Freight charges are nothing but the price at which your containers are delivered from one location to another. Usually, calculating the freight charges can be a very challenging task especially when you don’t have any shipping experience.
Another reason behind the complex calculation is that the charges keep varying depending on the type of cargo, distance, location, mode of transport, the form of cargo, weight and so on.
If you want to know how freight charges are calculated, then this guide is for you. After reading this post, you’ll be able to plan your shipments in a much better way by calculating the freight charges. So, let’s begin!
Freight charges are mainly based on the type and volume of the shipment.
Understanding Sea Freight Charges
Let’s start by understanding the biggest elements that decide the overall price of the shipment!
Generally, the sea freight rates are fixed by the carrier keeping in mind the charges associated with handling the consignments at the source and destination port.
Different Types of Freight Charges
|Booking Fee||Ocean Freight/Air Freight Charge||Customs Clearance Fee|
|Cargo Insurance||War Risk Surcharge||Customs Duty (Destination)|
|Pick up Fee||Bunker Adjustment Factor (BAF)||Merchandise Processing Fee (MPF)|
|Cargo Fumigation Fee||Currency Adjustment Factor (CAF)||Harbor Maintenance Fees (HMF)|
|Custom duty (at origin)||Panama Transit Fee||Demurrage and Detention / Warehouse Fees|
|Terminal handling and conveying surcharge||Peak Season Surcharge||Telex Release/EDI Fee|
|Security Surcharge||—||Delivery Fee|
|—||—||Chassis Usage Fee|
|—||—||Container Cleaning Fee|
Another major factor that affects the prices of containerized cargo, is whether the goods are loaded in an FCL (Full Container Load) or an LCL (Less Than Container Load). Here is what they mean :
FCL (Full Container Load)
FCL stands for Full Container Load. As the name suggests, this is a fully dedicated container for your shipment. That means you book the entire container for goods. The shipping charges for a 20′ or a 40′ container are based on a number of factors such as the source, destination, volume of goods, time of year, carrier, etc. If you’re a frequent shipper, then you can easily get a discounted price from your freight forwarder. Further, you can also lower the shipping cost by planning your shipment during the off-seasons.
LCL (Less than Container Load)
When you don’t have a lot of goods that can fill a container to its capacity, you can opt for the LCL shipping method. In this, instead of booking an entire container, you share a common container and transport your goods with other consignments. In simple words, it is a shared container method. LCL is a cost-effective solution for shipping a small volume of goods.
Which Should You Choose? FCL or LCL?
Both FCL and LCL shipping methods have their own benefits.
There are many situations where a shipper may not prefer using LCL even when it is much more cost-effective. Otherwise, the final decision regarding the type of container revolves more or less around the cost.
Let’s understand this with the help of an example!
Suppose the shipment size is 2000 kgs and you’re shipping from Mumbai, India to Dubai.
A 20′ container in this scenario would cost around $2500 including all the charges (pick up, delivery).
Here, the LCL rate would be around $95 per 1000kgs.
This comes to the following conclusion :
- If you opt for an FCL, you’ll have to pay the price for an entire container regardless of the size of your shipment.
- If you opt for LCL, you only have to pay $95 per 1000 kg.
So, which one should you choose?
If your shipment is large and the goods are fragile, then FCL should be your choice. And if you’re shipping a smaller volume of goods, then you can go for LCL as it will be cheaper.
An Overview of Shipping Charges
Shipping charges start right from the warehouse or the factory where the containers are packed and transferred to the port by a pick-up vehicle. Other activities that add to the freight charges are bills of lading fee, port formalities, transit and delivery at the customer’s location. Know that all of these activities are paid separately and form an overall freight cost. Note that, the charges of a freight forwarder are also included in this.
1. Port Handling Fees
Ports impose handling charges and some other fees that should be considered by calculating the total shipping cost. These charges again depend on the type and volume of the container. Moreover, if there is a need for special handling (if the goods are delicate), then you need to pay extra for this service.
2. Customs Fees
Customs, export/import duties and value-added taxes, all are there for every type of shipment. Each country has its own rates, so make sure to study these additional charges in detail before calculating the final price.
3. Insurance and Certification
To deal with the losses incurred during the transition and to protect your business from paying hefty claims, you should purchase a suitable insurance policy for your cargo. It will greatly help you in dealing with the potential damage of your shipped goods. Further, the cost of other important documents like quality control certificate, certification of origin, etc will also be added to your overall charges.
4. Final Cost (Per unit)
So, the final cost of a product is a total of all the charges from its production to transport and delivery at the customer’s doorstep. To determine this cost, add the production cost and other expenses including the materials, processing, staff and so on.
Once the final rate is determined, you can add this to the overall shipping cost, from the factory to the customer’s premise plus your profit margin.
How to Calculate The Unit Freight Cost?
If there is one unit per consignment, then your freight charges will be calculated on the basis of volume and weight and also the tariffs. However, if your shipment is large with any number of units in it, then you have to take into account the mode of transport and the type of shipping (LCL or FCL).
For sea transport, the method of shipping i.e FCL or LCL and the size of the container will determine the total cost. As mentioned earlier, containers come in different sizes and versions – open or closed containers, 20′ or 40′, etc.
Full Container Load or FCL shipping methods include demurrage fees, on the other hand, LCL doesn’t impose such kinds of charges as long as the shipment is moved within the free period.
Taking all these factors into account and getting a rough estimate from your freight forwarders or the carrier will help you calculate the true freight cost. A good idea is to take multiple quotes from different carriers and then select the best after comparing them with each other.