External factors increase freight rates

Despite all measures by carriers, including rate restorations and reduction in capacity, it was external factors that arrested a free fall in freight rates and brought in a measure of firmness, said industry experts.

"There have been significant changes over the past 12 months," said Steven Finch, chief executive for Europe, Middle East and Africa at GeoLogistics, a U.S. firm which earns $1 billion a year.

Finch was in Dubai to attend the company's meeting which attracted more than 50 industry professionals from 18 countries.

Fitting its role as a transportation hub, Dubai was also the venue for the regional launch of GeoLogistics' unique Web-enabled instant pricing tool, which the company will give free to its regional partners and select customers.

"In our industry, Dubai plays an important role as a major logistics hub. So, it is only natural that we stage this important event here," said Finch.

On freight rates, he said, "Though rates have been softening, unfortunately external factors such as insurance premiums after the events of September 11 made them harder," he said.

"Insurance premiums are as high as 150 per cent in some cases," said Don Clark, GeoLogi-stics' manager for the Middle East.

Both air and sea carriers have been downsizing fleets, reducing capacity by as much as 30 to 40 per cent in some cases, to firm up prices," he added, pointing out that, however, on the ocean freight front, there have been no great changes in rates.

"Conferences have tried to raise rates and insurance premiums have come in, but freight rates have not moved much. Rate restorations are not always successful," he said.

"At the end of the day, it is the customer who dictates the prices," Finch pointed out.

Clark said that agencies could set a freight rate and try to restore it. But a single rogue member can affect the pricing. "The conference scenario is under threat."

However, ocean freight will continue to remain the main transport provider in terms of volume.
Finch said business was being maintained, but margins were 'tough'. There has been reduction in capacity in the air sector. Rates for end users have stabilised over the last three to four years, but transport business, both air and sea, has fairly low margins.

The complexion of business is changing. "Value addition has become greater than freight forwarding. The business nowadays is not about moving pieces of cargo, but moving information. About 10 to 15 years ago, marketing was unheard of in the trade.

"Manufacturers are sourcing products from many different countries and far away regions, now from North Africa and Eastern Europe. The flow of information is much more needed," Finch said.

That is why the company decided to invest in the tariffs tool, which took about three years to develop. It provides instantaneous quotes from Asia, North America and Europe into the Middle East and can be accessed by both importers and exporters, said Jane Bevis, GeoLogistics' global special projects manager.

Apart from instant quotes on the cost of bringing in goods, the tool offers predefined transit times, cargo tracking facility and pricing in multiple currencies. It is open 24 hours, seven days a week, Bevis added.