The only thing predictable about shipping rates is that they’ll remain unpredictable. While there’s more data than ever to forecast and predict international and domestic freight volumes, the next black swan event could be just around the corner, ready to throw another supply chain curveball.
If it’s not COVID or an unexpected Suez Canal closure like a few years ago, it could be geopolitical uncertainty, drought conditions in the Panama Canal, or piracy in the Red Sea, all of which have been felt in 2024.
Rate fluctuations are inevitable, presenting an ever-present challenge to shippers as they budget for and procure the capacity they’ll need, both to meet short-term demand and long-term projections.
However, there are ways to neutralize the impact of volatile shipping rates through the budgeting process and via creative strategies to build rate stability, several of which we’ll discuss in this helpful guide.
Understanding Rate Volatility
First, let’s take a closer look at some of the factors that contribute to shipping rate volatility, with a lens on the market dynamics in the first half of 2024:
- Red Sea Crisis – The year started with container spot rates skyrocketing to their highest on record outside of the COVID era, as Houthi rebel attacks in the Red Sea forced long detours around the Cape of Good Hope. This continues to impact commercial shipping into the second half of the year.
- Fluctuating Volumes – After the initial shockwave from the Red Sea situation and after the return to normalcy on trans-Pacific lanes after the Lunar New Year, rates rapidly dropped late Q1 and early Q2, though the signs were visible of a slight tightening that certainly materialized in Q2.
- Geopolitical Shifts – The Ukraine and Israel wars have certainly impacted supply chains throughout the world, but beyond that, nearly half the world’s population will head to the polls throughout 2024, creating uncertainty about what policies will shape the years ahead. Tariffs are only one potential policy consideration, and the upcoming U.S. tariffs on China have already caused a surge in advance bookings that will continue to shape the second half of the year.
- Weather Events – The National Oceanic and Atmospheric Administration (NOAA) is predicting a record-setting hurricane season that could disrupt supply chains. Meanwhile, heavy rain would be a boost to supply chains that rely on the Panama Canal, which suffered drought conditions that capped the number of vessels able to transit. Mother Nature can waylay even the best-laid plans of supply chain leaders.
- Capacity Constraints – The fluctuating volumes discussed above are a leading indicator, but when consumer demand, market pressure like tariffs, and other factors combine, capacity constraints suddenly are the trailing outcome. As Q3 starts, importers are trying to push cargo to contract rates as the trans-Pacific market surges, particularly with carrier-direct bookings, leaving little room for non-vessel operating common carriers (NVOCCs or NVOs).
- Fuel Prices and Added Surcharges – The reroutes due to the Red Sea crisis have added 2-3 weeks of travel to many carrier routes, which of course comes with added fuel and operational costs as well, with carriers passing those increases along to their customers. Sometimes that takes on the form of a contingency surcharge, which can start adding up quickly with other surcharges like fuel and peak season surcharges.
The list could go on endlessly — Baltimore bridge collapse, port labor disputes, equipment breakdown, inflationary pressures, consumer trends, regulatory pressures, etc. — but with the concept established, let’s further explore how rate volatility exacerbates challenges in a disrupted supply chain.
Shippers Face Volatile Rates in a Disrupted Supply Chain
Of course, each of the factors noted above can trigger a tricky domino effect for shippers, amplified when several of them combine into a perfect storm. Contingency planning has always been paramount for supply chain operations within the context of an expected give-and-take dance between carriers and shippers.
But if the past few years have taught carriers anything, it’s the profit potential available in tight-capacity environments and how valuable that revenue can be during the inevitable downturns. For example, as JOC columnist Mark Szakonyi notes, during the U.S. port congestion in 2021-22, container lines saw how much shippers could pay and then how quickly the spot pricing power faded.
Now, with importers scrambling for ocean capacity, spot rates are surging, and shippers are working overtime to secure lower contract rates and/or raise their minimum quantity commitments (MQCs) on fixed-rate service contracts. Of course, both parties know that the market will eventually normalize, which means balancing short-term rates with long-term dynamics.
Overall, it creates a complicated contract rate picture for shippers to optimize their budgets, forecasts, and supply chain operations, without surrendering too much on price and eating into profits, while still securing the capacity needed to deliver for their end customers.
There is one creative solution that gives shippers more leverage in price negotiations, which we’ll turn to in detail next.
Building Rate Stability with a Shippers Association
Many shippers, particularly small and medium-sized businesses, feel stuck in the rate rollercoaster whiplash, an isolated underdog doomed to fight an uphill battle for a piece of the fixed-rate capacity and supplement with expensive spot market capacity — unless they choose to leverage the collective power of a shippers association.
A shippers association allows a company to join with other member companies in negotiating flexible, stable, and competitive ocean rates. By bringing more volume to the table with a collective carrier procurement strategy, importers and exporters of all sizes can secure the beneficial pricing, stability, and visibility of the largest shippers, thereby securing greater rate stability for all shippers involved.
The Gemini Shippers Association does just that for its members, streamlining the end-to-end process between quote request and shipment arrival, with rate searching, tracking and tracing, and data analytics tools. We’ll explore three primary ways Gemini helps its members secure more stable rates in the face of market volatility.
Procurement Expertise for Stable Contracts
Gemini’s procurement experts meet with shippers to discuss origins, destinations, commodities, and volumes, and then leverage extensive procurement expertise to secure stable contracts with ocean carriers.
Gemini Shippers handles the rate negotiation for fixed-rate ocean freight contracts, long-term rates, and space allocation, without being an NVOCC. That means freight moves on the carrier’s bill of lading, giving the flexibility of an NVOCC, with the advantageous pricing of a large shipper.
The power of collective procurement ultimately demonstrates the economies of scale principle, getting more together than any one member could secure separately.
Risk Mitigation Strategies
A group of shippers together also means lower risk for each individual shipper, and in the same way, a diversified portfolio reduces investment risks for an individual investor.
Gemini Shippers doesn’t require an MQC commitment. It offers over 14 carrier choices, is forwarder and broker-neutral, and can set staggered expiration dates. This means shippers can eliminate risk in shipping volumes and carrier selection while maintaining forwarder and broker relationships.
Gemini also has deep industry experience in customs and transportation legal resources, which means shippers can feel confident amid the complexities of international logistics. The customer service team also audits bills of lading to ensure accuracy and avoid any billing discrepancies, further mitigating risk at every stage of the buying process.
Digital Solutions for Enhanced Visibility
Visibility has become almost a cliche buzzword in the supply chain industry, but only because it’s actually paramount for every stakeholder in today’s digital world, especially given the causes of volatility discussed previously.
Partnering with another organization can sometimes create visibility challenges, but Gemini Shippers delivers direct carrier sales representation and visibility at origin and destination, plus an IT portal with track and trace, rate audit, and a rate database to help in analyzing shipping data.
Gemini Shippers also provides ongoing resources on market conditions to keep shippers informed every step of the way. So when a major rate-disrupting event takes place, you’ll be in the loop right away, empowered to make informed decisions.
Join Gemini Shippers to Achieve Shipping Rate Stability
Unexpected rate fluctuations can destroy even the most meticulously crafted budget, leaving many shippers scrambling to keep costs down. But with the buying power of a shippers association, shippers can rest easy knowing that they’ll be able to hang on to lower rates by virtue of a large-volume procurement deal via a community of association members.
The Gemini Shippers Association delivers competitive, consistent, stable, member-specific contracts — with no cost to join and an easy process to join via an online membership application. From consultation and negotiation to ongoing customer service, Gemini delivers a seamless procurement experience for its members.
Join Gemini today — again, at no cost — to gain access to greater buying power that’ll ultimately give you a more stable budget, no matter how volatile the rate environment is around you.
