Ocean Freight Rates: Everything You Need to Know

Ocean freight is one of the most widely used methods for international shipping, offering cost-effective solutions for transporting large quantities of goods across the globe. However, understanding ocean freight rates can be challenging due to the various factors that influence them. From fuel prices to shipping routes and container availability, these rates are constantly changing.

In this article, we will break down everything you need to know about ocean freight rates, what affects them, and how you can optimize your shipping costs.

Let’s break it down!

What Are Ocean Freight Rates?

Ocean freight rates refer to the cost of transporting goods by sea, typically charged by shipping companies or freight forwarders. These rates cover the transportation of goods from port to port, including:

Handling fees
Loading fees
Unloading fees

However, the rates are not fixed and often include additional surcharges such as:

Fuel costs
Terminal handling fees
Security charges

The two primary methods for ocean freight are Full Container Load (FCL), where a shipping container is dedicated to one shipment, and Less than Container Load (LCL), where goods from different shippers are consolidated in a single container.

Full Container Load (FCL)

Shipping lines set flat fees for their main container sizes, such as 20’, 30’, and 40’ high cube containers. The cost depends on several factors, including:

Origin and destination
Shipment’s volume
Time of year
Other variables

If a company doesn’t have an ongoing contract with a shipping line or isn’t shipping large volumes, it is better to use a freight forwarder. Freight forwarders often have access to discounted rates due to the high shipping volumes they manage.

Less Than Container Load (LCL)

When a shipment lacks sufficient volume to occupy an entire container, the less-than-container load (LCL) option serves as a cost-efficient alternative.

LCL facilitates the consolidation of multiple shipments within a single container, thereby optimizing costs and enabling companies to execute more frequent dispatches in conjunction with other scheduled deliveries.

Generally, LCL specialists provide services to major global ports and docks. They secure entire containers, announce the consolidation of various shipments at their facilities, and allocate costs on a prorated basis, typically calculated per cubic meter.

The Different Stages of an FCL/LCL Shipment

Case:

A French manufacturer wants to send products to China to be sold in multiple supermarkets. To do this, they decided to use the FCL/LCL shipping method.

Shipping goods using FCL (Full Container Load) or LCL (Less than Container Load) involves several important steps to ensure the shipment reaches its destination safely and on time. From picking up the goods to delivering them to the final location, each stage has its own role in the process.

This guide will explain each step in simple terms, helping you understand how FCL and LCL shipments work and what to expect along the way.

1. Pickup and Initial Transport

Goods are collected from the shipper and transported by truck to the port of departure.

2. Customs Clearance

The shipment undergoes customs inspection and clearance procedures for export.

3. Container Preparation

For FCL: The entire container is loaded with the shipper’s goods.
For LCL: Packages are unloaded from the truck, consolidated with other shipments, and loaded into the container.

4. Loading onto the Vessel

The container is securely loaded onto a cargo ship.

5. Sea Transit

The vessel carries the container to the destination port.

6. Arrival at Destination Port

The container is unloaded from the ship upon arrival.

7. Customs at Destination

The shipment undergoes customs clearance for import into the destination country.

8. Unpacking and Distribution

For FCL: The container is delivered to a single recipient for unpacking.
For LCL: The container is opened, and goods are separated according to their respective recipients.

9. Final Delivery

The goods are transported by truck to their final destinations, such as warehouses, supermarkets, or other end locations.

Factors Affecting Ocean Freight Rates

Several factors influence ocean freight rates, making them highly variable, impacting not only the final price but also the transit time, service quality, and overall reliability.

Here are the main elements you should know that can affect the cost of shipping goods by sea:

1. Fuel Prices

The costs are one of the most significant factors affecting ocean freight rates. As fuel prices fluctuate, shipping companies often adjust their rates to account for the additional expenses.

Also Read: Inside the Red Sea Crisis: Key Insights and Its Impact on Global Stability

2. Supply and Demand

Shipping rates are often affected by supply and demand dynamics.

For instance, when there is high demand for shipping containers or limited shipping capacity, rates tend to increase. Additionally, seasonal factors like holidays can lead to higher demand and thus higher rates.

3. Shipping Routes and Distance

The longer the shipping route, the higher the freight rate. Longer distances require more fuel, labor, and vessel maintenance, which leads to higher rates.

Shipping to ports in remote areas or routes with fewer vessels may cost more due to additional logistical challenges. However, the efficiency of the shipping route can also impact costs.

Some routes are more expensive due to heavy traffic or fewer service options, while others may be cheaper because they are used more often.

4. Carrier and Vessel Type

Larger vessels with more capacity are often more cost-efficient, but premium services, such as faster delivery or specific shipping lines, may come at a higher rate. The carrier’s reputation and service offerings also play a role in pricing.

5. Port Charges and Terminal Fees

Each port charges fees for the handling of goods. These port charges can vary depending on the country, the size of the port, and local regulations.

6. Weather

This factor can greatly affect ocean freight, and it is often unpredictable. Storms, hurricanes, or even fog can cause delays, disrupt schedules, and increase costs. Because of this, shipping companies may raise their rates during times when bad weather is more likely.

How Are Ocean Freight Rates Calculated?

Ocean freight rates are generally calculated based on several factors, here are the main components that determine how much you will pay:

1. Weight and Volume

The total weight or volume of the cargo is one of the primary determinants. Shipping companies often use a metric called “chargeable weight”, which is determined by either the actual weight or the volumetric weight (calculated based on the space the cargo occupies in the container), whichever is higher.

To work out the volumetric weight, simply use the following formula:

Volumetric weight = Volume (m³) × Conversion Factor (kg/m³)

For instance, if the conversion factor is 200 kg per cubic meter and your cargo occupies 20 cubic meters, the volumetric weight would be 20 m³ × 200 kg/m³ = 4,000 kg.

2. Type of Cargo

Special types of cargo, such as perishable goods, hazardous materials, or oversized items, often incur higher rates due to the added handling and compliance requirements.

3. Container Size

For FCL shipments, the rate is generally based on the size of the container (e.g., 20ft or 40ft). For LCL shipments, you will pay for the space your goods occupy within a shared container, which is priced by volume (cubic meters).

4. Incoterms

The agreed-upon Incoterm (such as FOB – Free On Board or CIF – Cost, Insurance, and Freight) can affect the shipping costs. Certain Incoterms determine who is responsible for freight charges, insurance, and other expenses.

Calculating Your Total Freight Cost

Now that you have got all the details, it is time to crunch the numbers! The total freight cost is calculated using this simple formula:

Total Freight Cost = Chargeable Weight (kg) × Freight Rate (per kg)

Remember, don’t forget those extra costs! Depending on the cargo type and destination, things like insurance or documentation fees can sneak in. Always factor them in for a complete picture!

Real-Life Example

Let’s consider a practical example: A company in Japan needs to ship 50 boxes of electronics to the United States. The total weight of the cargo is 2,500 kg, and the volume is 15 m³. The freight rate for this route is $4 per kg.

Here is how to calculate the total freight cost:

Step 1: Cargo weight = 2,500 kg; Cargo volume = 15 m³

Step 2: Volumetric weight = 15 m³ × 200 kg/m³ = 3,000 kg; Chargeable weight = 3,000 kg (since the volumetric weight is higher than the actual weight)

Step 3: Freight rate = $4 per kg

Step 4: Total Freight Cost = 3,000 kg × $4/kg = $12,000

In this case, the total ocean freight cost for shipping the electronics from Japan to the United States would be $12,000.

Also Read: Carrier Liability vs. Cargo Insurance, What Sets Them Apart?

If you would rather skip the math and avoid any potential mistakes, don’t worry! You can easily use this handy freight calculator instead:

Understanding ocean freight rates is key to optimizing your shipping strategy and managing costs effectively. At Azure Risk, we provide expert advice to help you navigate these complexities and make informed decisions for your business.

GET INSURED TODAY!