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Ocean Freight

Understanding Negotiated Rates, Spot Rates and GRI

One of the most important things to understand when deciding how or when to send your international shipments is the difference between negotiated rates and spot rates. A key concept to comprehend in the fluidity of ocean rates is the implementation of the GRI.

In ocean freight, GRI stands for General Rate Increase. It is the adjustment -- typically an increase -- of container shipping rates across shipping routes by shipping lines. Historically the GRI would happen several times over the course of a year.

In the last couple of years, however, the GRI has happened semi-monthly. Usually going into effect on the 1st and 15th of each month, these GRI changes keep rates in a state of flux.

As a shipper, it is next to impossible to avoid the GRI. However, there are measures you can take to mitigate its impact. By staying up to date with international trade and planning your shipments with a potential GRI in mind, you can alleviate some of the costs associated with the GRI.

When carriers put a GRI into effect, the decision is mostly dictated by supply and demand, in addition to global trends and market stability. For example, a lack of container capacity along particular shipping lanes can trigger a larger GRI.

Conversely, if the demand for vessels along shipping lanes is lower than normal, the GRI will typically lower, giving you better rates than before.

If you’re handling large freight volumes, the GRI can drastically increase the cost of importing or exporting goods, especially during peak shipping months. The best way to avoid getting impacted by a GRI is negotiate set rates with a third-party logistics (3PL) carrier and enter into a contract.

Although some 3PLs award contracts at different points of the year, most carriers settle the vast majority of their contracts during April and May. The shipper indicates the number of containers they plan to send annually and their total volume. The carrier then awards a contract with the negotiated rate valid for the entire year, as long as the shipper moves the agreed-upon number of containers with the carrier.

The contracted rate is typically lower than a spot quote rate, and enables shippers to establish a more stable financial outlook for their freight spend for the year. This is because these rates are not subject to the GRI, and this immunity allows shippers to project their future shipping cost.

Another advantage of entering into a contract with a carrier is the decrease in likelihood that your container will get rolled or bumped to a later sailing schedule. In return for guaranteeing a lower negotiated rate, carriers get peace of mind knowing can expect a fixed number of containers from your business, helping them sail at full capacity.

Not every company has the opportunity to enter into contract negotiations with carriers, and this is why it can be beneficial to work with a 3PL. Major carriers pay the most attention to companies with the greatest number of containers to move per year, allowing smaller companies to find their own way. 3PLs have the ability to negotiate with carriers on behalf of shippers, to develop a contract that works well for both parties.

If the parties do not enter into a contract, 3PLs can aid shippers by allowing them to access the 3PL’s own dedicated rates with major steamship lines through spot quotes. Spot quotes are based off of a 3PLs rates with a given carrier and are subject to the GRI.

Though these rates fluctuate, at times they can be cheaper than contract rates depending on market trends. Also, working directly with a 3PL provides far more flexibility when choosing carriers.

Spot quote rates are usually better than direct carrier-to-shipper rates. Plus, working with a 3PL such as Fleet Logistics provides the added benefit of a logistics team dedicated to facilitating the international shipping process and providing insight on the best shipping opportunities.

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