The General Rate Increase In Shipping and its goal in global liner shipping can never be overrated. Nowadays, the term “General Rate Increase” has become very common in global liner shipping. GRI which is also referred to as “General Rate Recovery” (GRR) simply means an upward review of freight across all or specific trade routes within a specified time frame. Some carriers refer to it as “rate restoration program.
Shipping lines constantly watch supply and demand trends in liner services and react accordingly. When they see that demand is high, they push for a rate increase. Sometimes this is done by individual carriers or under the aegis of Conference Agreements. This practice goes to show the difficulty carriers have in keeping rates steady. It also reflects the challenges they face as a result of the rising costs of operating their vessels.
Furthermore, it is an indication of the erratic nature of rates on some busy trade routes such as the East-West trade lane. The huge ordering of new mega-ships by the leading container carriers in the last decade, for example, has resulted in overcapacity of container ships. When there is an overcapacity to supply on a particular route or routes and carriers are eager to fill their ships, they review their rates downwards. By so doing competition increases and may become more severe; and this could lead to very low freight rates, making it a buyer’s market.
When rates are low, carriers find it difficult to meet their operating costs (some of which are fixed) and are unable to maintain their service quality. In order to increase their earnings, they push for rate increases. This is done by an announcement to their customers (including prospects), usually allowing a certain time before it is implemented. The announcement can be in the following way:
“Dear Esteemed Customers,
In an effort to continue to provide you with our best services and extensive port coverage in the West Africa/Europe trade route, we hereby announce a General Rate Increase as follows:
Effective date: 1st January 2019
Rate Increase: USD 200 per 20’ | 400 per 40’
Consequently, all cargo gated in from 12 midnight, 1st January 2019 will have the GRI applicable.
We hope that you will accept this increase with understanding as our operating costs have continued to rise while current rates have remained at unsustainable levels.
We assure you of our best services
Customer Service Department”
On the effective date of the GRI, the amount indicated in the announcement is added to the previous rate in the shipping lines tariff and the new rate becomes the applicable rate, it should be noted that the GRI may not apply to certain customers who have negotiated rates with the shipping lines for a period of time. Also, GRI may be suspended or even cancelled before the due date of its implementation.
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