What is a good freight rate?
Updated: Oct 13, 2021
If you are a shipper, you probably catch yourself frequently asking if the freight rate quoted by your provider is competitive enough and if you would call it a “good” rate. From your perspective as a shipper, good amounts to low. Lower rates are better rates.
Having said that, freight rates are never perpetual and are “time-definitive”. The same rate at another time may not be the lowest. Or rates may substantially increase for the same route at another time. Therefore, a given rate may be considered to be “good” within a defined timeframe.
This timeframe is nothing but the time between cargo being ready to ship and actually being shipped on a vessel or plane. Any rate applicable before of after this is irrelevant. Even within this timeframe, there are many influencers of rate.
At Terminal2, we aim to empower you with data, broken down costs and various filtering mechanisms for you to be able to navigate your way around these influencers.
Let us take a look at the various parameters that influence rates quoted to you…
…and how you can secure the best rates for a given time period
Weight breaks are applied to the weight and volume of the consignment to arrive at the basic freight charge and surcharges. Generally speaking, more the weight or volume (translating to more chargeable weight) lesser the freight charge per unit of chargeable weight. Managing production cycles to maximize the chargeable weight of your consignment can result in securing lower rates.
Global trading conditions (yes, trade wars included) and parameters such as demand and supply, fuel cost, operating expenses (e.g. airport fees) and labor costs can influence freight rates positively or negatively. These factors are not constant, and you may find that the rates you have secured today, fall or rise substantially in subsequent weeks or months. While these factors are not in your control, advance planning and forecasting can help in optimizing your freight rates.
Seasons and business cycles impact the demand and supply equations. Greater demand and limited supply drive the cost up and vice versa. However, freight forwarding is a counter cyclical business. That means that during times of greater demand, as the prices go up, so does the forwarders profitability. During times of greater supply, the volumes go up and so does the forwarders net profit. Again, advance planning can secure space and reasonable negotiations can secure optimal rates.
By now we have mentioned advance planning a couple of times. We fully understand that its easier said than done. But that’s also why we have marketplaces! On a marketplace, you can check current and future rates, compare rates of different forwarders and use filters to narrow down your options to your exact requirements. Check out www.terminal2online.com.
Bookings on hand
This is an interesting one even though it applies only to Air and LCL/ LTL shipments. Carrier rates are pretty much the same for all forwarders. Despite that, we see that different forwarders quote different rates on different dates for the same route and carrier. One way forwarders can lower their rates is by smartly mixing their customers cargo to achieve an optimal mix that maximizes their profit potential. And some of that gets passed on to you by way of lower rates. While you don’t have any visibility into a forwarders cargo mix, you can be assured that forwarders on marketplaces like Terminal2 have access to tools that help manage their consolidations and in turn provide you the best possible rates.
Time to book
The more time you have to secure a booking, the more time you have to shop around and negotiate rates. But do remember this – to generate one quote for you a forwarder spends a significant amount of time, efforts and money. Sometimes this amounts to 3-4 days and hundreds of dollars! Moreover, not every quote translates into new business. So please be kind to your forwarding brethren and request quotes for shipping and not for fishing! Do fish but do that on marketplaces where you can see rates across routes, dates, forwarders and many other parameters.
Time to ship
The closer you are to the date to departure; chances are that you see a drop in rates as forwarders step up their efforts to utilize all available space with carriers or to optimize their cargo mix. This is when you can take advantage of flash sales and spot rates. But a word of caution – don’t cut it too fine lest you get caught up in the “no space-high cost” situation. It is important to strike a balance between “time to book” and "time to ship” and Terminal2 provides you the ability to “time” your shipment to get the benefits of a “good” rate. You can observe a route or a specific offer of services by a forwarder and book when the rate and date suits you. You can take advantage of various analytics and reports that marketplaces like Terminal2 provide to time your shipment to your advantage.
Is it Art? Is it Science? Perhaps both! The more data you have the more empowered you are to plan and manage your freight costs. Marketplaces like Terminal2 provide you this advantage.
But there’s more - At Terminal2, you can book freight services when the rate is right even though your cargo may not be ready yet. Our forwarders provide you rates by weight breaks and you pick the one that your cargo approximately fits into.