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The solutions to navigate through the growing freight rates are twofold. The first set of solutions are for the private sector, which can be carried out by individual exporters and importers prior to the shipment of goods in order to mitigate high freight rates. The recommendation for Government entities is to reduce other trade costs and lower the business operational costs for traders, as, price controls would not resolve the current situation and, may further aggravate it by creating more supply chain bottlenecks. A brief overview of these solutions are set out below.
Strategic planning can aid in limiting the exposure to high freight rates and be a cost saving for traders as rush orders can incur heavy costs on the traders. Through careful planning, these high freight rates can potentially be managed. Strategic planning also includes analysis done on freight rates both historic and future estimates in order to better understand the trends and to plan accordingly. This will enable traders to make informed decisions backed by data and information.
Freight rates can be optimised by focusing on numerous factors such as route, market and shipment. Deciding between Full-Container-Load (FCL) or Less-than-Container-Load (LCL) or as groupage can help optimise the freight rates as there are multiple charges involved in an LCL or groupage compared to FCL. Using the right type of containers such as 20ft container for weight-based cargo and 40ft container for volume-based cargo can also help optimise freight cost. It is also imperative to identify the right incoterm such as FOB, CNF, CIF (Cost, Insurance and Freight), FAS (Free Alongside Ship), etc. as these aid in identifying who pays for the various charges of the shipment and the responsibilities thereof. Route and market optimisation is another option to lower freight rates by analysing the routes used by the various carriers and markets that have a container deficiency. Carriers may offer special deals to customers who are able to ship cargo where a container is already being repositioned or customers that can triangulate container shipments. This would also offer an opportunity for Sri Lankan exporters to diversify into new markets such as China, Japan, Taiwan, Korea, etc. where there is a container deficit. This will induce shipping lines to drop off empty containers in Sri Lanka for exports to these markets and defray carriers’ empty re-positioning costs.
Automation of all trade related agencies are pivotal to have a resilient industry and bring in strategic transformation, leveraging on the opportunity presented by the pandemic. Under Category C commitment for Sri Lanka under the World Trade Organisation (WTO) Trade Facilitation Agreement (TFA), Article 8, a mechanism to develop a Border Agency Corporation is required by Sri Lanka. Although, the automation of few individual agencies were seen, the lack of integration and inter-agency connectivity is a deterrent for this process. Implementation of the National Single Window (NSW) is the long-term permanent solution for the country to keep the business operational costs low to face situations of this nature or worse scenarios in the future. Therefore, the Government can look to accelerate the implementation of this long-overdue project without any further delay. The blueprint for the National Single Window has already been developed.
Full report can be accessed at – Navigating through High Maritime Freight Rates
This article is part of the Strategic Insight Series, which focuses on key contemporary topics that matter to the private sector. Topics such as Renewable Energy, REITS, State-Owned Enterprises and FinTech Regulatory Sandbox amongst others have been covered by the briefs to date.
Research Associate
Economic Intelligence Unit
The Ceylon Chamber of Commerce
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