2014 General Rate Increases for Ocean Freight
A GRI (General Rate Increase) is an amount which ocean freight carriers increase tariff rates applied to already existing base ocean freight rates.
Cargo demand has seen steady growth since the holiday season last year. In an attempt to continue to improve their financial situation and after years dealing with a difficult shipping environment, the majority of all ocean carriers have already implemented multiple rate increases throughout numerous trade lanes during the summer months and into September. Currently the carriers plan to implement yet another general rate increase effective October 15th for all dry and refrigerated cargo moving under tariff and service contracts from Far East and Indian Sub-continent Countries to USA & Puerto Rico destinations.
Strong booking forecasts and artificial demand for east coast bookings created by the looming threat of a West Coast port strike have provided the carriers the confidence to continue to attempt rate hikes as we move into the fall and winter months, which is a time we would traditionally see declining rates. Any additional rate increases achieved moving forward could be fleeting or mitigated as we move further into fall and winter if overcapacity and sluggish global demand return.
The TSA (Transpacific Stabilization Agreement) is a group of ocean carriers’ which includes Taiwan’s Evergreen Marine, China’s COSCO, Korea’s Hanjin Shipping, French privately held CMA GGM, Denmark’s Maersk Line, privately owned Switzerland-based Mediterranean Shipping Company (MSC), and several others. Per Brian Conrad, TSA executive administrator “Simply rolling over last year’s contract rates, let alone reducing the rates, as some shippers have requested, is just not workable. The goal is a meaningful net increase, with full cost recovery for fuel, chassis, free time and other costs, irrespective of supply/demand or other considerations.”
The ocean carriers’ earnings continue to reflect a trend in which the world’s largest carriers are profitable while many of the rest of the carriers continue to struggle. The world’s largest carrier, Maersk Line and the No. 2 global carrier CMA CGM, both released their second-quarter earnings in August and both carriers show growing profits. Meanwhile, China’s Cosco experienced losses in the first half of the year which soared to $338 million as a difficult shipping environment and disposal of vessels drug down its financials.
Congestion has also affected carriers’ vessel schedule reliability during the summer, as almost all of the top 20 carriers experienced a decline in global schedule reliability, according to a new report from SeaIntel Maritime Analysis.
Unfortunately, the current ocean freight rates continue to remain below the required level for many of the ocean lines to cover increasing operating and transportation costs for sea freight. With a sense that the economy is continuing to improve throughout 2014, along depleted inventories, and pent-up demand has all provided a greater sense of security for ocean carriers, and they have taken the opportunity to try to make rate hikes stick.
What Does This Mean for My Business?
Despite the official announcements that another GRI is planned for October, it is still not completely clear if this planned increase will be mitigated before it is implemented, or if all ocean lines will hold firm and follow through with these increases.
Please, contact us with any questions regarding this matter and how it may affect your business specifically.