If you import from Asia, and if you're concerned about keeping a lid on your landed freight costs, then now would be a good time to take a close look at what rates you are actually paying, as we've seem some historic lows in rate terms over the last few weeks in the freight indexes from Asia (USD 205 per 20 foot container from Shanghai to UK).
That sounds like an amazingly low freight cost, especially as your after arrival costs would probably be in the region of GBP 600-700 (depending on your location in the UK. However these low rates are now a distant memory, hence the title of this post, and rates are climbing sharply.
As we approach the start of the Peak Season as it's called in logistics (typically August-November) when retailers in particular need their Christmas stock on the shelves from September onwards, volumes increase and in turn, so do freight rates.
Despite their investment in huge container ships which reduce their cost per container, the shipping lines can't make money at rates as low as USD 205 so they've instigated General Rate Increases (GRIs) from 1-July and they have had a dramatic effect, with rates bouncing by over 300 percent in 2 weeks (from USD 205 to USD 879!).
That sounds like an amazingly low freight cost, especially as your after arrival costs would probably be in the region of GBP 600-700 (depending on your location in the UK. However these low rates are now a distant memory, hence the title of this post, and rates are climbing sharply.
As we approach the start of the Peak Season as it's called in logistics (typically August-November) when retailers in particular need their Christmas stock on the shelves from September onwards, volumes increase and in turn, so do freight rates.
Despite their investment in huge container ships which reduce their cost per container, the shipping lines can't make money at rates as low as USD 205 so they've instigated General Rate Increases (GRIs) from 1-July and they have had a dramatic effect, with rates bouncing by over 300 percent in 2 weeks (from USD 205 to USD 879!).
Last Friday they eased back a little, but this is the calm before the storm in my opinion as the shipping lines have announced further massive increases from August 1st of USD 1000/TEU/20 foot so even though some commentators are saying the rate increases won't stick, I'm not so sure as lines are also withdrawing capacity by either reducing the number of vessels in service or just cutting back their sailing schedules. Just take a look at the below report from Mike Wackett at Loadstar.
Some customers, particularly large ones with +1000 TEU of volume may have done fixed term deals (say 6 months, 12 months) however the index was USD 1085/TEU on 2-Jan-15 so they may have regretted the decision to fix their rates especially as the rates have been generally weak since Chinese New Year. Other customers may be on a monthly rate update and many just pay whatever rate they're charged as they have no time to spare and have no way of knowing what the market is doing, quite understandable and very common.
Just in case you're unsure what a TEU is, it's a Twenty Foot Equivalent Unit, so a 20 foot container is 1 TEU and a 40 foot is 2 TEU so it's really a measure of volume in ocean freight terms used by lines, forwarders and customers.
Just imagine having a fixed rate of say USD 900-1000/TEU/20 foot and hearing that the market rates have fallen down as low as USD 205! I suppose that's a risk you take but maybe what I'd really suggest you do is to seek out some independent expert advice so that you can put some controls in place , keep your landed costs as low as possible and preserve your margins in these testing times.
Just in case you're unsure what a TEU is, it's a Twenty Foot Equivalent Unit, so a 20 foot container is 1 TEU and a 40 foot is 2 TEU so it's really a measure of volume in ocean freight terms used by lines, forwarders and customers.
Just imagine having a fixed rate of say USD 900-1000/TEU/20 foot and hearing that the market rates have fallen down as low as USD 205! I suppose that's a risk you take but maybe what I'd really suggest you do is to seek out some independent expert advice so that you can put some controls in place , keep your landed costs as low as possible and preserve your margins in these testing times.
Until the next time.
Andy Cliff
http://www.straightforwardconsultancy.co.uk/about-us.php
Andy Cliff
http://www.straightforwardconsultancy.co.uk/about-us.php
No comments:
Post a Comment