Ocean freight: the basics

Referred to as the biggest business people know nothing about, ocean freight, has been a go-to way of transporting goods throughout history. Even as this article is being written there are more than 200,000 cargo vessels on the water all over the globe. Since this is the most common mode used to transport goods around the world, with 90 per cent of all things being shipped by ocean freight, it is important to understand the fundamentals.  So here is the basic information about shipping product by ocean.

 

Advantages

 

Economical - ocean freight is the best value for both volume and weight when shipping internationally.

 

Environmental Impact - ocean freight is the less impactful mode of transportation for the environment. The CO2 emissions from ocean freight are extremely low when compared to air freight and even over-the-road transport. Two tonnes of product shipped 5000 km via ocean leads to 150 kg of CO2 emissions compared to 6605 kg of CO2 emissions via air.

 

Flexibility of Cargo - As opposed to air freight there are fewer restrictions on the type of freight you are able to ship. Due to regulations there are a lot of commodities that cannot be shipped via air -- ocean is a lot more flexible with the types of commodities that can ship. Also large and heavy items are much better suited to ocean freight.

 

Disadvantages

 

Reliability - delivery dates are not guaranteed, subject to weather and tides. It is not uncommon for ships to be a few days off schedule. This makes arrival dates unpredictable.

 

Speed - time-frames for ocean freight are lengthy and are not well suited to sensitive or quickly perishing freight.

 

Delays - containers can be delayed due to the ocean company not releasing them or issues with paperwork that can cause delays and added costs.

 

 

Temperature-controlled goods

 

Many different types of temperature-controlled freight are shipped by ocean. Even what some may consider sensitive produce such as blueberries are shipped by ocean. Controlled Atmosphere Containers extend the shelf-life of your fruits and vegetables by slowing the ripening process. The container can help maintain ideal temps and levels of 02 and CO2.

 

Options for ocean shipping

LCL (Less than a Container Load) or FCL (Full Container Load) - There is flexibility with shipping ocean freight. There is the option of paying for a full container or just booking based on volume and weight which is less than a container. Full container gives you more control over the release of the container and how much or how little you want to load. LCL is good for inconsistent shipments that fluctuate in volume -- this way you only pay for what you move.  However, your product can be delayed for release if the container is inspected and there is an issue with other product sharing your container.

 

Door-to-Door or Port-to-Port - The options for level of service are based on where you want the ocean company to take and give up possession of the freight. Door-to-door is as it sounds and the product is picked up from a warehouse or facility and brought to the port, then from the destination port to the final destination warehouse. Port-to-port means that the vendor and/or receiver is responsible for getting the product from a warehouse to the port and then from the destination port to the final destination warehouse. This option is good for companies that have their own fleets that they can use to pick up the product.

 

Cost structures

 

Cost for ocean is broken out by Basic Ocean Freight rate and then additional mandatory fees which are listed below. Basic Ocean Freight rate is only the cost of the product movement by the vessel. This rate is based off of either a full container flat rate or a rate based on weight and volume for LCL. Basic Ocean Freight rates tend to change quarterly and increase based on seasonality and demand.

 

Additional fees

 

There are mandatory fees that are not covered in the typical Basic Ocean Freight rate. These costs cover items and services that are pass -hrough charges (eg. from the terminals) or are beyond basic transport services.

 

Bunker Adjustment Factor (SBF) - charge to account for fluctuations in bunker costs (oil used by the vessel) that changes quarterly

 

Terminal Handling Charges (THC) - based on the cost of handling the container in the terminals, including loading and discharge of the container to and from the vessel

 

Documentation Charge - service provided where the necessary transport documents are provided at the origin and destination based on shipping instructions

 

Container Demurrage - is the charge for a container that is not moved out of the port/terminal for unpacking within the allowed free days offered by the shipping line. Charge is levied by the shipping line to the importer.

Publish date: 
Thursday, December 6, 2018

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