the top 5 factors influencing the increase in sea freight rates
1 - GRI Index :
The GRI index, short for "General Rate Increase," is a significant factor influencing the rise in shipping rates.
What is the "General Rate Increase - GRI" index?
The GRI index is defined as the rate of increase in sea freight rates across all shipping lines or specific trade routes during a defined period.
It represents the average amount by which shipping companies raise the rates applied to the basic shipping prices.
This increase typically occurs during peak shipping seasons, leading to a substantial rise in shipping costs, especially when dealing with large shipment quantities.
The GRI index can vary significantly from month to month and differs between shipping companies and trade routes.
When is the GRI index applied ?
Shipping lines may seek higher freight rates in some seasons and resort to the GRI index to implement these increases. The determination of when to apply the GRI index depends on market demand and supply, particularly the relationship between decreased demand and excessive shipping capacity. The application of the GRI index happens once a year, assuming market stability.In some countries like the United States,the GRI index must be regulated and reported to the Federal Maritime Commission 30 days before the increase. During this period, shipping lines can either maintain the GRI index as initially announced or adjust it based on supply and demand. However, they cannot exceed the declared increase from the start.
Who determines the GRI index?
As mentioned earlier, shipping lines are required to inform the Federal Maritime Commission about any potential price increase 30 days before its implementation. The specified price in the GRI index can be reduced or maintained as initially announced.
For example, if Shipping Line "S" notified the Federal Maritime Commission at the beginning of December about a $500 increase in the GRI index for 40-foot containers, the decision would take effect starting January of the new year.
However, during December, Company "S" realized that this increase might be too high and could impact shipping agents or maritime companies. Therefore, they decided to reduce the index to $300.
Why is the application of the GRI index necessary?
The GRI index can be applied to any sea freight rate and usually affects imported goods. However, recently, it has been found to impact most imports, especially those coming from the Far East..
Is the GRI index applied to all countries?
In the maritime shipping industry, companies compete to offer the best prices. To gain a competitive edge, one company may lower its prices, prompting others to follow suit. This intense competition leads to a significant reduction in prices.
To recover, maritime lines decide to raise prices, initiating the application of the GRI index.
How can the impact of the GRI index be minimized?
Communicating with an experienced and professional shipping company, inquiring about the expected GRI index increase, and understanding how to incorporate this increase into the budget are the best ways to prepare for the anticipated rise in shipping prices. Reviewing shipping requirements and determining if there are ways to schedule shipments when prices are generally lower can also be beneficial.
Therefore, your communication with your shipping companies, asking as many questions as possible, clarifying when the GRI index will be applied, contributes to reducing potential issues, saving money, and keeping you on the right track with your shipping needs.
2 - Shipping During Peak Season :
Similar to other industries, shipping also experiences its own peak season, typically extending from July to November or December. During this period, companies begin preparing their goods for the holiday season. Shipping lines increase their freight rates in response to the heightened demand for their services. In some cases, additional fees may be applied during the peak season to accommodate the extra logistical work necessary to keep up with the increased demand.
Regarding shipping from China, there are other high-demand seasons in maritime shipping that should be taken into consideration. These include the weeks of the Chinese New Year (anytime during January-February) and the Golden Week for National Day (the first week of October).
Therefore, if you aim to reduce your shipping budget or, at the very least, avoid its inflation, it is essential to engage with shipping companies with a long-standing reputation in the field. They can assist you in identifying suitable times for shipping goods and avoiding peak times.
3 - Additional Fees in Emergency Cases :
At times, the shipping process may encounter unexpected additional fees, compelling the shipping company to impose these charges when necessary.This impacts shipping rates and may lead to an increase for you.
One of these unforeseen fees is the Emergency Bunker Surcharge (EBS), where fuel costs represent one of the most volatile aspects in the shipping process. Therefore, shipping companies strive to protect themselves from any unforeseen increases through additional fuel charges in emergency situations to address fluctuations in fuel prices.
4 - Shortage in the Trucking Sector :
The shortage of truck drivers is an extremely common logistical challenge for many shippers. When this issue arises, sea freight prices can significantly increase, and you may find yourself compelled to pay a substantial amount as a shipper to secure a spot and obtain a truck driver.
Advanced planning for your shipment can help you overcome this problem by identifying alternative routes for your goods and establishing contingency plans for situations where a shortage of trucks is encountered.
5 - Additional Costs in Sea Freight:
In the shipping process, you cannot anticipate the additional costs that you may encounter. Some of these costs may result from delays or customs inspections, significantly impacting the overall shipping cost.
Fees such as port charges, typically paid when the ship first docks and upon its arrival at your designated shipping port, are examples. While freight agents and transport companies can estimate the total amount to be paid, factors like increased cargo weight or delays may lead to an increase in these fees.
Often, these unexpected fees are beyond the control of the shipping company. However, there are certain measures that can be taken to mitigate this issue. These include obtaining all the necessary documents and submitting them on time, as well as pre-planning for your shipment, allowing sufficient time to prepare your goods properly.
Now, you have a clear understanding of the key factors that may impact shipping rates and incur additional costs when shipping your goods.
To avoid the aforementioned reasons for increased shipping costs, all you need to do is work with a maritime shipping company that has a professional and experienced team to analyze data related to sea voyages and their associated impacts, such as weather conditions, official country holidays, political situations, etc.
AL-TAWAREQE Trading and Shipping Company, with its extensive experience in trade and shipping, has embraced this professional approach. It stands as the first trading and shipping company in North Africa to appoint a specialized team to analyze factors influencing price hikes. This department also studies additional factors related to connecting the Mediterranean Sea basin, its maritime routes, and trade routes, integrating all elements (such as weather, official country holidays, port conditions, ship traffic, and political and legal impacts, especially regarding border crossings or narrow passages). This comprehensive analysis aims to provide a realistic understanding of these factors and predict any unforeseen events.