The worldwide ocean freight market is competitive, with shipping companies competing for the best costs and routes. When one carrier reduces its pricing to provide a more appealing choice, other shippers follow suit. This practice will continue unless the shipping lines choose to recover and boost their charges. That’s when a GRI comes into play.
Cost control continues to be one of the most challenging tasks of the company for importers and exporters. A General Rate Increase (GRI) can add unforeseen operational costs to your organization, whether you are an importer, exporter, or freight forwarder. Recognizing your contractual duties and how these rate hikes operate might help you better manage your supply chain and spare you hassles in the future.
What is GRI?
GRI is an acronym for General Rate Increase, adopted by ocean carriers as part of a freight rate hike on some specific trade routes.
It is typically specified as a charge per container type, such as 20’/40′ on a given trade route beginning with a fixed date or vessel.
The carrier’s motive for implementing this surcharge is that the hike is required to continue offering a dependable service in that specific trade owing to rising operational expenses and existing rates remaining below sustainable levels.
Who is the GRI most likely to affect?
GRI impacts all clients, whether exporters, importers, or freight forwarders.
Contracts with carriers vary depending on the entity, whether the shipper is a VOCC or an NVOCC. Shippers can have a one-to-one freight contract with them. Shipping lines may also have a freight forwarding agreement.
Finally, whether you are an exporter, importer, or freight forwarder, everyone may be affected since the shipping line implements the rate hike, and everyone must pay the shipping company.
However, if you are the exporter or the end recipient, it may have a high impact on you because it is unplanned or, in many situations, completely unexpected. The additional price raises the cost of your items, which may diminish your market competitiveness.
Is GRI included in a Shipping Quote?
Some clients may refuse to pay because they believe it should have been included in the offer and was not communicated to them at the time of the deal.
On the other hand, carriers contend that the general rate rise is not included in the offer since it is not a usual or regular fee paid to the client as part of the pricing for a shipment.
It is not tied to a specific cargo, such as Ocean Freight, Bunker Adjustment Factor, ISPS, etc. It is imposed as an incidental tax only to some regions and is not valid for all shipping routes.
However, because rate hikes are notified in advance, the carrier’s freight quotation can include it (if they like) when the price pertains to the area to/from which the charge is applicable.
FCL & LCL Freight Following GRI:
GRI impacts both FCL and LCL freight. A rate hike would imply that the buyer or seller would need to modify the price of their items to account for the rise in freight costs.
The main difference is that in an FCL cargo, only one buyer and seller are affected. However, in an LCL shipment, several buyers and sellers are impacted.
In the case of an LCL cargo, the extra price can also affect a Groupage operator’s costs because they must pay the carrier and then try to recoup it from their clients.
There has also been speculation over whether the surcharge applies to maritime freight.
GRI is the “adjustment of freight rates over a few selected trade lines.” Thus, a general rate increase is a part of the freight.
When and how it applies may differ depending on where you are geographical. In some markets, such as the United States, it may be valid monthly or during peak season, while in others, such as Africa, it may be suitable during their import peak season.
It, as well as the volatility in the extent of the rate increase, declared and executed, puts a hardship on worldwide clients with enterprises traveling between different trade lanes.
In particular geographical locations, there can be the announcement of 12-13 price hikes yearly with some information. However, in others, the same carriers may notify it a week before it is applied.
However, there have been occasions when it was not executed or the quantity applied was not the same as what was declared.
The cause for such perplexity is clear. If you look at a specific trade line, like from the Far East to Europe, the freight charges would be exorbitant currently, given the number of GRIs that have been imposed or announced over the years. Furthermore, you will never hear of a General Rate Reduction or Decrease.
Impact on customers:
Just a few clients may be harmed or affected. It is because shippers with large volumes having term-based agreements may be excluded based on quantity and negotiation of the contract.
Most lines, particularly having long-distance routes, use term-based contracts as their base cargo, such as the Trans-Pacific, Trans-Atlantic, and Far East-Europe.
Furthermore, during Peak Seasons, carriers may choose higher-paying, low-weight volume cargoes such as home products and waive the extra payment for those clients.
Taking all of this into account, GRI may affect just 30-40% of consumers.
PSS and its difference from GRI:
A factor that sometimes drives a GRI. PSS is an abbreviation for Peak Season Surcharge.
This premium is also implemented by shipping lines depending on the demand for cargo during peak season on the big global shipping lanes such as the Trans-Pacific, Asia-Europe, etc.
PSS is another dimension of GRI:
As previously said, GRI stands for General Rate Increase, which is done by the shipping line depending on market demand and supply.
Lines use PSS when the market during peak season provides the same greater demand. As a result, we mentioned PSS as an additional GRI dimension.
However, there is a distinction between the two. GRI can be used at any time of year based on market demand/supply, but PSS is often done only during peak periods. All consumers are aware of this. In this regard, a PSS is more predictable than a GRI.
How to minimize the impact of GRP?
Shipping charges can more than treble as a result of a GRI. It has the potential to destabilize your shipping budgets and send your profitability plummeting.
Given that shipping lines make the ultimate decision, the only way to prevent a GRI is to discontinue using their services. . However, as an importer/exporter, this is not always a reasonable option. To avoid paying more than you should, you can try to anticipate these GRIs and organize your shipments appropriately.
Here are some pointers to consider:
- Schedule your freight collection before the GRI goes into effect.
- If you have alternative delivery dates, tinker with them to avoid clashing with a GRI.
- Collaborate with your suppliers to prevent late fees.
- Compare the prices of various shipping companies.
While the concept of GRI is evident, the patterns and magnitude of the stated fee and how it is applied are as transparent as water.
However, the surcharge impacts carriers, exporters, importers, and forwarders collectively or individually and is not going away very soon.
As a result, the only thing a client can do is control the effect on the business.