Causes and effects of fluctuating Ocean freight rates

Transportation in earlier times was done mainly through waterways and at times from roads. With the changing times other forms of transport has been introduced such as airways and railways in case of transport within the nation but waterway transport has till now maintained its same essence. The price charged for enabling transfer of goods from one place to the other through oceans is called ocean freight rates. These rates are very fluctuating in nature. The prime reasons for the fluctuations are the following: [1] the rate is dependent primarily on the destination where it is supposed to be delivered. If the distance is too much then obviously more oil will be used to pull the freight and the ship so the rates will be higher. [2] It is observed for many countries that charges on service of the port authorities are also levied. This raises the whole cost of the freight. [3] Natural factors also raise the cost of the ocean freight. If a storm comes then it obviously becomes difficult to deliver on time which raises the costs and the rates.

The other factors are: [4] the currency and thus the exchange rates are also factors on which this varies. If the currency is fluctuating then all the transactions done will also be affected. [5] Any delays in shipments because of some reason would lead to addition of extra charges which are basically named as fines. [6] The capacity of the containers are also important in this as if the containers are filled under capacity then freight charges will look higher in comparison to the freight. This leads to the view that freights are costly. [7] The rise in oil prices also affects the cost as oil is used to run the engine of the ship. It makes transportation costly and can be referred to as transportation cost. The issue of this rise in rates is that freight bill audit is becoming more and more difficult and full of errors. The factors that affect are completely uncertain especially the exchange rates. They are highly flexible in nature and fluctuate within a day. The continuous change in these is the cause of many problems as people who do this Freight audit get confused about the real rate and it leads to errors. It is also seen at times that the rates change within hours leading to the whole repetition of the entire calculations done. The loss in this case is of either the receiving or the sending party. Labour cost also in the form of hard work is wasted leading to a whole economic loss.

One more serious effect of the rising rates is that price of the good transported rises. The receivers or the importers levy the additional costs on the consumers which actually affects the common man who is not responsible for these at all. It lowers the consumers’ surplus as well as producers’ profit. The rising rates are one reason for the shift of the mode of transportation to airways and other forms but still ships hold their importance.