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FROM TULIPS TO TRACTORS: WHY FREIGHT RATES KEEP CHANGING

If you’ve noticed that international freight rates keep changing, you’re not alone. Many companies recognize that monitoring rates for air and ocean shipments is an unrelenting task, and everyone wants to secure the best price. This article explains the factors influencing air and ocean freight rates and fees, and explores how to optimize your freight spending.

How much will it cost to ship something from place A to place B? It sounds like such a simple question. You’d imagine it could be answered with confidence in a matter of minutes. But from just this single sentence tumbles a multitude of variables – is your “something” tulips or tractors, how is this packed, what size, what weight, what mode of transport do you want, which locations in which countries, door to door or airport to airport, which routes, what schedule, what’s available, what’s the oil price today…?

It’s a fact that air and ocean freight rates are constantly changing and there is nothing that can be done about this. While the latest digital tools enable some degree of standardization, there is no one-size-fits-all solution to rate certainty. The best approach is to be systematic, taking into consideration all shipment details and all contextual variables.

There are two key dimensions to think about for freight rates: the basic freight rate that must be paid to the freight forwarder and the fees to be paid to third parties.

  • The basic freight rate will depend on the nature of the shipment. Tractors will cost more to ship than tulips – right? Well, sometimes. A tractor may be heavy but it is also dense, whereas a pallet of tulips might be light yet will take up a relatively large amount of space. It’s not just the weight that matters but also a weight equivalent known as the volumetric weight or dimensional weight, and these calculations vary by transport mode (in other words, air, ocean, road, and rail transportation) and trade lane. 

    To achieve a better freight rate for everyone, carriers typically consolidate heavy, dense cargo with lighter items and of course use appropriate pallets and packaging to safely stack and protect fragile cargo. For out-of-gauge items that won’t fit into a standard 20’ or 40’ container – for example a vast tractor wheel, a mining rig, the body of an aircraft, print machinery or big glass panels – a specific quote is always required.

    Day in and day out, the basic freight rate is impacted by the state the industry as well as many regional and global economic factors. Just one example is the cost of fuel. Two years ago, extra fuel costs were adding about 20% to the overall basic rate; since then the cost of kerosene has tripled. In ocean freight transport, to compensate for the rising oil price, operating vessel companies are now using special fees called the Emergency Bunker Adjustment Factor (EBAF). Similarly, many air carriers are adding fuel surcharges.

    Another thing to think about with the basic freight rate is a separate category of charges levied by third parties, such as customs clearance, airline handling, container freight station and other charges. At DHL Global Forwarding, we call these pass-throughs – we simply pass these charges through to our customers without adding any markup.

  • When considering fees, the questions to ask are: What are the departure costs, what are the international costs, and what are the arrival costs? Each of these is impacted by different countries – for example, government export fees at the country of origin and import fees at country of destination – and trade routes. If there is a lot of competition on a particular trade lane, the cost of the international section of this lane will be lower than other lanes used during a shipment.

    The cost of penalties or pay-outs should be considered but shippers can minimize impact by insuring against likely risk and by monitoring the carrier pool to deselect any provider responsible for sub-optimal performance.

  • It feels great to secure excellent freight rates for a month or two. Moments later and the whole thing can change. There is no way to maintain favorable freight rates at all times, but there are a couple of techniques that can be tried.

    Work on shipment composition: One technique is to divide a shipment into different constituent parts. For example, instead of shipping packaged notebook computers, it may be much cheaper to unbundle the contents and then ship separately the CPUs, mice, cabling, and instruction leaflets. On arrival, it would be a simple matter of consolidating these items before delivery to retail outlets.

    Adjust the time-cost balance: Another very useful approach is to defer shipments as long as possible. When you extend the lead time, you reduce the cost, and vice versa. Many industries use ocean freight whenever possible but, as plans can change at the last minute, companies will switch to more expensive air freight if needed. Anticipating this, some shippers agree rates for both air and ocean or they launch two RFQs at the same time – one air and one ocean – so they are ready at any time to alternate between the two modes to achieve the best cost or the best speed of delivery.

  • Understanding your need for transparent and rapid freight rate quotes, DHL Global Forwarding offers an online quotation & booking service for regular shipments. If your freight needs are more complex or non-standard, we make it easy for you to speak directly to a forwarding specialist who can provide a customized quote within a guaranteed timeframe. Whether you are shipping tractors or tulips around the corner or around the world, we are always just a click or a call away!