3/22/2018 The Secret to Understanding Sea Freight Rates

XENETA BLOG

The Secret to Understanding Sea

Freight Rates
MAY 24, 2017 | KATHERINE BARRIOS

For many shippers, a freight quotation is maybe an enigma. In this article, we

will try and unpack it for you and help you understand your freight quotation.

A freight quote is much more than just a sea or train shipping service price list.
In the simplest terms, a freight quotation is a summary of charges levied by a
carrier for the movement of cargo from Point A to Point B.

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In addition, the quote is typically a combination of multimodal costs such as

seafreight rates, surcharges, fees, various adjustment factors, rules, exceptions
and exclusions as per the tariffs set out by the carrier. 

A freight quotation may be divided into 3 groups as below: 

Pre-Carriage

Carriage

On-Carriage

For each group, a list of common fees are provided in the chart. Depending on
the mode of transport such as Door to Door, Port to Port and other associated
services involved, a shipper or consignee will end up paying many other charges.

Some of the common charges are listed within each group after the common
fees. Some of you may know some of these charges under other names due to
the various abbreviations and descriptions of these charges. Many of these fees
can fall into more group.

Ocean Freight Surcharges List

Pre-Carriage 

Carriage

On-Carriage

Pre-Carriage – is the term given to any inland movement that takes place prior
to the container being loaded at a port of loading.

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Such activity can take place at the same location as the port of loading, or at a
location close to the port of loading.

There are many activities that happen in a containerized shipment prior to the
container being delivered at the port for export.

These activities include (but not limited to)

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.

Fuel Surcharge - Fuel Surcharge applicable for the transport.

Packing charges  - A fee that may be charged by a 3rd party warehouse for the
packing of the cargo into the container at their premises.

If cargo is packed directly at the shipper’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.

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

export documentation such as Certi cate of Origin, Export Permits, Licenses
and such.

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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). 

 [Article continues below]

Related Reading 

What Is ENS And Why Is There An ENS Charge?

The Anatomy of The Sea Freight Invoice

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Pre-Carriage 

Carriage

On-Carriage

Carriage – is the term given to the actual movement of the cargo on sea by the
shipping line from the port of load to the port of discharge.

There are literally hundreds of carriers around the world offering services
globally. 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 pricelist.

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

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BAF - Abbreviation for “Bunker Adjustment Factor.” Used to compensate

steamship lines for uctuating fuel costs. Sometimes called “Fuel Adjustment
Factor” or FAF.

ISPS -  International Security Port Surcharge which relates to charges for

security of the vessel and container while at the port

Low Sulphur Surcharge - Charged for the use of fuel that has lower emission

Terminal Handling Service - Origin - THC charged for the export move

BL Fee - 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 maybe charged by the agent

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On-Carriage - On-Carriage via sea to other inland sea port (if applicable)

Documentation fee - Destination - Delivery Order or Release Fees at destination

Terminal Handling Service - Destination - THC charged for the import move 

EBS - Abbreviation for “Emergency Bunker Surcharge.” A surcharge added to the

cost of freight to cover fuel costs.

EIS - Abbreviation for “Equipment Imbalance Surcharge.” A surcharge on an

ocean freight rate, imposed by shipping lines, to recover costs related to
removing large quantities of empty containers from a country or countries
where there is no export use for those containers that had been previously
imported into those places.

The charge is usually a at rate per container, and it is not necessarily applied in
all trades or at all times, rather it is only applied when such trade imbalances
necessitate large expenditure on shifting empty containers from one place to
another.

Environment Fee Destination - Environmental surcharges imposed by the

destination port. Covers various contingencies such as hydrocarbon spill
cleanup costs and other mandated fees. (Group 2)

ERR - Abbreviation for “Emergency Rate Restoration.” A surcharge added to the

cost of freight to cover increases in shipping costs.

ERS - Abbreviation for “Equipment Repositioning Surcharge.” A fee imposed

when a shipper requests that the carrier make empty containers available that

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must be moved from one location to another.

GAS - Abbreviation for “Gulf of Aden Surcharge.” Used to compensate shipping

lines for additional costs incurred due to transiting the Gulf of Aden. (Group 2)

GRI - Abbreviation for “General Rate Increase.” Used to describe an across–the–

board tariff rate increase implemented by conference members and applied to
base rates.

Hazardous Surcharge - A surcharge imposed for shipping hazardous materials

or goods.

ISF - Abbreviation for “Importer Security Filing” A US Customs and Border

Protection (CBP) regulation requiring importers and vessel carriers to provide
data electronically to CBP for in-bound ocean shipments. Also known as 10+2.

Ocean Rate  - See Base Rate

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OWS  - Abbreviation for “Over Weight Surcharge.”

Piracy Surcharge - A charge assessed to compensate shipping companies for

increased costs associated with avoiding piracy and hijacking.

PSS - Abbreviation for “Peak Season Surcharge.”

SCS - Abbreviation for “Suez Canal Surcharge.” Used to compensate shipping

companies for additional costs incurred due to transiting the Suez Canal.

Sea Freight Rate - See Base Rate

SES - Abbreviation for “Special Equipment Surcharge.”

THC - Abbreviation for “Terminal Handling Charge.” Sometimes referred to as

Capatazia, in particular in Brazil.

THC Destination - Terminal Handling Charges incurred at the destination port.

THC Origin - Terminal Handling Charges incurred at the port of origin.

Additional charges may include the following:

Accessorial Charges - Charges that are applied to the base tariff rate or base
contract rate, e.g., bunkers, container, currency, destination/delivery. 

Aden War Risk Surcharge - A surcharge on goods transiting the Gulf of Aden
used to compensate shippers for additional costs including crew risk
compensation, cancellation of economical speed, and redeployment of vessels.

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AI - Abbreviation for “All Inclusive.” The total price to move cargo from origin to
destination, inclusive of all charges (limited to transportation costs). 

Base Rate - The cost of shipping a container from one point to another. Rates
uctuate frequently based on a number of different factors. 

BUC - Abbreviation for “Bunker Charge.” An extra charge sometimes added to

steamship freight rates; justi ed by higher fuel costs. Also known as Fuel
Adjustment Factor or FAF.

CAF - Abbreviation for “Currency Adjustment Factor.” A charge, expressed as a

percentage of a base rate that is applied to compensate ocean carriers of
currency uctuations. 

Cargo Data Declaration Fee - A surcharge assessed for the additional costs of
declaring cargo information in advance to the European Union authorities as
required for authorities to evaluate any potential security and safety threats.

Port Dues - Fees charged by the harbour authority on ships using the port`s
facilities.

DDC - Abbreviation for “Destination Delivery Charge.” A charge, based on

container size, that is applied in many tariffs to cargo. 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 - A penalty charge against shippers or consignees for delaying

carrier’s equipment beyond allowed time. Demurrage applies to cargo; detention

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applies to equipment. If you store a container at the port beyond free days, then
demurrage and detention applies. If you keep a container for too long on any
other premise (not on the port’s premises), then only detention applies.

 Bonus Information
  How to Gain Transparency into Ocean Freight Rates

Pre-Carriage

Carriage

On-Carriage 

On-Carriage – is the term given to any inland movement that takes place after
the container is discharged 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). 

Similar to the pre-carriage, there are a few activities that happen in a

containerized shipment after the container has been discharged from the ship. 
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These activities include (but not limited to)

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.

Fuel Surcharge - Fuel Surcharge applicable for the transport. 

Unpacking charges - A fee that maybe charged by a 3rd 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. 
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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 - Abbreviation for “Container Yard Receiving Charge.”

DDC - Abbreviation for “Destination Delivery Charge.” A charge, based on

container size, that is applied in many tariffs to cargo. 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.

Demurrage/Detention - 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. If you store a
container at the port beyond free days, then demurrage and detention applies. If
you keep a container for too long on any other premise (not on the port’s
premises), then only detention applies. (Group 3)

DTHC - Abbreviation for “Destination Terminal Handling Charge.”

FS - Abbreviation for “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.

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TAD - Abbreviation for “Transit Accompanying Document.” A document

accompanying uncleared goods during transit from one authorized location to
another.

Legality of a freight quote

You may have noticed on your freight quote that the carrier has indicated that
quotations are subject to their Terms of Carriage, including its choice of law and
jurisdiction, which makes the quotation legal and binding.

The quotation may also come with a plethora of its own terms and conditions.

Once a quote has been accepted and the cargo has been shipped, there is no
room for any dispute on that quotation because the carrier has been very clear
in their offering.

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Even if there is no express acceptance of a quote by a shipper, but shipper

books the cargo with the carrier, the carrier will deem the act of booking of cargo
to be an acceptance of its quote.

It is therefore very important for a shipper to read and understand all the terms
and conditions clearly and properly before agreeing to ship with that carrier on
the basis of that particular quotation.

Some shipping lines also have conditions like where there is an existing service
contract between the carrier and the shipper and there is a separate quotation
with additional charges or requests, in those cases, the quotation (incorporating
the Carrier’s Terms for Carriage and Service Contract Terms) shall prevail over
the service contract.

So, are the shippers at the mercy of the carriers?

Not at all. If the shipper understands the full scope of the carriage and
breakdown of the carrier’s costs down to the last cent, there will be no
ambiguity.

It is prudent for you as the shipper to go through each and every item of the
freight quote to understand the costs so that there are no grey areas between
you and the carrier at the time of payment or cargo release.. 

Remember that YOU are choosing the carrier, so you are entitled to ask them to
explain all charges in detail. Don’t get ripped off because you didn’t check and
query the charges in advance and when you do query later it may be too late.

Conclusion
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Disruptions and innovation are changing today’s supply chain at a rapid clip.
Charges, especially ocean freight rates and bunker surcharges can change at a
moment’s notice.

You as a shipper should take advantage of innovative freight benchmarking

companies to compare what rate you should be paying to the carrier and
whether the quotation provided by the carriers are in line with the market.

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Leave a comment

Virgil Ratliff 3/1/2017, [Link] PM

Very good post and well researched. Thanks for this very educational content.
Reply to Virgil Ratliff

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Josie McHale 5/25/2017, [Link] PM

Nicely done! Very concise and explained thoroughly! Thanks for posting!
Reply to Josie McHale

Katherine Barrios 6/8/2017, [Link] PM

Hi Josie, Glad you found this post useful. Rate sheets are mind boggling. Thanks for
the feedback!

Kevin Krause 5/26/2017, [Link] AM

Well done! Anyone TOUCHING sea freight shipments or selling them needs to understand
the many pieces that roll up into an ocean freight rate.
Reply to Kevin Krause

Terrence Bryant 5/26/2017, [Link] PM

Very nice article, this information is very important because of the need for to
understand the many variables of producing a sea freight quote. Thanks

Katherine Barrios 6/8/2017, [Link] PM

Thanks for reading and following, Terrence! Best, Katherine

Katherine Barrios 6/8/2017, [Link] PM

Hi Kevin, thanks for reading the blog post and for your feedback. Much appreciated!

ANUJ BHARDWAJ 7/21/2017, [Link] AM

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Really helpful, giving inside knowledge to understand and negotiating in better ways for
company bene ts and personal growth.
Thanks again, also need to know the way for calculation of total cost for export or import
shipment, what factors should be considered and how? appreciate , if you please put
some light on it
Reply to ANUJ BHARDWAJ

Smruti 7/25/2017, [Link] AM

Thanks. It was very [Link] it up.

Reply to Smruti

Fressy L. Araya 8/17/2017, [Link] PM

Excellent and accurate information.👍⚓

Reply to Fressy L. Araya

Valerie Bourgeay 8/24/2017, [Link] PM

Well done 👍, will recommend your article. Thanks

Reply to Valerie Bourgeay

Nasser 10/4/2017, [Link] AM

Thanks for the useful, explanatory and break down Sea Freight Rates. it is a great job, not
to be found on every site. As ANUJ BHARDWAJ pointed out it would be much
appreciated to put some light on how to calculate the nal rate for a FLC freight going
from A to B with some examples. Thanks.
Reply to Nasser

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Casandra Russell 10/9/2017, [Link] AM

Thank you for providing a deeper knowledge into the sea freight rates as well as letting
the viewers understand the charges levied upon while undergoing a shipment process
through Ocean. This information has helped my relative to evaluate and examine various
shipping companies while Car Shipping California. When GDP of the world is increasing,
such insights as explained above give relief to ourselves as well to our pockets. While
wandering through various sites she got this ([Link]
shipping-california/) and while understanding their services your informative blog helped
her come to a decision.
Reply to Casandra Russell

Katherine Barrios 10/12/2017, [Link] AM

Thanks for reading and for your feedback, Cassandra!

Mark Hamilton 10/26/2017, [Link] AM

Found your blog. Its really nice on courier. I appreciate your article. Its important to get
quality courier services. So thanks for sharing all that important information.
Reply to Mark Hamilton

Ifftikhar Ahmed 12/9/2017, [Link] AM

Dear Katherine,
It's been very interesting and informative stuff that is sure to add value to the reader's
professional understanding of the Shipping freight. Keep it up!
Reply to Ifftikhar Ahmed

Ankush Ankush 12/10/2017, [Link] AM

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thanks you for providig this valuable info

Reply to Ankush Ankush

SHAFIQUR RAHMAN MOHAMMAD 12/10/2017, [Link] PM

I AM STUDYING " SUPPLY CHAIN MANAGEMENT WITH 6 SIGMA " , AND THIS POST IS
VERY HELPFULL FOR US. THANKS, M. SHAFIQ
Reply to SHAFIQUR RAHMAN MOHAMMAD

Aderick Kagenzi 1/29/2018, [Link] PM

Very insightful article, Thanks.

Reply to Aderick Kagenzi

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