The Hidden Costs of Shipping (That Every Importer/Exporter Should Know)
Shipping costs. Perhaps you are new to shipping or maybe you have worked in the industry a while. Either way, at some point you will have likely experienced a sense of fear when your final invoice arrives and charges you haven’t accounted for appear. Understanding the hidden costs of shipping and key factors that influence your final bill, will help you manage your budgeting effectively.
This hidden costs of shipping guide will help you plan for unexpected charges in shipping.
Need a quick reference? Download our Hidden Cost Breakdown or read on for your ultimate guide below.
Duties and GST
The most crucial charges that must be factored into your shipping are duties and GST. These are government taxes that will be passed on to you to cover the cost of importing or exporting your product. As a general rule taxes for importers in Australia are charged as follows:
- Duty 5 % of the FOB Value
- GST 10% of the CIF plus Duty value
- Processing AUD 85.00 up to AUD 200.00 based on the FOB value
Australia has some excellent free trade agreements in place with other countries that can reduce or even completely remove any duties chargeable. You will normally need to provide a Certificate of Origin with your shipment prior to arrival to benefit from these. Read our guide on how to obtain this document.
Once your goods arrive, the wharf or airport will only hold your shipment on site for free for around 3 days. If your goods need to be held longer than this you could run into storage charges. Storage at the wharf or airport is extremely expensive and should be avoided where possible. Some of the reasons your goods could go into storage are:
- You have not provided commercial documents in a timely manner for your goods to be cleared
- The documents you have provided are incomplete or incorrect
- You are missing import permits
- You have not paid your duty and/or GST invoice and your goods cannot be released
- Container has been stopped by customer, police or other authorities for inspection of the cargo which may take longer than expected
- Consignee was unaware of the arrival of the cargo and was unable to do the customs clearance in time
- Cargo received was not as per the sales order
Where possible your forwarder may move your goods “underbond” to a bonded location. This will reduce storage charges whilst any issues get resolved.
By being prepared and providing commercial documents in advance of a shipment arrival, you reduce your risk of paying storage.
Demurrage charges are raised when the full container is not moved out of the port/terminal for unpacking within the allowed free days offered by the shipping line. The charge is levied by the shipping line to the importer.
Demurrage charges can vary country to country as well as by carrier. To complicate matters further, fees are applied per container as well as per day after a designated free time which varies from carrier to carrier. If for some reason your cargo gets held up at the terminal for more than a week, chances are the daily fees will increase. The longer your cargo sits in a port, the more you’ll end up paying per day.
Is Demurrage The Same As Despatch?
Despatch is the complete opposite to demurrage. It is the fees which are paid by the owner of a vessel to the charterer. The costs are specified in the voyage charter and these costs are payable when the ship is loaded or unloaded in a time which is less than permitted in the charter party.
If you are importing Full Container Loads (FCLs) you have a fixed amount of free time to keep the container following its arrival. Free time is usually 7 days, however you can apply for more time in advance. The 7 days allows your forwarder to collect the goods and deliver them to site, for you to unload the cargo and for the container to be returned to the wharf.
Charges after the 7 days free time can vary by shipping line. As a general rule, you can expect charges of $150-300 per container per day.
Demurrage vs Detention
Detention may refer to multiple situations, and shippers often confuse detention with demurrage. Despite the similarities, they are still very different fees.
The best way to distinguish the two is to think of demurrage as fees assessed on containers inside a port, and detention as fees assessed on containers outside a port. In practice, this means that even after you’ve moved your cargo out of the terminal, you need to be prompt in returning the empty containers.
Many terminals use the terms detention and per diem interchangeably. In both cases, the fees are the result of a late container return and are applicable to both imports and exports.
Attention To The Contract Terms
Just as importantly, you’ll want to read your contract with carriers carefully and make sure you are up to speed on the port regulations and customs process wherever your goods are headed. Although all of the aforementioned information is fairly standard, demurrage and detention fees are officially determined by the terms of your individual contract. Not to mention, different countries could apply definitions differently and leave more or less room for negotiation, so be sure to read the fine print. Being informed is your best defense.
Australia has strict biosecurity regulations and will at times request random inspections of goods. Unfortunately, as an importer, you are liable to pay any costs associated with inspection activity. If your goods have been selected at random and your consignment complies with all biosecurity requirements you will not usually be charged. If your goods are directed for treatment you will need to accept any associated costs.
Common forms of biosecurity control issued by The Department of Agriculture and Water Resources are inspection, treatment, isolation, hold pending further information or insect identification.
Inspection of goods and containers may be required:
- on arrival at the seaport or airport of first entry
- at a third party site that has been approved by the department.
All break bulk or goods transported without a container, is inspected as it is unloaded from the transporting vessel.
Goods that do not meet import requirements and cannot be treated are directed for export or disposal at the importer’s expense. So planning ahead is a must when it comes to avoiding expensive charges and potential losses.
Transport for container and LCL (Less than Container Load) shipments will normally be subject to a certain amount of free time. This means the transport company has allowed for waiting time at the wharf and at the unloading point. Most truck drivers will allow for 1-2 free hours of waiting to pick up the full container and 1-2 hours to unload the full container. After the free time expires, they will begin charging for additional time on a prorated hourly rate — the trucking wait fee.
The purpose of this is to enable an efficient operation. If a driver has to wait over the allotted free time for loading/offloading, he is losing time and cannot complete other jobs.
Unfortunately, you can be liable for waiting time payments if the transport company is kept waiting. By communicating with your forwarder regarding arrival times and ensuring your staff are prepared, you can avoid costs associated with waiting time. With FCLs, you also have the option to choose a drop and return service if it will take you more than an hour to unload your goods.
Going to a rural destination in Australia? If you are delivering a container to a rural location your goods will need to go via a rural tailgate inspection.
A rural tailgate inspection involves directing containers to an approved arrangement site. At the site, all external surfaces of the container are inspected before opening the doors and checking for biosecurity risks including signs of:
- plant material
- non-compliant packaging
You should allow up to a day for this extra activity and should expect additional charges. You can check in advance if your location is classified as rural here.
Downloadable Shipping Costs Chart
Also To Be Considered: Terminal Infrastructure Fees
Infrastructure fees are levied by stevedores in Australian ports. Stevedores are essentially the workers responsible for loading and unloading ships. The fees are payable to firms carrying containers to and from terminals (terminal operators).
These access fees are a means for terminal operators to recover scaling costs, like port rents, taxes and council rates, maintenance fees, labour rates and electricity bills. They also should provide ongoing investment in infrastructure that will increase efficiency and allow ports to receive even bigger vessels.
Nevertheless, over the last years, there has been increasing debate on how importers and exporters are now paying exorbitantly higher stevedoring infrastructure charges. The reason is an ongoing rise to fees by the leading industry operators, pushing other key players to follow the lead.
As the political clash evolves and an upshot of the ongoing spiking fees is unlikely to happen soon, it is inevitable that these fees will flow down the supply chain and ultimately be borne by importers.
What You Can Do To Avoid These Charges
1. Handle The Job To An Experienced Professional
Preparation is key, and working with a trusted freight forwarder can do wonders for your stress level. Putting in the work to pre-clear your cargo, issue instructions to delivery drivers in advance, prepare the receiving facility to handle incoming containers, and communicate effectively with customs and terminal officials may seem time consuming, but it will more likely be time-saving.
2. Allocate More Time. And Extra Time.
Dispatch your cargo as far in advance as you can. As per detailed above, there are many factors that are not in the shipper’s control and can go far from the plan. A little time buffer can go a long way in keeping extraneous fees at bay. The same attitude applies when considering loading/unloading times. Never underestimate the delays that could derail the process and have your drivers eyeing the clock.
Always try to negotiate terms instead of accepting a freight quote as it is. Negotiate with your carrier and request more free days to buy you more time. That might work as a strategy to avoid Demurrage and Detention as carriers sometimes grant shippers with large volumes of cargo some more time.
Additionally, identify if there are any special requirements for the import of your cargo which may be held by customs or other authorities. If you have identified that your cargo requires some special permissions (like foodstuff, animal products, etc) then consider requesting the shipping line and/or shipper to arrange for extra free days to cater for this potential delay.
4. Communicate Everything
In line with preparing in advance, ensure that you communicate clearly and regularly with the shipping line about the status of the shipping documents and the shipment respectively. Shipping lines generally do not accept liability for non-notification of your cargo’s arrival.
If your shipment is under a Letter of Credit, then it is imperative that the time taken for the communication with the banks and the release of documents is considered.
One Last Tip
Your forwarder will guide you through all foreseeable charges at the time of booking. The information in this guide should allow you to factor in added costs that you may encounter, but also allow you to best prepare so you may avoid additional charges.
Should you have any questions regarding shipping costs your ICE team member is here to help. You can contact the ICE team on 1300 CARGO1.