Recently, ocean freight has risen again, especially the butterfly effect caused by the blockage of the Suzanne Canal, which has made the already unacceptable shipping conditions even tighter.
Then a trade friend asked: how to quote customers with such unstable and frequently rising freight rates? In response to this situation, we will analyze specific issues in detail.
01
How can I quote for orders that have not yet been co-operated?
A headache for traders: I just gave a quotation to the customer a few days ago, and today the freight forwarder notified that the freight has increased again. How can I quote this? I often tell customers that price increases are not good, but I can’t figure out how the freight will increase. What should I do?
Baiyun advises you: For customers who have not signed a contract and are still in the quotation stage, in order to avoid being affected by the unstable increase in sea freight, we should think about a few more steps in our quotation or PI. The countermeasures are as follows:
1. Try to quote EXW (delivered from factory) or FOB (delivered on board at the port of shipment) to the customer. The buyer (customer) bears the ocean freight for these two trade methods, so we don’t have to worry about this ocean freight issue.
Such a quotation usually appears when the customer has a designated freight forwarder, but in special periods, we can also negotiate with the customer and use EXW or FOB to quote to pass on the freight risk;
2. If the customer requires CFR (cost + freight) or CIF (cost + insurance + freight), how should we quote?
Since it is necessary to add the freight quotation to the quotation, there are several methods we can use:
1) Set a long period of validity, such as one month or three months, so that the price can be quoted slightly higher to buffer the price increase period;
2) Set a short validity period, 3, 5, or 7 days can be set, if the time is exceeded, the freight will be recalculated;
3) Quotation plus remarks: This is the current reference quotation, and the specific freight quotation is calculated based on the situation on the day of placing the order or the situation on the day of shipment;
4) Add an extra sentence to the quotation or contract: The circumstances outside the agreement shall be negotiated by both parties. (The circumstances outside the agreement shall be negotiated by both parties). This gives us room to discuss price increases in the future. So what is outside the agreement? Mainly refers to some sudden events. For example, the unexpected blockage of the Suzanne Canal is an accident. It is a situation outside the agreement. Such a situation should be a different matter.
02
How to increase the price to the customer for an order under contract execution?
A headache for traders: According to the CIF transaction method, the freight is reported to the customer, and the quotation is valid until April 18. The customer signs the contract on March 12, and the freight quotation is calculated according to the quotation on March 12, and our production to delivery may take until April 28. If the ocean freight exceeds our CIF quotation at this time, what? Explain to the customer? Sea freight is calculated according to the actual?
If you want to increase the price of an order that is being executed, you must negotiate with the customer. The operation can only be done after the customer’s consent.
A negative case: Because of the skyrocketing freight, a trader arbitrarily decided to notify the customer’s agent to increase the price without negotiating with the customer. After the customer learned about it, the customer became furious, saying that it violated integrity and caused the customer to cancel the order and sued the supplier for fraud. . It is a pity to cooperate well, because the details were not handled properly, which caused a tragedy.
Attached is an e-mail to negotiate with customers about the increase in freight rates for your reference:
Dear Sir,
Glad to let you konw your order is in normal production and is expected to be delivered on April 28th. However, there is a problem that we need to communicate with you.
Due to unprecedented demand growth and continued rate increases due to force majeure, shipping lines have announced new rates.As a result, the freight for your order has exceeded the original calculation by approximately $5000.
The freight rates are not stable at the moment, in order to smoothly carry out the order, we will recalculate the increase of freight according to the situation on the day of shipment. Hope to get your understanding.
Any idea please feel free to communicate with us.
It should be noted that just a negotiation email is not enough. We also need to prove that the situation we said is true. At this time, we need to send the price increase notice/announcement sent to us by the shipping company to the customer for review.
03
When sea freight will increase, when will it increase?
There are two driving factors for the high freight rate of container transportation, one is the transformation of consumption mode driven by the epidemic, and the other is the interruption of the supply chain.
Port congestion and equipment shortages will plague the entire 2021, and the carrier will also lock in 2022 profits through the high freight contract signed this year. Because for the carrier, things after 2022 may not be so easy.
Shipping information company Sea Intelligence also stated on Monday that major ports in Europe and North America are still struggling to cope with the serious congestion caused by the booming container market in recent months.
According to data from the South Korean container transport company HMM, the analysis company found that there is no substantial indication that the (port congestion) problem in Europe and North America has been improved.
Both the shortage of containers and the uneven distribution of containers provide support for rising shipping costs. Taking China-US shipping prices as an example, data from the Shanghai Shipping Exchange shows that in mid-March, the shipping price from Shanghai to the west coast of the United States has risen to US$3,999 (approximately RMB 26,263) for a 40-foot container, which is the same as the same period in 2020. That’s an increase of 250%.
Morgan Stanley MUFG Securities analysts said that compared with the annual contract fee in 2020, the current spot freight has a gap of 3 to 4 times.
According to the latest forecasts of analysts from Japan’s Okazaki Securities, if the shortage of containers and ship detention cannot be resolved, the rare high freight rates at this stage will continue until at least June. It should be noted that the “big ship jam” in the Suez Canal seems to make the operation of global containers “worse worse” when the balance of global containers has not yet been restored.
It can be seen that the unstable and high freight rates will be a long-term problem, so foreign traders should prepare for this in advance.
–Written By: Jacky Chen
Post time: Sep-07-2021
