Reasons Why Freight Rate Fluctuates
Freight Rate fluctuates! Some times, it goes up, other times, it goes down. The best part would be that some times, it is predictable. But worst of all, most times it is unpredictable.
When we receive inquiries about our freight rates, to offer an adequate response, we require more information about clients/customers shipment. The information demanded is key to determining our air or sea freight rate, which some times places both parties on stiff negotiation.
Over time, the unstable freight rates have posed series of challenges that require adequate understanding. Based on this, we have carefully selected 7 current most pressing reasons why freight rates are unstable. We also share why we think some of these reasons are uncontrollable.
First, the fluctuation in freight rates occurs for several reasons. The determining factors may be internally or externally influenced. Although, amongst other factors, it may depend on the country or location involved.
We share some external determining factors that most time falls beyond our ability to control. So, whether it is Air freight shipping, Sea freight or Road freight, the cases may be similar, except a few disparities particularly, with road freight.
Take a look at the table of content, and follow as we proceed. So, if you have other reasons not listed, kindly use the comment box below this post to air your views about freight rate.
Demand and Supply
Freight rate fluctuates mostly due to demands and supplies. This bothers on the number of ships at a particular port in Nigeria. The lower the number of booking that a shipping line gets, the lower the freight rates but the higher it is, the higher the freight rate.
Most times, the directional effect of booking come up due to foreseeable factors as well as unforeseen circumstances, most of which are uncontrollable. For example, during the yuletide periods (foreseeable) and also the worldwide pandemic (which was unforeseen).
Depending on the seasonality of particular products being shipped on some trade lanes, freight rate might fluctuate. In this aspect, some consumer goods that are heavily traded in holiday seasons, as well as naturally seasonal such as fruits, vegetables, etc, may ben responsibility.
There is usually a surplus charge of space on shipping vessels during the low demand duration. This period span across the holiday season or those times when prices of a commodity do not favour the shippers.
So, when there is an excess charge on shipping vessels, freight rate drops. This reason has a link with demand and supply to a great extent. The busier the carriers are, the less space available and the higher the cost. Think about demand itself – depending on your location and where you are shipping, seasonality can drive demand.
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The Weather or Climatic Change
Weather is a very strong determining factor. Freight rate, whether air, sea or road can also be influenced by weather conditions.
Weather conditions like rain on rainy seasons or the harmattan haze in December threaten the aircraft cause flight disruptions and usually cause rate hikes in air freight rates. Same applies to Sea freight, although tranship delays, disaster en-route may also have an effect on freight rates.
Read Also: How to Select the Best Logistics Service Provider in Nigeria.
The exchange rate affects freight rate directly whenever there is a change in the dollar rate. There is usually a directly proportional increase in prices of goods and services. For example, at the time of this post, 1 dollar to naira stand at N365.50, whereas on Monday 3rd February 2020, it stood at N361.50.
Definitely, the freight rates would not be the same as the fluctuation in the price of the dollar also affect the market generally.
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Cost of Fuelling & Scarcity
This factor is a major reason why freight might fluctuate. As fuel price increases, the airlines and shipping lines also adjust rates of freight to correspond with profit margins. There could be a sharp hike in freight rate especially when there are scarcity of fuel.
Although the government play major roles in freight, some policies adopted may affect how freight fluctuates. For example, VAT. Value Added Tax which used to be 5% was increased to 7.5% effective from January 2020.
Apart from tax, increase in the Lagos State Landing Fee and packing fee are yet another determinant factor to the upward movement of the freight rates.
The Worldwide Pandemic: COVID-19
According to Statista, at the time the novel coronavirus (COVID-19) outbreak spread across the globe, there was a restriction on transportation of goods across borders. Some countries banned importation completely in order to curtail the spread of the deadly virus. This affects the international airfreight rate adversely.
Recall, in the early part of the year, January and February 2020 to be precise, airfreight rates between Hong Kong and North America was roughly 3.19 U.S. dollars per kilogram. This rate is however not same today as we experience consistent upward fluctuation due to circumstances beyond control.
The COVID-19 pandemic is a major factor for price fluctuation today. As at the time of this updated post, most manufacturing companies are not on normal operations across the world.
Read Also: Why air freight shipping is considered the best option
Are these factors really uncontrollable?
Well, the above-listed factors are not controllable as they depend on external forces such as the act of God, the Government, International effects and so on.
As a company, there are factors that drive shipping freight rates. To get the Bowa-Gate Global freight rates and Clearance fees, there is however some information we would need.
You would be required to provide us with the location, distance, dimension, weight & sizes, freight mode, handling mode, service needed and freight type. These also help us determine the rate and service charges.
Why Choose Us As Your Agent
Bowa-Gate Global Ltd is a logistic company with a team of highly motivated and experienced professionals who provide quality cargo handling, freight forwarding and clearing services in Nigeria.
We provide adequate logistics and clearing services for our numerous clients. Our operational systems include handling of all relevant documents, freight forwarding, customs clearance, warehousing and transportation of consignment on behalf of the consignee. Proper monitoring of all inward and outward bound consignments is ensured by our efficient and dedicated staff.
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Let’s Discuss Our Freight Rate
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