This is part 3 of the Xeneta 11-part FAQ series focusing on key questions related to freight rate benchmarking and procurement. The series provides answers to the most frequently asked questions revolving around the complex world of ocean freight rate benchmarking and procurement. It provides you some tips and tricks to make the process a little less painful.
Part 1: When is the Best Time to Negotiate Ocean Freight Rates?
Part 2: Will I Leave Money on the Table with 12-month Fixed Rates?
In the case of agreeing to prices “subject to GRI” or “subject to peak season surcharge”?, the first question to ask is – “Do you have a choice?”, especially if you ship on the spot market. The reason is that GRI (General Rate Increase) or PSS (Peak Season Surcharge) is something that the shipping lines implement, whether you like it or not, whether you agree or not. However, as with any rule, there are exceptions.
Depending on your committed volume with the carrier, the relationship that you have with the carrier and the support that you give the carrier, you may be able to negotiate a waiver for the GRI or PSS.
This could be done at the time of you signing a long-term contract or a fixed term contract with the lines as that is the best period of bringing up this eventuality. Large volume shippers who usually go for long term contracts do not accept GRI or PSS because if there is scope of increase in rate during a contract period, there also should be option for reduction which usually does not happen.
Other than that, there is not much choice for you as a BCO (Beneficial Cargo Owner) or NVOCC in this matter as generally once one carrier starts implementing surcharges, the others follow suit. In this age of carrier alliances and partnerships, it is doubtful that one partner in the alliance doesn’t implement the GRI or PSS at the prescribed time.
Both GRI and PSS are often introduced unsuccessfully as more often than not, the market does not accept it. These charges get waived quite quickly especially bearing in mind that these two are applied more on short term rates or spot rates as the time frame where it can be applied is also short.
In some cases the time frame can be so short that some BCOs or NVOCCs may even stall their negotiations or shipments in order to avoid these charges.
Having said that, if the choice has to be made between a GRI and a PSS, the better option would be a PSS because the PSS is applied at the “Peak Season” which is normally around the period of August to October in certain trade lanes and around Chinese New year which is when most carriers try to implement PSS.
Our data trends shows that there is a higher potential of clients accepting PSS because at least the period of increase is known, one can secure supply based on the acceptance of the right PSS. Based on the knowledge of the timing of application of PSS, there may be some businesses who can avoid shipping between these months and avoid the PSS entirely.