Ocean shipping General Rate Increases (GRIs) have been part of global shipping for decades. But there’s a lot of confusion on why they are issued by ocean carriers and how shippers are impacted.
Let’s clarify container shipping GRIs in the U.S. as an example with the following Q&A.
What is a general rate increase in ocean freight?
It’s an increase in sea freight rates during a set time frame. GRIs are typically initiated by the largest carriers, then smaller carriers follow.
When are the most likely times for a container shipping GRI?
- Periods of strong demand with significant space constraints – this would include Christmas season and the pre-lunar New Year rush
- When market rates drop to unsustainable levels
- During the lead up to contract renewal season (e.g., April for Trans-Pacific eastbound freight and December for North Europe westbound freight)
What’s the difference between a GRI, PSS and RR?
GRIs are as explained. A PSS (Peak Season Surcharge) is issued at times when demand exceeds supply during high-volume shipping seasons. RRs (Rate Restorations), as an example of similar surcharge, are declared when carriers attempt to restore container rates to a rate that will cover their costs. GRI, PSS and RR are largely interchangeable terms with the same objective. Carriers may use one term or another based on what is triggering the rate increase.
Does the market get warned of an impending rate increase?
When ocean carriers want to increase freight rates on top of their existing rate agreements, they must file the increase at least 30 days before they take effect with the concerned authorities as required. These authorities would include the Federal Maritime Commission in the U.S. and loading port governing officials elsewhere. Simultaneously, carriers must also inform clients of the increase. Carriers announce GRIs independently and usually in a low-profile way to avoid any perception of collusion among carriers.
How do carriers document their GRIs to their clients?
It depends. Different carriers have different ways of communicating their GRIs. Some will announce GRIs on their own websites as general statements; others will directly modify the increased rates on the contracts directly with their respective FAK floating contract holders.
Are the GRIs the carriers announce always the same quantum (desired rate) as they’ll impose on the effective date?
The rate imposed cannot exceed the ceiling amount filed with authorities. However, the proposed increase may be reduced if market conditions do not support the full quantum of GRI. For instance, a carrier may announce a $600 increase per TEU or FEU but before the effective date they may determine that moving forward with the stated increase would result in too much lost business, so they will scale back the amount of the increase.
Historically, GRIs have shown little staying power in a down market.
What is the effective date when the GRI is applied?
In most cases, the effective date of the GRI corresponds to when cargo begins to get loaded onto the vessel – the onboard date. However, the trans-Pacific trade lane tends to use the gate-in date as the effective date to apply GRI – the day the container arrives at the terminal to await loading.
Are container shipping GRIs applicable to the fixed-rate service contracts during the contract service period?
Both NVOs and BCOs signing fixed-rate agreements with carriers can shield themselves from container shipping GRIs. Both parties should abide by the fixed rate during the service period of the contract, however rates may be subject to PSS if that stipulation is provisionally included in the agreement.
How can you best manage your costs when market rates are so unpredictable, with GRI, RR and PSS?
Talk to your freight forwarder. Dimerco Express Group, for instance, has various contract terms/rates with different carriers and vendors. Therefore, we assess GRI with a more holistic view and decide how to lessen the impact of the GRI on customers’ budgets.
What actions can shippers take in the event of general rate increases?
You can’t avoid GRIs; they are a fact of life in ocean shipping. Also, you can’t play one carrier against another since all carriers tend to apply GRIs uniformly. By being flexible on shipping times, some short-term savings might be possible. For instance, carriers may implement a GRI and then reduce the increase when volumes drop. If you can delay bookings to see how the market reacts to new GRI, it can pay off.
The best thing you can do is stay close to your global freight forwarder since they know the market well. By leveraging strong and long-term relationships with carriers, forwarders like Dimerco can help mitigate the fluctuating costs triggered by container shipping GRIs.
Find the Right Partner for Ocean Freight Forwarding
In this volatile ocean shipping market, it helps to have a shipping partner that can get you the ocean freight capacity you need – at the right price. If your freight capacity needs are largely in Asia, Dimerco could be the Asia-focused shipping partner you need. We are a top 50 global freight forwarder and a top 25 customer partner with all the largest Asia-based ocean carriers, enjoying preferred partner status. To learn more about Dimerco’s ocean shipping services, contact us today to arrange a discussion.