A Breakdown of Ocean Freight Costs

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By Cate Hull
For those new to ocean shipping and associated freight costs, understanding the multi-levels of fees, charges and surcharges can be like maneuvering through a maze of confusion and complexity.

Let’s start with the basics. A freight quote is much more than a sea shipping service price list. In the simplest terms, a freight quote is a summary of charges levied by a carrier for the movement of cargo from one point to another.

Freight rates are calculated by the form of cargo, the mode of transportation, the weight of the cargo, and the distance to the delivery destination.

Some of the costs of shipping sea freight depend on where your goods are coming from and where they are going.

You can get a good idea of the range of costs from different providers, using a freight calculator available on many freight websites.

A key factor will be whether you use a Full Container Load- FCL, (alternatively Full Trailer Load – FTL) or Less than Container Load (LCL). With an FCL, you pay a flat rate per container and have the full container. With LCL, you share the container and pay only for the volume of space used.

Here are some examples of rates (for illustration purposes only), for sending a 40-ft container of low value clothing to the UK from different origin ports:

  • From Malaga, Spain – USD 1100 – 1200
  • From Qingdao, China – USD 1900-2100
  • From Bangladesh – USD 2200 – 2500
  • From Veracruz, Mexico – USD 2000 – 2200
  • From Sydney, Australia – USD 2600 – 2900

Additional charges are often broken down into three categories:

  • Pre-Carriage
  • Carriage
  • Post Carriage

Pre-Carriage
Refers to any inland movement that precedes the container being loaded at a port of loading. These activities usually take place at or near the port of loading.

Here’s a list of some of the more common charges, according to Katherine Barrios, writing for Xeneta.com:

Chassis utilization surcharge – A fee imposed for the use of a chassis in conjunction with the shipping container to facilitate overland transportation from the shipper’s door to port.

Cartage charges – A charge for transporting goods short distances, such as within a commercial area or municipality. Also called Drayage or Haulage.

Fuel Surcharge – Fuel Surcharge applicable for the transport of the shipment.

Packing charges – A fee that may be charged by a third party warehouse for the packing of the cargo into the container at their premises. This charge would not apply if the cargo is packed by the shipper.

Customs Clearance – A fee paid to the customs broker for arranging your customs clearance.

Wharfage – A charge assessed by a pier or dock owner against freight handled over the pier or dock or against a shipping company using the pier or dock.

Documentation charges – Charges that may be applicable for the preparation of export documentation such as Certificate of Origin, Export Permits, Licenses and such.

The pre-carriage activity may be carried out either by the carrier using road or rail modes (Carrier Haulage) or by the merchant using road or rail modes (Merchant Haulage).

2. Carriage
Involves the actual movement of the cargo on the sea by the shipping line from the port of loading to the port of discharge.

Depending on the contract of carriage and the service type mutually agreed between the carrier and the shipper, each carrier will have their own applicable charges in their shipping service price list.

Here’s a list of some of the more common charges:

Ocean Freight Rate – Basic freight charge for movement of container from Port A to Port B.

BAF – Bunker Adjustment Factor, Used to compensate steamship lines for fluctuating fuel costs.

ISPS – International Security Port Surcharge, which relates to charges for security of the vessel and container while at the port.

Terminal Handling Charge – THC charged for the export move.

Bill of Lading Fee – A fee charged by the shipping line for the processing of the bill of lading on behalf of the client.

Export Service – Service fees that may be charged by the agent.

Documentation fee – Delivery Order or Release Fees at destination.

EBS – Emergency Bunker Surcharge. A surcharge added to the cost of freight to cover fuel costs.

Environment Fee Destination – Environmental surcharges imposed by the destination port. Covers various contingencies such as hydrocarbon spill cleanup costs and other mandated fees.

ERS – Equipment Repositioning Surcharge. A fee imposed when a shipper requests that the carrier make empty containers available that must be moved from one location to another.

GRI – General Rate Increase. Used to describe an across-the-board tariff rate increase applied to base rates.

Hazardous Surcharge – A surcharge imposed for shipping hazardous materials or goods.

OWS – Overweight Surcharge.

Piracy Surcharge – A charge assessed to compensate shipping companies for increased costs associated with avoiding piracy and hijacking.

PSS – Peak Season Surcharge.

CAF – Currency Adjustment Factor. A charge, expressed as a percentage of a base rate, that is applied to compensate ocean carriers for currency fluctuations.

Port Dues – Fees charged by the harbour authority on ships using the port’s facilities.

DDC – Destination Delivery Charge. A charge, based on container size, that is applied in cargo tariffs. This charge is considered accessorial and is added to the base ocean freight. This charge covers crane lifts off the vessel, drayage of the container within the terminal and gate fees at the terminal operation.

Detention and Demurrage – A penalty charge against shippers or consignees for delaying carrier’s equipment beyond allowed time. Demurrage applies to cargo; detention applies to equipment.

3. On-Carriage or Post Carriage
Any inland movement that takes place after the container is off-loaded at a port of discharge. Such activity can take place at the same location as the port of discharge, or at a location close to the port of discharge.

It may be carried out either by the carrier using road or rail modes (Carrier Haulage) or by the merchant using road or rail modes (Merchant Haulage).

These activities may include, but not be limited to the following:

Chassis utilization surcharge – A fee imposed for the use of a chassis in conjunction with the shipping container to facilitate overland transportation from the port to the consignee’s door.

Cartage charges – A charge for transporting goods short distances, such as within a commercial area or municipality. Also called Drayage or Haulage.

Fuel Surcharge – Fuel Surcharge applicable for the transport.

Unpacking charges – A fee that may be charged by a third-party warehouse for the unpacking of the cargo from the container at their premises. If cargo is unpacked directly at the consignee’s premises, then this charge will not be applicable in this contract.

Customs Clearance – A fee paid to the customs broker for arranging your customs clearance which may include the payment of any Customs Duty, VAT and other charges relating to Customs.

Wharfage – A charge assessed by a pier or dock owner against freight handled over the pier or dock or against a steamship company using the pier or dock.

Documentation charges – Charges that may be applicable for the preparation of import documentation such as Permits, Licenses and such.

CYRC – Container Yard Receiving Charge.

DDC – Destination Delivery Charge. A charge, based on container size, that is applied to cargo tariffs. This charge is considered accessorial and is added to the base ocean freight. This charge covers crane lifts off the vessel, drayage of the container within the terminal and gate fees at the terminal operation.

Detention/Demurrage – A penalty charge against shippers or consignees for delaying the carrier’s equipment or vessel beyond the allowed free time. Demurrage applies to cargo; detention applies to equipment.

DTHC – Destination Terminal Handling Charge.

FS – Fuel Surcharge.

Handling Fee – A fee for transporting, storing, or packaging goods.

Release Fee – A fee charged by the destination port to release cargo for further movement or action.

The responsibility to know and understand each fee, charge and surcharge falls to the shipper. Shippers should ask detailed questions about every item on a freight quote to know and understand the details of the contract you are entering into.

The freight industry is undergoing rapid change. Technology now allows shippers to obtain online quotes in minutes. Comparison shop. Use freight and logistics companies you can trust and who will guide you through the process.

Cate Hull is the CEO of FreightExchange, a freight and logistics company based in Sydney.