Navigating the Risks of Forward Quoting and "Carrot Dangling"

Every time rates show signs of reducing off the back of a period of freight rate volatility, we start to see the practice of Forward Quoting from competitors and particularly Chinese agents looking to exploit the possibility of further reductions to secure business.

Its a gamble that doesn’t always work out for customers that take the bait.

In the world of container freight rates, fluctuations are a constant reality that every importer and exporter must navigate. Much like the financial market, freight rates rise and fall in most parts within a range which is acceptable for importers as a cost of doing business, however during periods of rate volatility where rates have increased significantly  we then observe the trend among some of our competitors of “forward quoting” or “carrot dangling.” as these higher rates begin to drop. This sales tactic involves offering customers freight rates that are lower than the current market rate, based on speculative predictions that rates will continue to drop. While this approach may seem appealing at first glance, it can expose customers to significant risks and potential costs down the line.

Understanding Forward Quoting

Forward quoting is a strategy where a competitor, who may not currently be handling a customer’s shipping business, offers an enticingly low rate. This rate is often below the prevailing market rate and is presented as a cost-saving opportunity. However, this rate is usually based on a gamble that the market will continue to decline, allowing the competitor to eventually cover their costs without taking a loss.

The reality is that these competitors have the flexibility to quote whatever they like since they are not currently bound by existing contracts or obligations with the customer. Their goal is to make our rates appear uncompetitive and lure customers away. Once a booking is secured based on this “hook line” rate, the customer may soon find that the real-time rates come into play, often catching up to or exceeding the initial market level. The initially attractive quote may quickly evaporate, leaving customers facing unexpectedly high costs.

The Risks of Chasing Low Rates

This tactic is particularly risky because competitors rarely reach out to customers when rates are rising. The effectiveness of forward quoting diminishes in a rising market, as these competitors cannot continue to offer artificially low rates without incurring losses. It’s important to note that if these competitors had access to consistently lower rates, they would have been offering them all year round. The fact that they suddenly present a lower rate during a market downturn suggests that this is a calculated move to gain short-term business, not a sustainable pricing strategy.

There are occasionally last-minute “bargain basement” sailings that may offer lower rates, however these are rare and sporadic. Chasing these sporadic opportunities can do more harm than good. Reducing bookings with reliable, established contracts to save a small amount could lead to a reduction in allocated space, which could be detrimental to long-term operations. Our contracts are designed to provide consistent value and stability throughout the year, rather than chasing short-term gains.

Protecting Our Customers from Market Volatility

At Westbound, we believe in protecting our customers from the pitfalls of speculative quoting practices. We understand the importance of securing competitive rates, but we also prioritise long-term stability and reliability. Our approach is to provide rates that reflect the true market conditions, ensuring our customers are not caught off guard by sudden increases or unexpected charges.

As we approach the final week of August, we anticipate another potential rate drop, which may align closely with other market offerings. The cycle of “cat and mouse” will likely continue, with competitors lowering their rates to secure new business. It’s important to remember that these rates are often unsustainable and designed to lure customers into a precarious position. Based on current market conditions it is also likely that rates may actually increase again through September as China’s Golden Week begins on the 1st of October and that means a pre holiday rush of bookings is likely as it effectively shortens the peak season this year by two weeks (we’ll be sending out another newsletter about this soon) and so the current ‘deals’ could well be short lived as the supply and demand scenario plays out in the market.

Making Informed Decisions

We urge our customers to be cautious of rates that seem too good to be true. While it’s tempting to jump at the lowest offer, it’s essential to consider the long-term implications. Westbound prioritise transparency, stability, and consistent value, meaning you can avoid the risks and ensure that your shipping operations remain smooth and cost-effective throughout the year.

Westbound are committed to helping our customers navigate these challenging market conditions with confidence. We provide the insights and expertise needed to make informed decisions, protecting your business from the uncertainties of a volatile market.

If you have any concerns or questions about the current rate environment, please don’t hesitate to reach out to us. We’re here to support you every step of the way.