What are the factors that determine shipping rates? 
Employee Training
Byadmin-hubtek |
20 October, 2022 |

Shipping rates in the logistics industry are very important because they are one of the factors that can affect inflation, and it is known that these rates are increasing all over the world.

The IMF Blog stated that, according to their research, “rising shipping costs affect inflation in some countries more than others. First, our research shows that the structural characteristics of an economy matter. Countries that import more of what they consume see larger increases in inflation, as do those who are more integrated into global supply chains”. 

We spoke with experts in our company, and this is what they had to say: 

Joel McGinley, our Managing Director, argues that pricing is both a science and an art.  The science that’s going on right now really has to do with supply and demand, as we have a bit of an oversupply on the capacity side.  With softening demand for that capacity, you’re going to see freight rates come down and, obviously, that’s what they’ve done.  

He states that we also have some other situations that factor into that.  “You’ve got some seasonality. We’re entering the sort of slower part from a seasonality standpoint, from a freight perspective.  The next three or four months generally softens, just because of the seasonal considerations around freight”. He continues by saying that we also have a movement out of the spot market and into the contract market.  So, shippers are putting more freight out for bid, and you’re going to see an increase in contract movements and that means there will be less freight that drops down into the spot market.  That will soften spot market rates and they’ve already been softening over the last three to four months, and that will continue as we move through the holidays and the first quarter.  He adds that we should expect to see these trends reverse as we move into March of next year.  

In terms of the art of selling, salespeople have found it difficult just to have the conversations with their shippers. “You’ve got to find a way to have those conversations. You’ve got to identify what makes you different, compared to your competition, to that shipper”.  He concludes by saying that there is still the art and the value selling that has to be there in order to get freight rates on the higher side of the shipper’s range. “But remember, it’s both the science and the art. You’ve got to pay attention to both of them”. 

Valentina Arango, Business Analyst at Hubtek, says that the LTL rates have increased over the past months 5 to 10% according to the market.  She thinks that right now the factors we need to consider when quoting LTL are not only the type of freight we are going to ship (density, weight, freight class, cubic capacity, etc.), but also all external factors affecting our industry today such as capacity issues, inflation, higher labor and operational costs, the rise of diesel prices and many others; and not only that, but all the inconveniences this modality has carried with it like carrier availability can be tight, carriers missing same day pickups, unexpected accessorial charges, driver shortages, delivery delays and terminal shortages will also affect pricing at the end of the day. 

She concludes by stating, “Experts say companies need to be prepared and expect rates to continue increasing in 2023.  Most of the issues will continue to be there, but we can mitigate their impact by booking as far as possible, using carrier drop trailers, arranging all shipment needs in advance, and partnering with carriers and shippers can also help you to get better pricing, and will give companies more visibility and better success securing capacity.  We must face  challenges efficiently and effectively to serve customers while managing the costs”. 

Diego Fonseca, Hubmaster at Hubtek, believes that the first factor that can determine the shipping rates is the market.  We must always check the load boards and see how the market is on the day that we want to make the quote.  Also, as we all know, gas prices.  We need to check the prices at the moment we are making the quote. The third factor is the equipment that we are going to need to make the quote – a Flatbed, a Step-deck, RGN and Reefer – in order to move the loads. 

The locations, the pickup and delivery locations, will be another aspect that we have to keep in mind, as there are many places that can be a little difficult to take a load. Finally, he says that the last one to take into account is the season.  We will always have to check the season of the product that we want to move. 

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Based on our expert’s points of view, let us know what you think. 

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