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A Primer for The Costs Associated with Ocean Freight

If you are new to the transportation industry, you have likely encountered many unique terms and definitions.  Terms such as Bill of Lading, standard carrier alpha code (SCAC), freight class, and dimensional weight.  The list goes on.  There are several terms associated with ocean freight and specifically the cost components of shipping goods via ocean that are important to understand. Here’s a breakdown of the key components:

  1. Freight Charges: This is the basic cost of transporting goods from one port to another. It’s calculated based on the volume or weight of the cargo and is usually the largest component of ocean freight costs. Freight charges can vary depending on factors such as the shipping route, distance, and demand.
  1. Drayage: This is the cost of shipping via truck from origin to port and from port to final destination like a warehouse.
  1. Bunker Adjustment Factor (BAF): BAF accounts for fluctuations in fuel prices, which can significantly impact the overall cost of shipping. BAF is usually expressed as a percentage of the base freight rate and is adjusted periodically to reflect changes in fuel prices.
  1. Surcharges: Various surcharges may apply depending on specific circumstances or conditions. For example, a currency adjustment factor (CAF) accounts for fluctuations in exchange rates, while a peak season surcharge (PSS) may be applied during times of high demand. Other surcharges may include congestion surcharges, security surcharges, or port charges.
  1. Container Charges: If goods are shipped in containers, additional charges may apply for container rental, handling, and maintenance. Container charges can vary depending on the type and size of the container used, as well as any special requirements for temperature control or hazardous materials.
  1. Terminal Handling Charges (THC): THC covers the cost of loading and unloading cargo at the port terminals. These charges are typically imposed by the terminal operator and may vary depending on factors such as the type of cargo, handling equipment required, and terminal facilities.
  1. Documentation Fees: Shipping companies may charge fees for processing shipping documents, such as bills of lading, certificates of origin, or customs declarations. These fees cover administrative costs associated with preparing and processing the necessary paperwork for international shipments.
  1. Insurance Costs: While not directly included in ocean freight charges, insurance is essential for protecting goods against loss or damage during transit. Insurance costs can vary depending on the value of the cargo, shipping route, and coverage options selected.
  1. Port Charges and Taxes: Ports may levy various charges and taxes on incoming and outgoing cargo, including berthage fees, customs duties, and import/export taxes. These charges can vary significantly between different ports and countries and may have a significant impact on the overall cost of shipping.
  1. Transit Time: While not a direct cost, transit time is an important factor to consider when calculating the overall cost of ocean freight. Longer transit times may result in higher inventory carrying costs, increased risk of stockouts, and potential delays in receiving payments or fulfilling customer orders.

Understanding these components is essential for accurately estimating and managing the overall cost of shipping goods via ocean freight.
—Dave Wheeler, St. Onge Company

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