Shipping costs are one of the most misunderstood or miscommunicated terms in shipping and freight. If not quoted, monitored or controlled properly, it could turn out to be a nightmare for the BCO (Beneficial Cargo Owner also known as Shipper) or Freight Forwarder. This is why we take a look at the various types of shipping and the costs involved with it.
In part 1 of this series, we will take a look at some of the more well-known shipping costs including cartage, wharfage and the bunker adjustment factor.
Costs for different types of shipping: Overview
In simple terms, shipping costs are the costs for the movement of cargo from Point A to Point B. Depending on the type of contract, multiple components may be covered in the shipping costs.
In its broadest form to cover a door to door movement, shipping costs can be divided into ocean costs and landside costs both having its own individual components.
Involves the actual movement of the cargo on the sea by the shipping line from the port of loading to the port of discharge. Here’s a list of some of the more common Carriage Charges.
- Ocean Freight: Basic freight charge for movement of container from Port A to Port B.
- BAF: Bunker Adjustment Factor - 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.
- Destination Arbitrary
- LSS: Low Sulphur Surcharge
- 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
- THC: Terminal Handling Charge — THC charged for the export move.
- BL: 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.
- 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.
Landside costs may be further split into port, road, rail, documentation, customs etc each of these categories having their own costs such as;
- Terminal Handling
- Wharfage, Cartage
- Chassis UsageTri-axle
- Railage
- Documentation Fee
- Delivery Order Fee
- Customs brokerage fee etc.
Ocean freight accounts for about 90 percent of global shipping, which makes it the main mode of transportation. It is also the preferred mode due to efficiency, cost-competitiveness, and heavy cargo capability. There are several terms associated with ocean freight and specifically the cost components of shipping goods via ocean that are important to understand. Understanding these components is essential for accurately estimating and managing the overall cost of shipping goods via ocean freight.