Moore on Pricing: The ocean transportation “dirty dozen”

One of the clever anecdotes that’s making its way around the ocean freight market these days is that the sea-level rise currently underway is not from global warming, but rather from the huge additional number of new, ultra-large container vessels (ULCV) being launched at the rate of one or two a month. 

The increase in capacity is suppressing intermodal rate increases except in select corridors. And while some shippers are enjoying this brief respite, there are other costs that are continuing their steady drumbeat in the form of charges and surcharges. While domestic truck companies have their accessorials, they have nothing on international carriers who have many cost factors to contend with in multiple currencies—and at ever-fluctuating exchange rates. 

For shippers just getting their first exposure to international ocean freight, it may be helpful to take out a recent set of import or export documents and see if you have any of these charges listed on the carrier or 3PL invoice. 

This set of 12 factors is courtesy of the fifteen major carriers that constitute the Transpacific Stabilization Agreement. While this not an exhaustive list, it should cover the majority of carrier invoices.

1. Multiple carriers have voluntarily established price “benchmarks” to guide price agreements with shippers. Effectively, these are price floors that carriers in the group serving specific transport lanes would like to see to protect margins. Shippers should know if their carrier is a party to the agreement, and that these are negotiable.

Capacity sharing agreements between carriers are a variation on this “coopetition” movement. Such agreements are greatly strained when there’s an oversupply of ships as there is now in many lanes. If you know the market conditions, you can test whether these “benchmarks” apply to your freight.

2. Bunker fuel, or “bunkers,” is a charge to compensate for wide fluctuations in marine bunker fuel and diesel oil at key (BAF/FAF) transpacific load ports. Note that oil prices are down, and this charge, if seen, should reflect current favorable conditions.

3. Congestion charges address the costs related to schedule delays, rerouting of cargo, and other effects from sudden or sustained port congestion. This effectively adds insult to injury when cargo is delayed due to labor strife, weather, or any infrastructure failure.

4. Currency adjustment factor (CAF) covers increased local currency operating costs in Asian countries relative to U.S. dollar-denominated freight charges and revenues.

5. Feeder service covers sudden increases in spot market rates for connecting vessel and inland barge feeder service. While this is primarily seen in Asia, the U.S. government is pushing development of marine highways for feeder vessels on the Mississippi River and East Coast to take pressure off the roads. This will likely appear more frequently as primary container vessels continue to grow in size.

6. “War risk” premium addresses higher insurance costs, shipment rerouting or rescheduling, and other increased costs serving countries at risk of war or armed conflict.

7. Alameda Corridor surcharge is a relatively new fee assessed by railroads for inland destination moves via Southern California ports to help pay for the Alameda Corridor express rail facility. 

8. Chassis usage surcharge addresses the cost of carrier-providing chassis along with container equipment. This may be reflected in a drayage bill or other service provider and is different than detention.

9. Container service charges cover cleaning, fumigation, maintenance and repair, and other services to container equipment after use.

10. A documentation fee is often applied at origin or destination to offset rising staffing, training, equipment, and information systems costs relating to increased volume and complexity of documentation.

11. Panama/Suez Canal fees recover transit charges paid by shipping lines to Canal Authorities in Panama and Egypt.

12. Terminal handling and port charges reflects handling costs at the port of origin—from receipt of the container at the port terminal through its loading onto the vessel. These charges vary by port, carrier, and services performed, and special charges may apply to refrigerated, hazardous, or other cargo requiring additional handling.