To understand the price of a sea freight shipment, you need to know the terms that can affect this price.
Ocean freight is the price you pay for your international transport by sea. There are many variables that can determine this price. For example, the type of cargo, the volume and weight of the cargo, but also the sailing route defines the final price of each shipment. The choice for FCL or LCL is also of influence.
FCL (Full Container Load)
FCL cargo is easy to define as sea freight in a full container for a single shipper. The container is not shared with other shippers, and there is only one owner of the cargo. Opting for FCL shipping is (generally) more profitable when your cargo exceeds 10 standard pallets or 13 m3 (cubic metres).
LCL (Less than Container Load)
LCL cargo occurs when cargoes from different shippers share space in the same container. This is also explained as groupage freight. Choosing an LCL shipment pays off (normally) if you want to ship up to 12-13 m3 of sea freight.
Sea freight costs can be calculated in various units.
- cost per container: the more containers, the higher your sea freight costs.
- cost per TEU: TEU is the unit of measure for the capacity of standard sea containers. A 20FT container counts as 1 TEU, while a 40FT container is 2 TEU. So the rate for a 40FT container will be twice the quoted rate per TEU.
- costs per weight or volume: the costs of (LCL) sea freight is determined by the weight or volume of the shipment. The weight expressed in kilograms and the volume in cubic metres.
What are the basic charges for sea freight?
When calculating sea freight costs for LCL and FCL shipments from a port of origin to a port of destination, the basic freight is always determined first. This is the price per shipment without any further surcharges. With this standard sea freight, these are the most common basic surcharges you should consider:
- Bunker Adjustment Factor (BAF): a variable surcharge applied to compensate for global oil price fluctuations.
- Currency Adjustment Factor (CAF): a surcharge applied to protect shipping companies from global currency fluctuations. The shipping company charges its ocean freight in dollars but incurs local costs in other currencies, for example in Euro’s. The CAF is usually quoted as a percentage within the total amount of the freight.
- Terminal Handling Charge (THC): A surcharge applied to the port handling of ocean freight, both in the port of origin and destination. For example, costs for storage or for loading the containers on board the of the ship.
- Congestion Surcharge (CS): surcharge applied by shipping companies in case of an increasing congestion (delay) in both the port of origin and destination.
Ocean freight also has temporary surcharges that depend, for example, on a specific season or an emergency:
- War Risk Surcharge (WRS): surcharge applied when a container ship must pass through an area of ongoing war conflict. This surcharge is also applicable when the ship must pass through an area with an increased risk of outbreak of a war conflict.
- Peak Season Surcharge (PSS): This surcharge is applied in the peak season, when there is relatively more sea freight. The amount of this surcharge depends on the sailing area and the shipping company.
- General Rate Increase (GRI), General Rate Restoration (GRR) or Emergency Rate Restoration (ERR): These are increases in ocean freight rates on all or more specific trade lanes during a certain period. These increases are introduced by shipping companies and are intended to bring their rates back into line with the market.
In addition to the basic and temporary surcharges, the world of ocean freight has many other surcharges, which can be applied according to the moment and the situation. Some examples are:
- Overweight Surcharge (OWS): Surcharge applied to the transport of heavy goods that may require the use of non-standard containers.
- Special Equipment Surcharge (SEP): A surcharge applied to the sea freight of special containers, usually applied on the transport of Open Top or Flat Rack containers.
- IMO Surcharge: Surcharge applied to the transport of UN classified dangerous goods. This surcharge can be based on the UN type of goods, the number of containers but also the weight of the cargo.
- Automated Manifest Systems Filing (AMS): surcharge that applies to cargo to the United States and Mexico. The AMS filing is due to strict security measures in these two countries. The document must be handed in 24 hours before departure from the port of loading. Shipping companies charge an extra fee for this.
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