Freight rates have a tendency to fall and rise based on a variety of factors, ranging from cargo size and weight to supply and demand of shipping capacity. It’s important to have an understanding of freight rates and the factors at play in determining them in order to effectively manage your logistics process.
What are freight rates?
Freight rates refer to the price for the transport of cargo from one place to another. The rate is dependent on the cargo’s final destination, weight, and the mode of transportation selected for the transfer.
How are freight rates determined?
There are many different factors that play a role in determining freight rates. A cargo’s quantity, weight, size, and mode of transport are all contributing factors. For international shipments, tariffs and fees may also be factored into the overall cost.
Additionally, supply and demand can have an impact on the rise and fall of freight rates. If there’s a surplus of shipping capacity, freight rates may be lower. When there’s a high demand and capacity shortage, rates may see a surge.
Causes of Freight Rate Increases
Amid the holiday season and the COVID-19 pandemic, businesses have witnessed major changes in freight rates – most of which have seen a rise in costs this year. While there are many factors involved in determining these rates, it’s important to understand some of the external components that have contributed to these increases. These include:
Limited Capacity For Freight
Far and wide, the COVID-19 pandemic has had a major impact on shipping capacities around the world. The pandemic caused a significant decrease in the number of passenger planes flying, which typically carry freight on board in addition to passengers. This has decreased the amount of air cargo space available worldwide.
The demand for this limited space has driven prices up throughout this year. Additionally, consumer demand has driven rates to an all-time high amid the holiday season. It’s likely that freight rates will decrease slightly following the holiday season demand and that costs will continue to go down as passenger flights resume, freeing up more available air cargo space.
However, limited air cargo capacity has also impacted shipping freight rates, with more businesses turning to international shipping brokers who can transport their cargo using ships and freighters. With widespread shipping demand on the rise, it’s likely that rates will continue to increase until there is greater capacity for freight across ships, trucks, and planes.
The Impact of Tariffs
When shipping cargo internationally, depending on where you are shipping your goods to and from, it is likely that you will face a variety of tariffs. These are common, however you may experience a rise in shipping prices depending on the tariff climate you’re entering.
For instance, in periods where a tariff increase is underway there may be more businesses rushing their goods into a country prior to the increase, which can drive demand and shipping prices up. Likewise, in the months leading up to peak consumer demand seasons, such as the holiday season, rates may increase.
Having The Right Documentation
Like so many aspects of shipping cargo, it’s imperative that you have the right documents and licensing in order before transporting goods. You’ll need to familiarize yourself with the rules and regulations of both the country you’re shipping from and where your goods will be imported into. Having the proper documentation will help you bypass customs more quickly and easily, allowing your shipment of goods to continue moving smoothly onwards.
The COVID-19 pandemic has added to the challenges associated with abiding by each country’s regulations. Working with an international shipping broker can help you avoid potential steep fines or delays, which will impact your overall freight costs.
Many of the factors listed above can be managed or occasionally avoided with the help of an international customs broker.
How To Keep Freight Rates Low
When it comes to managing freight costs, there are several steps you can take to help in keeping freight rates low. For one, it’s important to have a good understanding of your business’ supply chain logistics plan so that you can react accordingly when external factors, such as changes in cargo capacities and tariff prices, cause challenges.
You should also note where your shipments will be transported to and from to ensure that you have all the necessary documentation in place for a smooth customs clearance. Additionally, you can outsource all of your shipping and logistics needs to experts who can ease the process of management and help you keep rates, fees, and shipping times low.
At A Customs Brokerage, our team can help to optimize your shipping logistics needs and ensure that your deliveries flow seamlessly through your supply chain. With decades of experience managing international shipments, we’re well-versed in how to effectively transport goods to and from countries around the world while keeping rates as low as possible.
Contact our team today to learn more about how A Customs Brokerage can help manage your cargo transportation needs.