Why a Lower Rate can be Bad for an Exporter / Importer


Do you really want your rate lower? If you are an importer or exporter, my educated guess is that your answer to this question is yes. Be careful what you wish for..

Let’s look into a few factors that might make you rethink your answer.

As a freight forwarder we are kind of in a neutral position regarding the effect of where the rate actually is. However there are 2 direct parties who are directly effected; customers and steamship lines.

As a rule of thumb, customers want lower prices and carriers want higher… In general, with the current global maritime situation, everyone is talking about the same news; new vessels are coming in; so rates will continue to go down and at the end customers will be paying less freight in the upcoming 2-3 years’ time. This may not happen in short term for certain niche trades, however considering the biggest buyer markets like Europe and the United States continue to struggle, and vessel capacity is increasing, most of the carriers expect to lose money at least in the upcoming 2 years.

Now let’s think about if this really happens and carriers continue to lose money. We shouldn’t forget that with the new vessels, bigger carriers will be less effected than midsize/small carriers. The reason being that for major trades, they will be reducing their costs and they will be replacing 6-7000 TEU’s with 12-14000 TEU’s vessels with a much smaller bunker difference on the full string of the vessel. Now those 6-7000 vessels will be going to medium/small size trades which are currently having a higher price/cost ratio (more profitable TEU wise) for the carrier. At those same trades the small/medium size carriers are making their profits. That’ s their bread and butter. The best proof of this statement is, every niche/medium size carrier first takes their services out from big lanes like China– EU or China– US once they are in trouble, because those are the biggest exposure for them with too much competition and rate fluctuation.

What is going to happen to those 6-7000 teus vessels of large carriers? I think they will be going in those niche trades, and they will be cutting the rates down to compete. This is not only because they already have the vessels , but because most of today’s smaller trades like South America, Africa and Intrasia will be major markets in the future. What is going to happen to those smaller carriers, who have less financing power and fighting range? They will get smaller and smaller, and in the end they might merge with one of the bigger carriers.  Again let’s not forget that those same niche carriers are more than 8-9 of the 18-19 different carriers in those mammoth trades of Asia – EU and Asia – USA. So those carriers will be disappearing.

Then what?

As the time passes world trade will continue to grow no matter what. So what is going to come up next? What is the first reason of rates going down, isn’t it competition? If the competition intensity goes down, where is the trade going to end up? Well, we might end up with 5-6 different steamship lines dictating the world container trade. Then we will again see complaints from large exporters/importers (like cotton exporters in 2009, or US importers in 2010)

So, I’ll ask you again – Do you really want your rate lower?

Previous articleFootball Will Always Be America’s Game
Next articleNew Years Gift for Our Readers
M. Can Fidan
Can is originally from Turkey, where he got a Bachelor’s Degree in Economics at Koc University in Istanbul. After working 5 years at MTS Turkey, he moved to Hong Kong as an MTS Representative, where he stayed 2 years working on Asia Development of the group. After Hong Kong, he came to MTS New York. He is currently the Vice President of Business Development and Export Manager at MTS Logistics, Inc. Fun Fact: Can (read as John in Turkish) is a HUGE soccer fan, and Besiktas is his team. Despite the fact that he has been living abroad since 2005, he follows each and every game religiously!