Over 90% of the trade across the world is carried via the sea.
Other transport options like air freight have their advantages in terms of a quicker delivery but have certain limitations as well.
As a rule, shipments that weigh over 100kg are sent via sea freight. Additionally, the ocean route is a more budget-friendly option transporting in bulk quantities. Ocean freight has, therefore, become the most common and cost-effective way for international suppliers and manufacturers to ship their products across the world.
Let us understand more about ocean freight and the factors that affect its prices.
What is ocean freight?
In layman terms, ocean freight simply means shipping goods and products via sea route to different destinations across the globe. Shipping by sea allows for large amounts of cargo to be transported at once, reducing the overall cost for all parties.
Why should you choose to ship by sea?
Shipping by sea is preferable compared to alternative shipping methods like air. Air shipments, although quicker, have significantly higher charges and are incapable of carrying large amounts of product at one time.
What is an ocean freight surcharge?
Ocean freight services have three primary surcharges; Pre-carriage, Carriage, and On-Carriage.
Pre-carriage occurs once the supplier or manufacturer delivers the products to the loading dock. Ocean freight services will take your product, load them into containers and on-load them onto the freight for shipment.
Carriage is simply the movement of the containers from one port to another.
On-Carriage pertains to any movement or actions taken to the products after it has left the starting port all the way to the point in which the products are delivered to its final destination (e.g. destination port, warehouse).
Factors that affect ocean freight costs
Usually, ocean freight rates are standard for all users. However, discounts and waivers are often available to frequent shippers which makes it an even more viable option.
That said, the ocean freight rate is still a very unpredictable area. There are various factors that interplay to affect the prices from time to time.
Many of us are left asking, why are ocean freight rates so high? Recently we have seen a massive increase in ocean freight prices.
A lot of this can be attributed to the pandemic. This past year, we have seen costs increase threefold. Pre-Covid, prices per container could range anywhere from $4000 – $6500 but now we are seeing prices sky-rocket to ranges of $12,000 – $18,000 per container.
See ocean freight rates historical charts here.
Ocean freight prices have also risen due to shortages of containers and congestion in the U.S. and Chinese ports.
This past year, Ningbo Port, China’s largest ocean freight port had temporarily closed due to Covid-19 outbreaks leaving shipments at a standstill.
This had caused ships that had reached U.S. ports, especially in Oakland and Long Beach to be stuck with off-loaded containers that could not be sent back to Ningbo, leaving no room to off-load incoming shipments.
Aside from these major obstacles impacting the supply chain, here are some factors to consider:
1. Intended destination
One of the largest impacts on price is the intended destination and routing of your products.
Various other factors are also co-dependent on the destination point. For example, service charges differ depending on port location and final destination.
2. Service charges
Different port authorities levy extra charges like the security service charge which contribute to the total freight charges.
3. Season and time
Season is a critical factor for goods like food products, clothing items, etc. Grain, vegetables, fruits, clothing items, etc transported during the peak demand season may have higher cargo rates.
4. Container capacity and fuel charges
Interestingly, the two factors that played a large role in the increase of ocean freight pricing attributed to container capacity shortages and fuel charges. Oil prices continue to rise and as touched on earlier, container shortages have been a large obstacle for suppliers to get their products to their destinations.
Another common factor to consider in ocean freight costs include fees for currency exchange rates, custom security charges, and insurance. The overall cost is largely dependent on the fluctuations in exchange rates.
6. Fine and fees
Delays in ships reaching the port of destination might result in a fine being imposed which can also impact the overall ocean freight rates.
7. Terminal fees
A fee is to be paid by freight carriers while embarking on their journey from a port to an intended destination. It is known as terminal fees and is added within the ocean freight rates.
Ocean freight rate calculator
Shippers barely have the luxury of time. It is, therefore, important for them to get instant shipping quotes for quicker decision making.
Various ocean freight rate calculators are available online to help you get a quick quote (estimated averages) for your consignment. You can search and compare container prices amongst multiple carriers, customise the searches for your needs, and also ask for detailed breakdowns of the costs.
As an example, click on this link for ocean freight rate calculator by icontainers.
Various factors contribute to ensuring a successful ocean freight.
The variables mentioned in the article need to be analyzed before choosing (and finalising a deal) with a shipping company. In most scenarios, an individual shipper does not have the required knowledge regarding the factors affecting the freight rates.
Understandably, it is complex because fees and charges vary depending on the routes, destinations, currencies and conditions.
That said, even though ocean freight rates have increased in the past, there is a silver lining. Some retailers have partnerships with ocean freight companies keeping costs low for suppliers to ship their products overseas.
If you’re a supplier or manufacturer looking to start selling in the U.S., contact us at Andmakers to see our ocean freight solutions and more.