Transportation via sea routes has revolutionized trade and commerce between different countries around the world. It has also laid a founding stone for the flourishing of human civilizations and the discovery of many continents for ages. Today oceanic transportation has become a lifeline for the financial well-being and economic prosperity of all the nations involved in the trade activities via sea.
What Is Sea or Ocean Freight?
Ocean or sea freight is a very simple practice of transporting goods via sea. Today there are many different types of carrier ships available that are used meticulously to transport different types of goods irrespective of any restriction with regards to size, type, texture, or other physical and chemical properties of the good. However, the same advantage is not offered by other means of transportation such as air, road, or rail for international trade activities. There are mainly two types of shipment facilities associated with sea transportation-
- FCL or Full Container Load– Entire dedicated container is booked for the transportation of the goods. It is indicated in terms of the size of the container i.e., 20’, 40’, or 45’.
- LCL or Less Than Container Load– The intended good is packed with other goods in the same container as it does not require full container space.
How Sea Freight Rates are Calculated?
Import and export via sea route is a very rigorous and intensive process. It involves a series of steps to be followed and the cost is also associated with each of these. To know more about the same, the following points clearly illustrate the components involved in the calculation of the final sea freight rates-
- Inland transportation costs to bear the expense for transporting goods from the seller’s hub to the shipment port.
- Ocean freight cost is calculated based on whether the consignment is FCL or LCL. For FCL the rate is based on the entire container capacity while for LCL it is based on the weight (in tons) or volume (in cubic meters) of the shipment, whichever is higher, multiplied by the base rate charged by the shipping line. In addition to this, there is also a container fee associated with it depending on whether we are choosing FCL or LCL.
- Cost associated with the necessary documentation and paper works for approval and specifications.
- Terminal charges to cover the expenses associated with the management of the goods at the port terminal.
- Custom charges or fees at both the shipping unit of export and the import side. It is in compliance with the taxation rules laid by the respective countries.
- Currency adjustment charges are also levied to account for any fluctuation in the cost of currency in terms of which transaction or payment of fees has been done by the importer or the exporter.
- Marine insurance premium to account for the safety of the consignment also comes as a necessary component which surely both the seller and the buyer would not like to compromise with.
- In addition to the above, security charges are also levied to secure goods against any kind of risks or damages.
- Bunker Adjustment Factor (BAF) plays a very vital role in deciding the final bill for transporting goods. Shipping lines levy these charges to account for the volatility in fuel charges.
It must be noted that there can also be other factors also associated with the development of agreements, geopolitical circumstances, local conditions, etc. that might contribute towards the final sea freight rates. Moreover, both the seller and the buyer should be on the page with respect to who will bear the cost for various components associated with the entire import and/ or export.