Will I Leave Money on the Table with 12-month Fixed Rates?

CMO @ Xeneta at Xeneta
Feb. 15, 2018

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Will I Leave Money on the Table with 12-month Fixed Rates?

  1. Will I Leave Money on the Table with 12-month Fixed Rates?
  2. Join The Conversation On Twitter @XENETA_AS
  3. About Xeneta Container Freight Pricing Transparency With One Platform In Real Time & On Demand.
  4. Are You Paying The Right Container Freight Rates? Discover Savings Potential In Real Time. Contact Us.
  5. This is part 2 of the Xeneta 11-part FAQ series focusing on key questions related to freight rate benchmarking and procurement.
  6. The series provides answers to the most frequently asked questions revolving around the complex world of ocean freight rate benchmarking and procurement. It provides you some tips and tricks to make the process a little less painful.
  7. Ocean freight rate negotiation is an art and if not done correctly, you could be leaving money on the table. If you consider a 12-month fixed ocean freight rate, is it possible that you may be leaving money on the table? Probably yes, probably no. Let’s play around with a couple of scenarios. Assume a competitive environment for a shipper/BCO, which is the case for most.
  8. Learn how Xeneta can help You get insight and intelligence into your global ocean freight prices and change your logistics business: Request Demo Now
  9. Scenario
  10. BCO #1 ties in their rates for 12 months at the beginning of the year. BCO #2 negotiates a 12-month contract with quarterly reviews/adjustments based on market movements. In this scenario the market, during the 12 month period, moves significantly upwards. The first BCO ‘wins’ in this case.
  11. Scenario
  12. Assume the same BCOs with the contract types as above. Now, however, the market moves both up and down – but mostly down – BCO #2 “wins” as rates are adjusted downwards and they have the flexibility in their contact to do reviews and adjust.
  13. Based on the volatility of freight rates, it has been shown that volume no longer necessarily translates to savings and in many cases, big volume shippers are paying far above the average Asia-Europe or Asia-US TEU rates.
  14. Freight benchmarking provides you with actionable data to study the various markets, trade lanes, your peers and after analyzing same, you can decide on whether to fix your rates for a 12-month period, 6m, quarterly, short term or a combination.
  15. You can gauge this using freight benchmarking services which will tell you what the performance on the trade lane has been and what is anticipated.