Freight Rates

Published on July 6, 2021 by Entrima

The price for shipping cargo is called the ‘freight rate’. Hence, the tariff at which a vessel is chartered is referred to as the so-called freight rate.

To get an idea of the significance of freight rates for various types of vessels, charter rates are expressed per tonne and/or per day. The freight rate of a vessel is also dependent on the route. Even when it concerns the same type of vessel, but for two different routes, different rates may apply. After all, in case of a surplus of vessels in one ocean or sea and a deficit in another, ships cannot be brought over instantly. It may take weeks. Hence, each route or region faces its own specific market circumstances. The level of a freight rate is one thing, but its fluctuations another. A concept to describe price movement is price volatility. In an economic crisis, freight rates can drop drastically. Due to poor economic circumstances, people, companies and other organisations need less natural resources, because consumers take less. This causes a surplus of vessels. The oversupply of transport capacity can make freight rates drop severely, contributing to a significant price volatility.

There are many different events that can have an effect on the cost of sea transport. A distinction can be made between internal and external factors. Internal factors cover aspects directly related to freight, like fleet supply and commodity demand, while external factors, such as seasonal pressures, do not influence freight directly, but indirectly. External factors can have an enormous influence on freight rates, making external factors at least as important as internal drivers.

 

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