Why Do Freight Rates Keep Fluctuating?

Why Do Freight Rates Keep Fluctuating?

Business dictionary defines freight rate as price charged by transportation carrier for moving an item from one point to another point. Actual amount charged varies based on weight of object being moved, types of commodity being moved, and distance travelled. Thus, it can be concluded that freight rate are bound to change from time to time due to supply and demand.

According to an open discussion, many agree that freight rate fluctuation is affected by supply and demand because the less space is available, the higher the cost. For example, it depends on location and where you want to ship your goods. Eric Downing, former manager and freight broker, in the discussion argued that individuals should understand the changes of supply and demand in order to understand the causes of freight changes. In his opinion, there are two main factors of freight rate fluctuations, which are:

See also: Flows and Tolls: International Trade in Logistics

Seasonal changes

Seasonal changes have two branches; loading and delivering. In loading, shipping contributed by seasonal changes will cause shortage of available freights which cause rates to increase. While, when you deliver goods in high demand area, you will have lower rates than loads delivering in areas where the demand is low.

Weather

Weather influences freight rates as some companies might raise or cancel the delivery during heavy storms or bad weather. As a result, it might drop supply of freight causing rates to go up or down depending on if you are loading or delivering, added Downing.  

Terry Ahern, director of sales at Freightquote, mentioned in the discussion that while supply and demand play big roles in the fluctuation rate, other factor like economy also influences how freight rates changes overtime. For example, cost of diesel that impacts the increase of freight rates in 2016. As quoted in Economic Commission for Latin America and the Caribbean, economy plays major roles in shipping. “When aggregate demand increases during a cycle of economic expansion, it cannot be met immediately because shipping companies are already managing existing demand. This phenomenon is reflected in the rise of freight prices, which in turn restarts shipbuilding process in order to meet demand.”

In short, depending on the goods, product, or business of customer, freight company usually can advise the best option to ensure optimal returns on freight rates negotiations. For example, “If goods sells the most during a low demand period for carrier, you can negotiate a short-term or spot contract for that period. In this case, you can maximize your revenue through cost reduction in various freight rates,” Dharmraj Logistics advised.

Read also: Best 5 Machine Learnings Impacting Last Mile Delivery

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