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For Shippers, GRI, import 101, General Rate Increase, international trade, shipping fundamental

GRI: General Rate Increase and its implication in shipping

International shipping is a complex game. Rates change – a lot – and for someone who doesn’t have a lot of experience, it may seem like there is no rhyme or reason to pricing. A shipment in the beginning of the year can have a totally different price to an identical load at the end of the year. To clear up some of the confusion, we’d like to tell you about GRIs – which stands for General Rate Increase. This is the main culprit for change in shipment prices, and it’s something you’ll see a lot if you are a small business that is exporting goods.

What Is GRI?

A General Rate Increase may feel like a random blow, but it is dictated by the market of global trade. Supply and demand, which we’ve all heard about through the years, crystalizes and becomes tangible with a GRI. Shipping companies can adjust the rates they charge for a specific route, or for all routes, in order to recover costs or if the demand for that route has increased. Because it takes so long to build ships, a carrier might invest in new vessel for a well-traveled route but the actual ship won’t be able to ease demand for some time. Years ago, a GRI might happen once or twice a year. These days, carriers issue GRIs more frequently as the trade market has become more active, and they are better able to monitor that market.

How to read the GRI announcement?

Below is an example for a standard, 40' container load shipped between Los Angeles and China. These are only sample figures, but will work as an “A + B = C” equation:

  1. On July 1: The standard rate for a shipment of non-hazardous goods between the two ports costs $1000 for a 40’ container load.
  2. August 1: Carriers pass a GRI of $200 per 40' on the Los Angeles-China route, which will go into effect the next month.
  3. September 1: When the GRI goes into effect, the price increases to $1200 for the standard 40’ load: A ($1000) + B ($200) = C ($1200).

Why Do Freight Rates Change so Often?

The need to adjust rates happens at specific times of year and can be predicted. For example, December through April is a slower period for cargo moving from China to the US because it is the lull after the holiday season. However, in the same period there will be a slight uptick before the Lunar New Year causes Chinese factories to shut down for a few weeks. The ramping up to the Christmas season is predictable, and it is reasonable to expect carriers to issue a GRI. Other factors also play into shipping costs increases, such as the price of fuel. It takes a lot of fuel to move an ocean freight liner or an air freight plane. Some ocean lines adjust their price quite often – monthly or quarterly – because of the volatility in fuel costs. If you are importing from a highly dynamic market, you will often see a Bunker Adjustment Factor or a Peak Season Surcharge – these are two more names for a rate increase.

Factors such as speculation, profitability, politics, and the global economy also can cause shipping rates to fluctuate. If one or two carriers take a look at the market and decides it is time to slash prices, other major carriers may follow suit (speculation). However, if there is an opportunity to raise prices and increase the company’s profits major carriers will usually take advantage of this (profitability). Governments can affect the cost of trade by imposing tariffs to manipulate foreign goods’ desirability – and let’s not forget that wars, revolutions, port traffic, workers’ strikes, and general unrest can be reason for political adjustment of prices. And, above all, if the global economy tanks it will be reflected in all the other industries, most of all international shipping.

Who is more effected by GRI?    

Small businesses are more subject to GRIs than large companies who have worked out deals with the major carriers. Small businesses don’t take up a lot of space on a cargo ship compared to megashippers like Target. A small business’ load generally takes up a spot on a cargo carrier that one of the bigger companies has not used.

So what do you do if you see that a GRI will go into effect soon? For shippers, the usual answer to a GRI is to increase the cost of your product to offset the raised price of shipping. It is also smart to start looking for quotes within 30 days of your shipment, since quotes are only good for that amount of time. You’ll also want to get your shipment on a freight carrier as soon as you can – prices only increase as the ramp up to holiday shipping gets closer. And, last but not least, compare prices of several carriers to ensure that you get the best rate from your freight forwarder. Fleet - our quoting platform enables shippers to do just that: gather and compare multiple quotes from different freight forwarders. The platform is very intuitive and easy to use. If you have a shipment that is ready to ship, you may want to check out what Fleet does - maybe it's the right tool for you.

Do you still have any other question about GRI? Leave a comment with your question and we will get back to you.


Image: Freepik.com

 

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