Ocean freight rates play a crucial role in global trade, to the point that it can be considered the backbone of the shipping industry. In typical cases, these rates are influenced by a range of factors and they determine the cost of transportation of goods across oceans. For businesses and individuals who are involved in international trade, having a proper understanding of freight cost calculation is essential to critical to avoid any unexpected expenses. Let’s dive into the various factors of ocean cargo changes and explore how companies determine the price structure.

Understanding Ocean Freight Rates vs. Freight Quotations

At its core, an ocean freight rate can be considered as the cost of transporting goods through the sea. It is different from a freight quotation, which provides a proper in-depth breakdown of all charges that come during the transportation process. Freight quotations often include expenses for pre-carriage, which means transportation before the goods reach the port, carriage, and on-carriage.

While freight quotations account for multimodal shipments, consisting of trucking, warehousing, and additional services. Ocean freight rates usually apply to the carriage stage. However, they can also include pre- and on-carriage charges, depending on the logistics company and the agreed terms. Freight quotations often highlight services like Door-to-Door or Port-to-Port transport, containing all necessary fees to complete the journey.

Key Components of Freight Cost Calculation

Freight cost calculation is influenced by several stages of the shipping process:

Pre-Carriage

The pre-carriage stage involves moving goods from the shipper’s location to the port of origin, expenses in this stage often consist of trucking fees, loading costs, and customs clearance at the departure point. For instance, if goods need to be transported from an inland city to a coastal port, the charges incurred during this movement fall under pre-carriage.

Carriage

This stage involves the actual ocean freight charges, these costs cover the transportation of goods from the port of origin to its destination. This part is often considered the most significant portion of ocean freight rates.

On-Carriage

On-carriage refers to expenses involved in the process after the goods have been unloaded at the destination port. This may include transportation to the final delivery address, warehousing, or additional customs clearance. Logistics companies often rely on road or rail transport during this stage to guarantee seamless delivery.

Factors Contributing to Ocean Cargo Charges

There are various factors that play a role in determining the overall ocean cargo charges. Understanding these components can help shippers and consignees make better decisions and manage the costs effectively.

Bunker Adjustment Factor (BAF)

The BAF, also known as the Fuel Adjustment Factor, is a surcharge that accounts for the changes in fuel prices. Shipping companies use this charge to tackle the impact of ever-changing fuel costs on their operations.

Low Sulphur Surcharge

This fee is imposed to balance out the cost of using low-sulfur fuel, which complies with international environmental regulations. It showcases the shipping industry’s commitment to reducing emissions.

Bill of Lading Fee

A Bill of Lading is an important document in maritime transport, acting as a receipt and a contract between the shipper and carrier. The processing of this document requires a nominal fee.

Export Service Charges

These fees cover services provided by the exporting agent, such as cargo handling, documentation, and coordination with customs authorities.

Equipment Imbalance Surcharge (EIS)

When empty containers hoard in a region where they are not needed, shipping companies impose an EIS to recover the costs of relocating these containers to areas with higher demand.

Equipment Repositioning Surcharge (ERS)

This surcharge applies when shippers request carriers to reposition empty containers to a specific location for loading. The fee compensates the carrier for the additional logistical effort.

Piracy Surcharge

In regions prone to piracy, shipping companies pay a piracy surcharge to cover the expenses related to obtaining improved security measures and potential risks.

Terminal Handling Charges (THC)

Both the port of origin and the port of destination are subject to Terminal Handling Charges. These charges cover the cost of loading and unloading goods at the terminals.

Container Charges

The size and type of cargo determine how much it costs to use a shipping container. Rates may vary based on whether the container is being used for local or international shipments.

How Logistics Companies Determine Ocean Freight Rates

Logistics companies calculate ocean freight rates based on a combination of fixed and variable factors. Here are a few things that influence this.

Type and Volume of Cargo

The nature of the cargo, whether it is perishable, hazardous, or oversized, has an impact on freight rate. Additionally, the volume of goods influences the pricing, as larger shipments may benefit from economies of scale.

Shipping Route and Distance

The distance between the origin and destination ports influences ocean freight rates. Routes passing through congested or high-risk areas may require additional charges.

Seasonal Demand

Peak shipping seasons, such as the lead-up to holidays or harvest periods, often result in higher freight rates due to increased demand.

Port Infrastructure and Handling Fees

Ports with advanced infrastructure and efficient handling facilities may charge higher fees. On the other hand, less-developed ports might have lower charges but may require longer processing times.

Partnership Agreements

Long-term partnerships between shippers and carriers can lead to negotiated rates and discounts, helping to reduce the overall freight cost.

Technology Adoption

Logistics companies investing in automation and advanced tracking systems often offer more competitive pricing, as these technologies help in making the operations seamless and also to reduce manual errors.

Tips for Managing Ocean Freight Rates Effectively

Understanding and managing ocean freight rates can be challenging, but the following strategies can help shippers optimize their costs:

Request Detailed Freight Quotations

Always ask for a comprehensive freight quotation from your logistics company. This provides transparency and helps you understand the breakdown of costs.

Plan Shipments During Off-Peak Seasons

Shipping during periods of low demand can result in lower freight rates. Plan your logistics schedule accordingly to make the most out of these cost-saving opportunities.

Negotiate Long-Term Contracts

Creating a long-term relationship with a logistics company can be a factor in obtaining favorable rates and priority service.

Utilize Consolidation Services

If you have smaller shipments, consider combining them with other goods to reduce costs. Shared container usage lowers expenses while maintaining efficiency.

Leverage Technology

Use digital platforms to compare rates from multiple logistics companies. Technology provides access to competitive pricing and real-time updates on shipping trends.

Work with Trusted Brokers

Customs brokers and freight forwarders can help you handle and get through complex shipping regulations and find the best rates, especially for international shipments.

Conclusion

Understanding how ocean freight rates are calculated is essential for anyone involved in international trade. By familiarizing yourself with freight cost calculation and the factors influencing ocean cargo charges, you can make better decisions and manage your logistics efficiently. Partnering with a reputable logistics company helps to gain competitive pricing and streamlined shipping operations.

By proactively managing your logistics, staying informed about industry trends, and leveraging technology, you can gain a competitive edge in global trade. The ability to negotiate better terms and understand the nuances of ocean freight rates can lead to significant cost savings and operational efficiency, ultimately contributing to your business’s long-term success.

With Codot Logistics, you benefit from comprehensive support, advanced technology, and customized services designed to meet your needs. We can help you achieve efficiency and cost reduction. By choosing Codot Logistics, you not only gain a competitive edge but also the confidence to focus on your core business objectives while leaving logistics to our team of experts.