As rates sore due to the impact of the COVID-19 pandemic, the costs of shipping are at the forefront of everyone’s minds in the freight and logistics industries.
Businesses of all sizes are working around the clock to keep costs down in a market that is constantly changing.
Below, we’ll look closely at what affects shipping costs and analyse how you can mitigate them in 2021. This will be especially important as we approach shipping peak season this year.
What affects the cost of shipping?
The factors affecting the costs of shipping are various and include:
- Package weight and dimension
- Delays pushing freight to the next billing period
- Storage costs
- Port surcharges
- Costs, duties & taxes
- Biosecurity inspections & quarantine
- Driver demurrage
- Container detention
- Futile trips
Below, we’ve outlined each of these considerations in detail to help importers understand why their shipping costs may be more than they originally expected.
Package weight and dimension
The primary factor contributing to your shipping costs is the weight and dimension of the packages you ship. The larger and heavier the package, the more money you’ll need to pay.
Obviously, the size of your cargo will be out of your control.
But you can use different types of packaging to ensure your costs remain minimal. The package size should be large enough to hold your goods safely but tight enough so that your shipping costs do not escalate unnecessarily. Smaller packages also tend to protect your cargo from shaking which can cause damage.
You can read more about packing cargo for ocean freight here.
Another factor impacting the costs of your shipment include the distance between the port of origin and the end destination. Generally, the further the package needs to travel, the higher the costs of your shipment.
Clearly, you cannot determine the distance between two different ports.
But there are many ways you can transport your goods, all of which come with different cost options – whether it’s through transhipment, cross trading, coastal shipping or air freight. It is therefore critical you consider this, to ensure you transport your cargo in the most cost-effective way possible.
Delays pushing freight into next billing period
Freight rates are currently changing every two weeks and are billed according to the actual time your shipment departs.
For example, your shipment may be due to depart on 25th August but is then delayed to 2nd September. This change is significant, because it means you will be subject to new freight charges in the new billing period.
This can prove challenging to predict in a market where increased congestion is causing significant delays in shipping.
Storage costs if a vessel delayed
The load will stay in storage until the vessel accepts containers for receipt. Unfortunately, these costs are normally worn by the importer or exporter.
The likelihood of a ship being delayed is increasing. Schedule reliability is currently at 36% worldwide. Although, according to Sea Intelligence, Maersk Line was the most reliable top-14 carrier in May 2021, (with 46.2% schedule reliability). ZIM, Hapag-Lloyd and Hamburg-Sud all had schedule reliability over 40%, while six others (including MSC and CMA CGM) were between 30%-40%.
It is now extremely difficult to confidently predict when and if your goods will leave on time.
Port congestion surcharges
As a result of unexpected delays and increasing congestion at ports, importers have been required by carriers to pay fees known as ‘congestion surcharges’.
In Australia, container surcharges were triggered by a strike action in September 2020. We saw the Maritime Union of Australia implement industrial action at several ports, causing a cargo backlog and slowing the operation of offloading vessels.
This led several shipping companies to pass the costs over to importers and exporters with a “congestion charge”.
This trend continues today. In July 2021, for example, Hapag-Lloyd announced a Value Added Surcharge of $5,000 per FEU or $4,000 per TEU for spot cargo shipments from China to the United States and Canada.
We do not expect these charges to fall by the wayside anytime soon. In July, the MUA announced a fresh round of strikes in 2021 against shipping company Svitzer. This involved three work stoppages in Melbourne and Westernpoint, totalling 12 hours.
Costs, duties & taxes
One of the largest challenges of shipping is to understand the customs and duties that are payable at any point in time.
Different government authorities around the world charge different taxes. China, for instance, charges value added tax and consumption tax for goods shipped there.
But there are tricks of the trade. For instance, even if you are charged customs duty in Australia, there are ways you can apply for a refund. Speak to your freight forwarder to understand what you can do to minimise your liability on this front.
Customs or Quarantine Inspection
Biosecurity in Australia is strict and customs authorities 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 are inspection, treatment, isolation, hold pending further information or insect identification. The Department, alongside the Australian Border Force (ABF), also engage in investigations when looking for suspected breaches.
In 2017, the Department and ABF officers examined a prawn shipment in Melbourne and discovered that they were infected in white spot disease. The shipper, EB Ocean, had swapped these prawns with clean ones to undermine quarantine inspections. The company pled guilty to offences under the Biosecurity Act and was fined $80,000 in 2019.
In 2020, a gym enthusiast in Tasmania was also fined $20,000 after ABF officers found him importing bulk steroids into Australia from Malaysia. The officers located ampoules, Oxandrolone, Stanozolol and Nandrolone Decanoate. He was found guilty of importing prohibited imports contrary to the Customs Act 1901.
Driver demurrage at origin or destination
Transport companies and drivers that ship containers and LCL (Less than Container Load) shipments will normally be required to wait while their containers are being loaded and unloaded.
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.
But after the free time expires, they will begin charging for additional time on a prorated hourly rate — the trucking wait fee. This is commonly known as ‘driver demurrage’ or ‘driver detention’.
As an importer, you should work closely with your forwarder to have all resources onsite and ready to pack or unpack cargo within the swiftest time frame possible.
A futile trip is a trip which takes place but could not be fully completed for one reason or another – rendering the trip ‘futile’.
An example of a futile trip would be if a driver goes to deliver the cargo, but nobody is on site to receive the goods. The trip has taken place but has not been fulfilled.
In this instance, the importer would be billed the cost of the futile trip and the driver would redeliver the cargo.
Container detention refers to the fees you must pay if you keep your container for a certain amount of time after it arrives.
If you are importing Full Container Loads (FCLs), you will typically have a fixed amount of free time (usually 7 days) to keep the container. Although, you are able to apply for more time in advance.
This time frame allows you or your freight forwarder to collect the goods, deliver them to site, unload the cargo and then return the container to the wharf.
Charges after the 7 days free time will vary depending on the shipping line. As a general rule, you can expect charges of $150-300 per container per day.
According to a recent report released by Container xChange, detention and demurrage (D&D) charges doubled in 2021. The average D&D fee was $720 across the world’s largest container ports.
How to reduce your shipping costs
- Be prepared when your shipment arrives to unload your goods as quickly and efficiently as possible. If you know your cargo will take some time to unload, request extended free days prior to shipping. This will minimise the risk of you being charged container detention.
- Ensure you provide all necessary shipping documentation in advance to avoid any delays or issues with customs or quarantine.
- Allow flexibility in your budget. Freight timelines can change for various reasons (whether it be a blank sailing or a missing cut-off time), and unexpected costs may arise.
- Working with experienced freight forwarders can help secure a cost for your shipment before you ship. However, there are other elements that can still impact your predicted cost.
We’ve established long-term relationships with vital container terminal operators across the country and are well-acquainted with all the key players in the industry, which can save you time and give you peace of mind.
Please get in touch with us or leave a comment below to start discussing your next shipment.