What You Should Know About Ocean Surcharges

Despite getting a little extra attention of late, the problem of ocean surcharges, fees, and GRIs is still overshadowed by the historically low ocean cargo rates in the industry right now. So while the current problems at Hanjin have further highlighted the issue and risks to shippers from low rates, it’s important not lose sight of the systemic challenges surcharges cause for shippers, forwarders, and carriers themselves.

Here’s two recent articles we’ve written on the topic.

Click to Read – Why Surcharges Are the Biggest Risk to the Ocean Shipping Industry, Not Low Rates

Click to Read – Is It Time to Ban Ocean Surcharges from Shipping Lines?

Despite their importance, many shippers are not even aware of the surcharges they are paying. Instead, they trust the invoices are correct, or are simply too overwhelmed to do anything. To help, here’s a breakdown of the charges that appear on a typical ocean invoice, with the most common surcharges explained.

Base Rate: Shipping carriers establish their own rate of shipping, which varies among carriers and routes. The base rate is a calculation of the weight, size, and type of goods being shipped, as well as the distance. Carriers can adjust their base rates depending on their need for additional volume along certain routes. 

Peak Season Surcharge: From the months of July to November, there is a sizeable increase in the transportation coming from the Far East (most of Asia) to the West. As a result, shipping companies often impose a Peak Season Surcharge on shipments from this region. Shipping companies can extend the period of the peak season if needed.   

Carrier Security Charge: The International Ship and Port Facility Security Code (ISPS) is a detailed set of measures to enhance the security of ships and port facilities. If a carrier maintains vessels which are compliant to this code, they will apply a charge back to the customer. The charge is applied per container, on all shipments.

Origin Terminal Handling Charge: The origin terminal handling charge is the fee collected by shipping lines to cover the handling costs for the containers which will be processed through the terminals. The shipping line, in turn, pays the terminal operator. These charges vary by country, as the cost of handling at each port differs. When the delivery or pickup of goods will be at a container terminal, all parties must determine who will pay for all or part of the terminal charges. 

Origin Doc Fee: This charge appears on the Bill of Lading if the Shipping Instruction (SI) is not transmitted to the carrier via electronic data interchange or on the carrier’s online portal. It also applies if the Shipping Instruction has been submitted but the booking is cancelled after the deadline.

Advance Manifest Surcharge: Shipping companies must provide certain destination customs authorities with shipment information according to the carrier in advance. This cost is added to maintain compliance with the regulations.  As more countries use these customs requirements, more shippers will incur this fee. 

Chassis Charge: Since many ocean liners no longer provide chassis services for import and export containers, drayage companies must either own or rent the necessary transport equipment. The daily chassis rate varies by carrier, but are usually around $15-$25 per day. However, the longer a chassis is used on a container, the higher the daily charge will be. 

Rate Restoration Initiative: As the ocean carrier industry has been adversely affected by economic downturns, rates fell on every major trade lane to the extent that every carrier was losing money. The rate restoration initiative is an increase in container freight rates so they reach a compensatory level. These increases vary by shipping line and destinations. 

It will be a while, if ever, that ocean carriers stop adding surcharges. And unfortunately this top list is only a few out of the 1,200+ that carriers charge. Until the industry makes some significant changes, it’s more important than ever for shippers to look closely at their ocean freight invoices and understand exactly what they are paying for.

Simplifying the Ocean Freight Invoice

An ocean freight invoice is an important but confusing document that is integral to international shipping and global supply chains. Its significance is due to ocean cargo’s vital role in the movement of goods around the world. It is confusing because understanding the makeup of costs on the average ocean freight invoice is very difficult.

You would think something as common as an ocean freight invoice would have to be simple given how ubiquitous cargo shipping is today. Unfortunately that is not the case.

Because ocean freight invoices are so complicated, many are billed incorrectly by the carriers themselves (by estimates of 30% of more). The same invoices are hard to audit, making it common for shippers and forwarders to needlessly overpay. Freight invoice audit is something we have written more about in another post – Is Freight Invoice Audit Necessary for Ocean Shipments?

So what’s on a typical ocean freight invoice?

Each invoice starts with a base cost termed Ocean Freight, which is charged by a carrier to move a container from Point A to Point B. As the name implies, this ONLY covers the charges for the carriage of the container while it’s on the water. Nothing prior to loading and nothing after discharging.

The invoice will also have other charges that go hand in hand with the Ocean Freight and form the rest of the invoice.

A traditional ocean freight invoice will have charges as below, but not limited to:

  • BAF
  • CAF
  • ISPS
  • Manifest Declaration Fee
  • Arbitrary Origin/Destination
  • Emergency Risk Surcharge/War Risk Surcharge

There are several reasons for which these charges are levied.

For example:

  • BAF – stands for Bunker Adjustment Factor. Bunker simply means fuel used to power ships. BAF is charged by the carriers to cater for the fluctuations in fuel costs and is usually set per trade lane depending on the fuel consumption of the ships on that specific trade lane. BAF is a highly variable charge and the carrier may choose to adjust the quantum of BAF either upwards or downwards depending on the market forces such as oil prices. Therefore, irrespective of when it was quoted, BAF is always charged on the quantum that is applicable at the time of shipment.
  • CAF – stands for Currency Adjustment Factor which is another surcharge applied by the shipping lines on certain routes to cover for any Currency Rate of Exchange fluctuations.
  • ISPS – has many variants such as Terminal Security Charge & Carrier Security Surcharge and is charged by the carrier to cover the cost to comply with the security standards imposed by the International Ship and Port Facility Security (ISPS) Code.
  • Manifest Declaration Fee – (also known as Cargo Data Declaration Fee) is charged in certain trade lanes like Europe and USA due to the implementation of Customs Advanced Manifest Rule. This is charged to cover admin, IT and operating costs relating to interfacing with customs.
  • Arbitrary Origin/Destination – generally charged when the carrier has provided a service transporting cargo from/to a base port to a secondary port using a feeder ship or barge.
  • Emergency/War Risk Surcharge – a fee to cover additional costs such as insurance, additional security measures faced by the carriers in transit through areas of war, violence, piracy, etc.

These are the most common, but there are many other charges that may appear on an ocean freight invoice. Each shipping line has their own set of charges, definitions, and values.

It is always recommended that the shipper read the quotation from the carrier carefully and ask questions about any charge code or description that is unclear to them, before booking the cargo, otherwise the shipper will be liable to pay the charges levied.

Catapult provides turnkey ocean freight invoice post-audit solutions to catch and fix errors on carrier invoices. For more information –click here.

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