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

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This is part 2 of the Xeneta 11-part
FAQ series focusing on key
questions related to freight rate
benchmarking and procurement.

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.

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.

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Scenario

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.

Scenario

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.

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.

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.

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.