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General Rate Increase (GRI) in July 24' and its Impact on you!

The logistics and shipping industry is bracing for a General Rate Increase (GRI) that will take effect in July 2024. This development, coupled with ongoing operational issues at key ports like Mundra, highlights the complex factors affecting global trade. This article tries to explain the reasons behind the GRI, the causes of vessel delays, and the broader implications for stakeholders across the logistics chain, from manufacturers to end consumers.


A vessel carrying cargo

Why is the GRI Happening?

A General Rate Increase (GRI) is a periodic adjustment to freight rates imposed by shipping lines to offset rising operational costs and fluctuating market conditions. The primary drivers for the GRI in July 2024 include:


  1. Rising Operational Costs: Shipping lines face increasing expenses related to fuel, port handling charges, and regulatory compliance. In the current context, this is one of the key drivers as there is a lot of port congestion all across the major ports, which has led to larger waiting times, more paperwork related to compliance, clearance, etc. These costs will then ultimately be passed on to customers through GRIs.

  2. Supply Chain Disruptions: Global supply chain disruptions, exacerbated by geopolitical tensions, have led to fluctuating demand and supply imbalances. Shipping lines adjust rates to manage these uncertainties.

  3. Market Volatility: The freight market's volatility, influenced by fluctuating demand, congestion at ports, and changes in trade policies, necessitates periodic rate adjustments to ensure the sustainability of shipping operations​.


Note: There seems to be a common response from most of the freight forwarders, "xyz port is congested, waiting time is 10-15 days, that particular route is experiencing inflated travel time, etc." Let's understand the port congestion scenario and why it happens with the help of a case study of Mundra port, Gujarat, India.


Causes of Vessel Delays at Mundra Port

The Mundra Port, a key node in India's logistics network, is experiencing significant delays due to various operational challenges. The Mundra Port Shipping Line Association highlights several issues contributing to these delays:

  1. Terminal Congestion: The terminals at Mundra Port are heavily congested, leading to increased pendency and delays in cargo handling.

  2. Communication Gaps: There is a lack of timely communication between terminal operators and Container Freight Stations (CFSs), resulting in inefficient deployment of transport vehicles and increased turnaround times.

  3. Inconsistent Cargo Handling Procedures: The terminal's adherence to direct under-hook deliveries and inconsistent handling of project cargo leads to confusion and delays.

  4. Customs Clearance Bottlenecks: Non-adherence to customs guidelines for Direct Port Delivery (DPD) and Direct Port Entry (DPE) containers exacerbates delays.

  5. Re-grouping of Empties: Delays in re-grouping empty containers and subsequent miscommunication further compound congestion issues​.


Implications of GRI for Trade and Stakeholders

Have a look at this table below. The table compares the freight for a 40' container from Mundra to other ports pre and post GRI.

Port of Delivery(POD)

Freight Pre GRI

Freight Post GRI

Jebel Ali

$450

$850

Bahrain

$575

$925

Toronto

$4900

$8500

As you can observe, the freight cost have almost doubled. Who will bear the cost?

The combined effect of the GRI and vessel delays at Mundra Port has far-reaching implications for various stakeholders in the logistics industry:


  1. Manufacturers and Exporters:

    1. Increased Costs: Higher freight rates due to the GRI translate to increased costs for shipping goods, affecting profit margins.

    2. Delayed Shipments: Congestion and operational inefficiencies at ports lead to delayed deliveries, disrupting production schedules and supply chain timelines.

  2. Transporters and CFS Operators:

    1. Operational Inefficiencies: Delays in cargo handling and communication gaps reduce the efficiency of transport operations and increase turnaround times for vehicles.

    2. Higher Storage and Detention Costs: Prolonged storage of containers due to delays incurs additional costs, which are often passed on to CFS operators and transporters.

  3. End Consumers:

    1. Price Increases: The increased cost of logistics and shipping is ultimately passed down to consumers, leading to higher prices for goods.

    2. Product Availability: Delays in shipments can lead to stockouts and affect the availability of products in the market.

  4. Customs and Regulatory Authorities:

    1. Clearance Delays: Congestion at ports hampers the customs clearance process, leading to longer wait times and increased pressure on regulatory authorities to expedite processes.

  5. Environmental Concerns:

    1. Risk of Damage and Leaks: Prolonged storage and handling of containers increase the risk of cargo damage or leaks, posing environmental hazards and safety risks.


Conclusion

The upcoming GRI and ongoing operational challenges at various ports highlights the complexities of modern logistics and trade. Addressing these issues requires coordinated efforts from all stakeholders, including shipping lines, port authorities, CFS operators, and regulatory bodies. By improving communication, streamlining processes, and investing in infrastructure, the logistics industry can mitigate the impact of these challenges and ensure smoother trade operations.

That being said, we can draw all the conclusions we want to, talk all about operational efficiencies, but ultimate brunt is to born by the exporter(who will experience delayed order cycles and less orders ultimately), importer(who will be haggling hard to manage their per Kg cost) and ultimately the end consumer who will be buying the goods at an inflated price.

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