.

Different trade lanes will have different rates, as well as risks. So if you’re managing many different lanes, you have to negotiate several different contracts. Not only that, but contracts need to be constantly renegotiated as the freight market rates rise and fall.

When you consider all these variables, it’s easy to see why freight contracts are as complicated as they are. But just because it’s complicated, doesn’t mean it has to be challenging. Catapult offers several tools that simplify the process and make it easier for you to manage.

See more at here.