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Q&A: How can freight rates be structured transparently in volatile times?

by Editorial Office

Global goods movements reflect the complexity and dynamics of contemporary trade. However, the resulting fluctuating market prices also pose challenges for transportation companies. Especially in volatile times, when freight rates are strongly influenced by external factors such as seasonal peaks, political events, economic changes or supply chain adjustments, an approach that enables both market-driven pricing and transparency pays off. Sebastian Glenschek, Head of Sales at Hermes International, explains how this approach works and discusses the role played by the Shanghai Containerized Freight Index (SCFI).

Mr. Glenschek, how are freight rates generally calculated and what do the rates depend on?

Sebastian Glenschek: Determining freight rates is a complex process. Factors such as the interplay of supply and demand in the transportation market, the type of goods to be transported, the distance, the selected mode of transportation and additional services are all taken into account. Further, general market conditions and competition between transport service providers also influence freight rates. They are made up of a base rate for the basic transportation costs, plus any surcharges for fuel, currency fluctuations, dangerous goods surcharges, THC (Terminal Handling Charges) and other services that may be required for transportation.

How can freight rates be structured in line with the market in volatile times?

Sebastian Glenschek: Fluctuations – caused by demand, geopolitical events or changes in the market, for example – often make it quite difficult to guarantee stable and predictable freight rates. A precise rate setting in such volatile periods requires not only relying on short-term market trends, but also developing long-term strategies with the help of digital technologies. Advanced Analytics and Predictive Modelling, for example, are useful for making predictions based on real-time data and optimizing pricing accordingly. Long-term contracts that contain flexibility clauses offer a certain degree of stability, while at the same time leaving room for adjustments in the event of significant market changes. Index-based freight rates, such as those based on the Shanghai Containerized Freight Index (SCFI ), are also useful.

What is the SCFI and why is it important for freight rate design?

Sebastian Glenschek: The Shanghai Containerized Freight Index is an important freight index that has been published weekly since 2009 and is considered a key barometer for the dynamics of the container freight market. As the world’s most frequently used index for current freight costs in connection with imports from China, the SCFI serves as a guideline for adjusting tariffs. This ensures that tariffs are both competitive and cost-covering. We also use the SCFI to calculate freight rates.

By linking to the SCFI, our customers can avoid the effort of recurring price negotiations and secure favorable and market-driven conditions at all times: The current conditions are automatically updated based on the SCFI from the previous month. Our customers also benefit from long-term business relationships: Depending on the volume booked and contract term, they receive further price advantages or discounts.

How is transparency created regarding the determination of freight rates?

Sebastian Glenschek: A transparent determination of freight rates is crucial for trust between freight forwarders, freight companies and customers. This requires a strategic approach based on openness, data accessibility and clear communication channels. Open pricing models, for example, disclose cost structures and offer a precise insight into the composition of freight rates. The use of blockchain technology documents transactions in an unchangeable data chain, which enables complete traceability of contract terms, freight rates and transaction histories. Regular analyses and reports on market trends, freight cost development and KPIs also create transparency and help stakeholders to develop an understanding of how rates are set.

Again, the SCFI also plays an important role in this context. It provides an independent and neutral assessment of freight rates for container traffic from China to various destinations worldwide. Regularly updated, this index serves as a benchmark and makes a significant contribution to promoting transparent pricing. By using these rates as a guide, our customers understand that the prices are based on real market data and reflect the current situation. We can also justify possible fluctuations by showing how index changes lead to adjustments in freight rates. Overall, however, clear communication is particularly important: this ensures that all costs are understood and agreed before shipping. That certainly helps avoiding misunderstandings from the outset.

Mr. Glenschek, thank you very much for the interview.


Further Q&As relating to logistics and supply chain management:

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Sebastian Glenschek, Head of Sales bei Hermes International

Sebastian Glenschek, Head of Sales at Hermes International

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