Let’s look at another important term in freight industry – general rate increase.
So this guide will answer all questions you have been asking about general rate increase.
Let’s get started.
- What Is A General Rate Increase?
- Why Is GRI Applied?
- When Does A GRI Apply?
- Who Announces GRI, And When Do They Announce It?
- How Is The General Rate Increase Calculated?
- What Items Are Not Included In The GRI?
- What Is The Difference Between GRI(General Rate Increase) And PSS(Peak Season Surcharge)
- How Do GRI And PSS Factor Into My Freight Quote?
- What Factors Contribute To The General Rate Increase In Shipping?
- How Long Does A General Rate Increase Last?
- What Is The General Rate Increase 2021?
- What Are The Effects Of GRI On International Trade?
- Does The GRI Affect All Countries?
- Who Does GRI Affect Most?
- How Do I Prepare For The Shipping GRI?
- Are All Shipments Subject To GRI?
- Does General Rate Increase Impact All Customers?
- How Can I Manage The Impact Of GRI On My Business?
- What Is GRR(General Rate Restoration), And How Is It Different From GRI?
What Is A General Rate Increase?
General Rate Increase is an additional charge of the actual rates of the freights while shipping through certain trade routes.
The carriers in different companies establish this general rate increase to maintain a steady competition from rival freights.
General rate increase normally occurs during the peak season when carriers are shipping large freights, thus charging high costs.
Constant upgrading and maintenance are of great importance. This helps in keeping the business viable for competition and providing quality services during shipping.
General Rate Increase
Why Is GRI Applied?
The main concept while applying for a general rate increase is to determine the following;
- Supply and demand curve
- How viable the market is at that specific moment
With these factors, carriers can determine when to apply GRI and when not. In most cases, an increase in demand will always bring a peak season for carriers to increase the costs.
Due to the unsustainability of the GRI, when peak seasons occur, carriers should get the best out of them.
For this case, reporting 30 days before the relevant authorities recommend the application.
Maintainance, insurance, and compliance expenditures will also lead to carriers advocating for a general rate increase.
Inadequacy of nationwide drivers results in high costs for the few available drivers. This, as a result, leads to carriers applying for a general rate increase.
The constant fluctuation of fuel costs does not guarantee a decrease in GRI, but rather, these costs only affect the fuel surcharge. Therefore, the carrier will still apply the general rate increase.
When Does A GRI Apply?
We attribute GRI using the supply and demand drivers of the market at a specific time. This supply and demand will allow us to determine when to apply GRI by;
- Evaluating available building blocks of the market
- Global trade
- Market stability and the available trends
Over-supply of goods in an environment with low demand will always lead to slow movements of goods. Thus, carriers introduce the GRI to incur this cost of unmoving goods.
Peak seasons occur annually or semi-annually and sometimes do not occur at all. Therefore the carrier will choose when to apply the GRI depending on the demand.
Who Announces GRI, And When Do They Announce It?
Normally, the shipping line is responsible for making the GRI announcement. There has to be a submission request to the Federal Maritime Commission 30 days before making the announcement.
Depending on the market condition, carriers will decide whether to take the full increase cost set during the announcement. It means carriers can low the cost if the demand is low.
For instance, increase up to $600 for a 20-feet shipping container with an effective date of 1 st December as per Maersk company.
Evaluation of the market condition will decrease this cost to $300.It prevents stalling of goods in the market due to low demand.
How Is The General Rate Increase Calculated?
General rate increase majorly involves analysis to allow you to determine when to impose these additional charges and when not to.
Calculating GRI involves:
An analysis of all changes in costs during the previous years.
The steamship line is aware of all the costs each tradeline is making, which are a determinate of GRI rates.
Evaluate carrier’s cost struct to review capital and expense projections to determine the current year or upcoming year. This calculation is a comparison of the GRI history with current or future history.
This prediction determine the number of unfolding activities such as;
- Future of labor
- Consumer behavior
- Government fees
What Items Are Not Included In The GRI?
In most cases, not all items are subject to a general rate increase. These items either cannot or are not included completely in the general rate increase. Some of the items include
Fuel costs: we associate fuel costs with ongoing surcharge/fluctuating costs where carriers can negotiate and find a possible solution.
Companies with large carriers /demand always set the price rate before other companies can do it. This aspect increases price competitiveness.
Small companies are not left out in this as they have similar set rates as large companies.But for this case, they will either experience high or costs GRI great affect these small companies.
To cab this impact GRI to small companies, they opt to work with third-party logistics to increase the chances with carriers.
What Is The Difference Between GRI(General Rate Increase) And PSS(Peak Season Surcharge)
The following are some of the major differences between the general rate increase and peak season surcharge. They include:
The general rate increase is an additional charge of the original base rates of freights been shipped through different trade lanes.
With a general rate increase, the charges tend to vary with months and also the carriers of the freights.
General rate increase can occur at any time of the year as long as a notification is made 30days prior.
Peak Season Surcharge
On the other hand, Peak season applies when the demand for products is high hence the term peak season.
Market shifts affect the demand for goods, and therefore, the carrier can decide when to lower and when not to.
Charges on peak season surcharges are always above the base rate of the freight.
Peak season surcharge gives notification 30 days prior, but the best season is during fall/winter holidays and the Chinese new year.
Peak season surcharge can be sometimes chaotic. This results in goods lagging since you cannot move them throughout the year.
Below are some tips to cab the peak season surcharges
- Booking for the shipment before ar after a peak season
- You should consider carriers with lower PSS adjustments
- You should seek for leveraging relationships with carriers, freight forwarders, and NVOCCs
- Consider booking on slower routes to reduce the costs you will incur while the goods are still.
- You should negotiate for a fewer Peak season surcharge in your contract.
How Do GRI And PSS Factor Into My Freight Quote?
Generally, carriers can cancel, postpone, or implement PSS and GRI at a lower cost than the announced one.
In some cases, the freight forwarder will charge you the total amount as per the original announcement and after implementing low rates.
We recommend all our freight forwarders give the actual surcharges of goods under or over quoted.
What Factors Contribute To The General Rate Increase In Shipping?
Companies should have rates limits that are generating high profits to the company.
Hence the need for generating rate increase that allows for adjustments according to trending marketing conditions.
Large companies have minimal impacts from the GRI compared to the small companies where the GRI impact is so high.
General Rate Increase In Shipping
Below are some factors that contribute to the general rate increase in shipping:
There is a drastic increase in equipment cost due to the increase in the need of companies to acquire more advanced equipment. Examples of these technologies that have made the drastic increase are
- Tracking mechanism to satisfy consumer needs
- Measuring and weighing of fright techniques
Electronic logging devices that enable tracking how many hours a driver is working or resting
will help measure and weigh.
We are certain that these kinds of investment costs will reduce, with the carrier’s upfront investments greatly affecting GRI.
The Rise Of E-commerce
The increase in demand for consumers to buy goods online is evident in every nation. It, as a result, has led to an increase in demand for less than truckload.
For instance, a company like Amazon offers free delivery for goods worth$49. With this offer, there is an increase in the number of goods to be shipped using TLT.
With these increases in rates, companies will be able to meet the yearly contribution to the GRI.
For a single delivery using the TLT will be difficult because the cost you incur will be greater than the demand of that single commodity.
In our world today, almost every job is autonomous. It means machines can also perform this job.
This technology is constantly affecting the number of drivers. This results in drivers seeking other forms of employment, thus decrease in services they render.
Enhancement of safety regulations by relevant authorities decreases the number of hours a driver can work in a day. With these factors in place, we find it hard to delegate duties to drivers.
Inadequate parking space significantly contributes to a shortage of drivers. Lack of ample parking prevents drivers from making more runs since they park very far away.
Manufacturing Industry Growth
The modern world is significantly rising to greater heights when it comes to the manufacturing of goods. This growth enhances the increased supply of materials to manufacturers, processing and delivering goods to an appropriate location.
Demand for TLT to deliver goods is increasing hence an increase in demand for tracking service mechanisms. This method boosts the rates of the company.
Getting goods into the market is every manufacturers or supply desire, and therefore they will opt to pay expensively for these services.
A constant rise in fuel prices is posing a danger for shipping carriers and trucking companies. This does not cause an alarm to use GRI, but still, it shouldn’t be ignored.
Below are some reasons for an increase in fuel cost:
An increase in demand in the market segments will lead to an increase in cost, leaving the suppliers with no option but to conform to these rates to deliver goods to consumers.
How Long Does A General Rate Increase Last?
Despite the set period of announcing GRI 30 days prior, the carriers can make changes. Carriers
should lower these charges anytime they want. It results in a decrease of the freight charges weeks by weeks until the set month elapses.
During the beginning of a new month, the DRI charges shoot up again. This is normally a cycle of lows and highs of the GRI.
What Is The General Rate Increase 2021?
Most countries in the world are experiencing this general rate increase since its implementation in 2021. During this stage, we will focus on implementing the general rate increase on less-than-container -load.
Available tariffs and NRA rates will also be applicable.
These rates are ;
- Per square cubic foot, the charges are $0.05
- For every 100 cubic feet, the charges are $0.15
An increase in general rate increase will always apply even with the existence of current market rates.
Under special cases where predicting the future of the market trends is difficult, constant assessment of the market is recommendable.
What Are The Effects Of GRI On International Trade?
The following are some effects of a general rate increase on international trade:
An increase in demand for imported goods results in an increase in GRI by the carriers. This factor will greatly affect the small-scale business as they try to penetrate the market.
Importers will approach third parties who are all aware of all protocols to follow and what period to follow. It, as a result, reduces the costs the importer incurs while shipping.
Importers will find it hard to import a large number of goods. It is because the carriers will impose high GRI charges on a large number of goods.
Increase in a shift of demand in different trade lanes.
There is a possibility of delayed sales of goods, especially if the importer brings goods on normal days rather than peak seasons. It is mostly applicable in countries that are experiencing winter seasons.
Does The GRI Affect All Countries?
General rate increase almost affects all countries across the globe. This impact is both felt on import and export of goods by the carriers.
But due to the trending factors such as advances in technology, which results in high demand, thus increasing the rates.
It has lead to the implementation of GRI rates on cargo coming from fr east. It means the manufacturer produces quality goods, thus increasing demands, which implies more rates to settle the GRI.
Who Does GRI Affect Most?
General rate increase affects all customers from the exporter, importers, and freight forwarders. Normally, There Are Different Contracts Signed Between The Carriers And Different Parties.
For instance, whether a carrier is NVOCC, the shipper will sign a freight contract to speed up the process.
This increase in GRI affects everyone, whether you are an importer or exporter, due to the increased rates along the shipping line.
Everyone is responsible for payments along the shipping line.
Additionally, GRI greatly affects small companies that are penetrating the market. It is a result of competition from large companies that have enough resources to penetrate the market.
The competitive nature of the market condition will push the small companies to set achievable rates regardless of GRI.
How Do I Prepare For The Shipping GRI?
Shippers ought to have important information entailing service type, weight and dimensions, pick-up and delivery locations, and surcharges.
This information allows the carriers to set regulations in the contract.
You should also be able to understand what are your shipping information is telling you. Its entails;
- Get to know your common types of service.
- Which are some of the surcharges that are making you incur more cost
- Is your distribution network set up well
- Is DIM weight a continual issue
A better understanding of the shipping profile allows you to understand the rate, discounts, and minimum charges clearly.
Are All Shipments Subject To GRI?
All shipments are subject to GRI. It applies to both full container load and less container load. The main impact of GRI to the buyer or the seller is that they have to adjust accordingly to increase in costs of products. This adjustment accommodates the freight charges.
A distinct feature from LCL and FCL is that for FCL, its effect is felt by one buyer and one seller. In the case of LCL, the impact is felt by two or more buyers and sellers.
Does General Rate Increase Impact All Customers?
No. General rate increase does not impact all customers.
Mostly, only a few customers who experience these impact especially those with small companies.
This is because they have to strive and keep up with the market competition.
For large companies who move a large number of goods and have market experience, the GRI will not impact them.
It is because they can easily penetrate through the market and raise the rates to pay for GRI.
How Can I Manage The Impact Of GRI On My Business?
GRI impact is felt by an importer, exporters, freight forwarder, and the carriers collectively or individually.
The only way left at the moment is for you to try and manage these impacts on your business. You can achieve this by;
Shipping before or after the shipping period, especially on trade routes where this charge is applicable
If you are shipping for a large number of goods, negotiate with the carrier to reduce additional charges of the shipment.
You can also approach freight forwarders who are best aware of freight periods. It helps you reduce the impact of GRI on the business.
Shipping routes from China
What Is GRR(General Rate Restoration), And How Is It Different From GRI?
General rate restoration allows you to negotiate for more applicable special rates while shipping through a certain shipping line. This event occurs and is kept within the shipping line.
If you have any questions about general rate increase or any other freight term, BanSar team is here to help – contact us now.