Keep the Overview: Sea Freight Rates and Cost Types in Shipping
In container shipping, the different types of freight charges can be confusing. Read this article to find out what's behind them and why they are added.
Table of Contents
Why are there so many cost types in shipping?
Nearly 90 percent of the world's goods are shipped by sea freight. Not surprisingly, there are many costs and fees charged by the various parties involved. These range from customs and port charges to discounts that are only charged in certain circumstances.
There are a number of factors for shippers to consider when it comes to import and export costs. Broadly speaking, shipping freight rates can be broken down into sea and inland freight costs, which are usually quoted as a total by carriers. However, depending on the type of shipment and the terms of the contract, there may be additional cost items. Reasons for this include country-specific regulations or different wages for personnel.
When booking or quoting with Hapag-Lloyd, our digital tools within the Online Business Suite offer a detailed overview about all charges, that will be put into effect. The six most important cost centers are explained below.
What types of costs are there in container shipping?
1. Sea freight rate or ocean freight rate: Sea freight rates refer to the movement of the cargo on the water. Freight costs are calculated per container, regardless of its size. Each shipping company and carrier charges its own sea freight rate for the same route - from the time of loading to the time of unloading. They depend on operating costs, container costs and vessel propulsion. To get a first estimation of your charges, you can use our tariff overview in the Quote section of the Online Business Suite.
2. Bunker Adjustment Factor (BAF): Shipping companies apply a series of surcharges to compensate for costs that are not stable in the market: The BAF is the cost of bunker or fuel for container ships and fluctuates according to the current price of oil. Shipping companies use different methods to calculate the BAF. In the past it was expressed as a percentage, but more recently it has been calculated on the basis of container size (20' or 40').
3. ISPS - International Ship and Port Facility Security Code: After 9/11, the IMO (International Maritime Organization) adopted a series of measures to protect against potential threats. These apply worldwide and cover three different levels of security. Security level 1 refers to the minimum protective measures that are maintained on ships and port facilities at all times. At security level 2, there is an increased risk and security experts take additional measures during the critical period. At security level 3, an extraordinary security incident is imminent and security experts work closely with government agencies. Shipowners charge ISPS fees for monitoring ports and ships to cover the additional cost of qualified security personnel.
4. THC - Terminal Handling Charges: Terminal Handling Charges (THC) are the shipping freight rates charged by the port terminal for handling cargo at the terminal of a particular port. They are a critical component of ocean shipping and should not be underestimated: Because ports charge different costs for cargo handling, the fees vary depending on where the container ship originates, the ports it calls, and the destination.
5. Carrier Haulage: Carrier haulage is the transportation of a container by a freight forwarder (carrier) under the control of the shipping company. The entire logistics process is in the hands of the same provider. By bundling services, this type of transportation process is usually cost effective and easy to coordinate. In addition, the shipping companies have extensive experience, especially in handling.
6. Merchant Haulage: Recipients and consignors of goods (merchants) organize the transportation of their containers themselves at Merchant Haulages. They select the carrier that will take the container from the port to its destination and can prioritize their own criteria such as cost, service quality, and other requirements. This gives them more control and flexibility. For example, if there are special requirements for the transport, merchants can use relationships or local knowledge to obtain more cost-effective rates than with the carrier option.
As you can see, there is a lot to consider and the types listed are only a rough overview. Check out the Hapag-Lloyd Local Page where all country specific charges and sea freight rates are listed.
How to handle with different cost types in shipping
Rates and costs in container shipping often seem opaque and confusing - and indeed, it's hard to keep track. At best, freight quotes will already include all charges. It is important that these rates not only list all the charges, but also show how the carrier benefits from them in comparison.
Transparency is key in all transactions. It is always worthwhile to compare different offers and, above all, to understand what is behind the different billing points - this will ensure cost-effective and efficient shipping.
© Hapag-Lloyd AG