Have you ever looked at your shipping quote from a freight forwarder and got a shock?
In the past few years, shipping costs have surged to unprecedented levels, with the cost of shipping a container to Europe from China skyrocketing by 500% from June 2020 to June 2021. If you’re importing goods from overseas and have noticed these increased costs, you’re probably wondering what’s exactly contained within your shipping quote that’s making it seem so exorbitant.
In the logistics industry, shipping rates are based on a handful of different factors. These factors range from distance and region to fumigation costs and port infrastructure fees, all of which are ultimately passed on to the parties importing or exporting cargo.
Below, we break down all sea freight costs one by one, so you know exactly what prices are contained within your shipping quote when receiving an invoice from a freight forwarder.
- Origin charges
- Freight costs
- Destination Costs
- Quarantine Fees
- Ask your freight forwarder for a shipping quote breakdown
Origin charges refer to all costs associated with a shipment before it has departed from its port of origin. These are explained in more detail below.
Cartage refers to the costs associated with local transport. This includes the cost of transporting (or ‘carting’) goods from your warehouse to a port or delivering a container to your premises for it to be packed. The costs of cartage may include a sideloader, which can be used to lower a container to the ground for packing. Whilst this is standard in some countries like Australia, other countries such as the USA will use skel trailers as a preferred cartage option.
Export handling fee
This is also known as a handling and documentation fee. At the port of origin, a freight forwarder will need to complete an export declaration on behalf of the shipper. Once complete, an entry will be placed with customs authorities, who will then approve the goods for export.
VGM or SOLAS Fee
When shippers export cargo in full containers, they are required to know exactly how heavy their container is and declare the precise weight with customs. If they don’t know exactly how much it weighs, they’ll need to take their container to a weighbridge and obtain the Verified Gross Mass (VGM) of the cargo.
The VGM must be declared with 99% accuracy. It is the shipper’s responsibility to ensure that this is done right. The process of completing this work on behalf of a shipper will incur a “VGM Fee”.
The VGM Fee is also called as “SOLAS Fee” because the requirement stems from the International Convention for the Safety of Life at Sea (SOLAS), of which Australia is a party.
Fumigation refers to the treatment of cargo for pests, such as the brown marmorated stink bug. If a product is a wood or furniture product, it must also be treated. Fumigation can occur either before a shipment departs the port of origin, but also after it arrives at a destination port, depending on the container type (open top equipment must be treated before departure during stink bug season). On some occasions, fumigation can also occur in transit.
Fumigation is typically carried out by third-party specialist providers. The Australian Department of Agriculture, Fisheries and Forestry keeps a list of all offshore methyl bromide treatment providers (note other treatment options are also available, such as heat treatment or sulfuryl fluoride).
Freight charges are the costs of shipping goods to and from a country. Shippers will generally be charged a normal ‘freight charge’, which is a standard fee to ship cargo.
‘Freight’ may be charged as a single composite cost, or have separate surcharges split out. These surcharges may include the following:
The bunker surcharge is also known as a fuel surcharge or a Bunker Adjustment Factor (BAF) charge. It is levied to cover the rising cost of fuel. Because fuel prices are so volatile, a shipping line will normally charge BAF to cover any fluctuations in the costs that occur over time. It is normally charged per TEU.
There are different types of BAF charges, including:
- Fixed BAF – this is the fixed fee that must be paid, no matter the change in oil prices. This can be agreed between a shipping and a carrier prior to shipment and is popular among shippers due to the price certainty it offers.
- Floating BAF – this is inherently tied to the change in fuel prices. Shipping lines prefer it, as they won’t be out of pocket no matter the direction oil prices move. The lack of price security means it is not as popular for importers and exporters. Shippers felt the pain in 2021, when crude oil prices spiked by 65%.
- Locked-in BAF – this is where the shipper and carrier agree to a locked-in price for a certain period. Shippers enjoy a surplus if fuel prices fall, and vice versa if it rises.
Peak Season Surcharge
This is charged during shipping peak season, when shipping lines will levy an extra surcharge due to the increased demand for shipping.
This is only charged on lanes where cargo is travelling through an area of ocean vulnerable to piracy. It means extra provisions will need to be onboard in case a ship is taken over by pirates. Hence why a surcharge is levied.
This is charged when cargo is travelling through a canal, such as the Suez Canal or Panama Canal. Those canals charge carriers to travel through their lanes, the costs of which are then passed on to the shipper by the carriers.
Low Sulphur Surcharge
Regulations exist to ensure that vessels use clean fuel and that their equipment is maintained to reduce emissions as much as possible. This will require equipment like scrubbers to be placed inside fuel mechanisms, and a surcharge is levied to ensure the costs of these measures are covered.
Since 1 January 2020, vessels have been required to use fuel oil containing a maximum of 0.50 per cent m/m sulphur. Since 1 March of that year, they have also been banned from using fuel oil with a sulphur content of over 0.50 per cent m/m (unless the fuel itself is cargo).
International Security Fee
Also known as the carrier security fee, this is a small fee levied by shipping lines to comply with the International Ship and Port Facility Security (ISPS) Code, which is implemented through SOLAS.
This Code was developed in the wake of the 9/11 attacks to implement a set of uniform security measures ensuring ships and port facilities were protected. Also called ISPS charges, these costs vary depending on the port of call.
Destination charges in Australia can be made up of a variety of charges including the following:
Customs clearance charges are levied when goods arrive at the destination port and need to, quite literally, get ‘cleared through customs’.
This is where documentation will be scrutinised by customs authorities to ensure all your cargo is in order and compliant with all applicable requirements before it is permitted into the country’s borders.
Cartage refers to all the costs associated with transporting your cargo. It may include the costs of using a sideloader to place your cargo onto a truck, where it is then delivered to your warehouse. Alternatively, it could include an unpack and a separate rate for a truck to deliver loose cargo, so you can offload directly from a vehicle using a forklift.
Delivery Fuel Surcharge
The delivery fuel surcharge is a cost levied for the fuel required to transport your cargo from the port to your warehouse. The precise surcharge was once relatively stable, but due to the rising cost of fuel, it now often fluctuates every three months.
This is the shipping documentation fee, charged by the shipping line to issue documents to a shipper or their freight forwarder. This is purely an administrative cost imposed to issue a bundle of shipping documents, including the bill of lading.
This is charged when shippers opt to purchase marine insurance as part of their shipment. This covers the risk of your goods being lost or damaged in transit.
Infrastructure charges are levied by ports to carriers who use their equipment. They are imposed to maintain the cost of infrastructure utilised by the port to carry out their various operations. This includes everything from shipping terminals and container cranes to mooring hooks and bollards.
When shipping full container load (FCL) shipments, you’ll typically pay a higher infrastructure fee (up to $300) since you are using the entire container. You’ll pay less (sometimes as low as $5 per cubic meter) if you are shipping a less than container load (LCL) shipment given you’re only using a proportion of a container.
Chain of Responsibility Fee
In Australia, this fee is levied by shipping lines to cover the costs of complying with the chain of responsibility legislation. This includes the cost of ensuring weights are declared correctly, ensuring that trucks aren’t overloaded and that staff are trained in a way that they do not encourage the violation of the Australian Heavy Vehicle National Law (HNVL) and regulations.
This is the cost levied by the port to the shipping line to offload containers from ships at port. These costs are then passed onto shippers by shipping lines. These charges account for the infrastructure used to offload the container, the labour involved and the time to offload and reposition the cargo.
Wharf Sideloader Surcharge
Also known as a sideloader access fee, this surcharge is levied when a sideloader is taken into a wharf and containers are loaded onto a side loader truck as opposed to a trailer. In 2021, the container terminal operator Patricks, announced the introduction of a sideloader fee costing AUD $72.50 per container (plus GST), the cost of this fee since has risen significantly. These fees are imposed to discourage transport operators from sending in sideloader trailers to pick up and drop off containers. The fee is levied to allow for extra time and safe practices when loading this type of equipment at the port.
These fees are charged when dealing with customs authorities.
Agency Fee – This is a standard charge freight forwarders may levy to supply documents to quarantine, informing them that a particular cargo is coming across the borders.
Processing Fee – This is the fee charged when the Department does not release cargo on first receipt of documentation. They will typically require a new set of documents and/or an inspection to be carried out.
Ask your freight forwarder for a shipping quote breakdown
The next time you receive an invoice from your freight forwarder, feel free to ask for a cost breakdown so you can see exactly what you are paying for. Forwarders should always be transparent when it comes to costs, especially in an age where shipping has become a significantly more expensive endeavour.
If you have any questions about the different costs you’ll be required to pay, please don’t hesitate to get in touch with the team at International Cargo Express (ICE). We are committed to keeping costs low as much as possible for you, and will always supply a detailed shipping quote so you know exactly where your money is going every step of the way.
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