Logistics Terms Ocean Freight and Additional Charge

Freight is the money a carrier receives in return for its transportation. In short, it refers to the cost of transportation service. In the perspective of the one who uses the transportation service, it could mean logistics cost, and in the perspective of a carrier, it could refer to the revenue. The share of national logistics costs per function consists of transportation cost, stock inventory cost, packaging cost, loading/unloading cost, logistics information cost, and general management cost. Here, the transportation cost accounts for more than 60%.

The bigger the volume of cargo that is transported at once, the more difficult it is to move it. This is because the fuel costs, management costs, etc. rise, which lead to the increase of logistics costs. However, the higher the volume of cargo transported, the lower the freight per unit following the economy of scale.

The distance of transportation is a factor that affects fixed costs: operation time, fuel costs, variable costs, etc. The distance of transportation is proportional to the logistics cost. The longer the distance of transportation, the higher the logistics cost. However, the longer the distance of transportation gets, the lower the freight per unit distance.

It is not just the size of cargo that affects logistics costs. If the weight is same, the density increases the lower the volume or dimensions. Theoretically, if the volume or dimensions of a cargo is small, more items can be loaded in a same container. Therefore, it can be said that the logistics cost decreases the higher the density increases.

Stowability refers to the use of space when cargo is stowed in a transport carrier. Overweight, length, height, and atypicality, etc., decrease stowability, thus, the logistics cost increases.

If cargo is difficult to handle or if there is a risk, more time, manpower, etc., are required, therefore, the logistics cost increases.

Freight cost is influenced by the high possibility of accidents such as damage or loss of cargo and even the scope of compensation on claims.

The final freight of cargo is decided following the competition between demand and supply in the transportation market.

Ocean freight is a combination of basic rate, surcharge, additional freight, and additional charge.

Based on the characteristics of cargo, logistics cost, burden of freight, type of cargo, material, etc., the basic rate is imposed discriminatorily. In addition, there is a surcharge that is levied following the shape of cargo, port conditions, distinct characteristics of cargo, navigational conditions, and so forth.

- Classification Based on Payment Time
① Freight Prepaid
This refers to a shipper paying freight to an ocean carrier when the shipper receives the bill of lading after finishing shipment under the CIF (Cost Insurance and Freight) terms.

② Freight to Collect
This refers to paying freight when the importer receives cargo at the port of discharge during export transaction under the FOB (Free on Board) terms.

- Classification Based on Way of Charging
① Minimum Freight
This refers to freight that is applied when the freight does not reach a definite amount as a result of calculating cargo’s freight. If it falls short of the minimum rate, then parcel freight is applied.

② Valuation Charge
When reporting the real cost of cargo in the Air Waybill (AWB), compensation for damages can be received if accidents occur during cargo transportation. The valuation charge is added for a fixed rate of the freight cost. The valuation charge is directly related to compensation for damages.

③ Special Rate
This rate is generally applied in ocean transportation. If a shipping alliance meets certain conditions, a reduced rate is imposed to compete with non-alignment.

④ Discriminative Rate
This refers to varying the rate based on factors including the distance of transportation, size of the vehicle, service condition, shipment volume, and transportation time.

⑤ FAK Rate, Freight All Kinds Rate
It is general to apply the transportation rate differently depending on the item of transportation in the ocean transport. However, FAK rate is uniformly imposed regardless of this.

In a particular route, a certain amount of notice period should be set in order to revise the basic rate. A surcharge is an extra charge imposed on the shipper as an emergency measure. The extra charge a carrier levies on a shipper because of the characteristics of cargo and special circumstances also falls in this category. It could be divided into circumstances that change following the fuel price fluctuations, exchange rate fluctuations, length of cargo, and weight of cargo.

① Bunker Adjustment Factor (BAF)
From navigational expenses of a vessel, the fuel cost accounts for 20-30%. The BAF is a surcharge imposed in order to prepare for the loss following the price fluctuation of bunker fuel which is a main fuel of a vessel. A certain percentage (%) or a certain amount of the base rate is levied.

② Emergency Bunker Surcharge (EBS)
This is similar to the Bunker Adjustment Factor(BAF) surcharge, but is a surcharge used when the oil price suddenly surges in an unheralded situation.

③ Currency Adjustment Factor (CAF)
Generally, a freight is calculated in dollars, so exchange risks occur in countries other than the US. Therefore, carriers could face losses. The CAF is imposed in the basic rate to recoup the loss.

④ Port Congestion Surcharge (PCS)
Congestion refers to the state where vessels have to wait outside the port due to a jam that occurred following continuous entry of fully-loaded trade vessels. If congestion of cargo to be unloaded continues and the berthing period takes a long time, the PCF is imposed on the loading and unloading cargo.

⑤ Optional Charge
This is an extra charge imposed when selecting one port of discharge before vessels enter the destination port after departing the main lane and selecting many ports of discharge.

⑥ Diversion Charge
This is a charge imposed when the port of discharge designated at the time of shipment changes after shipment.

⑦ Heavy Lift Surcharge
This is an extra charge imposed when the weight of cargo exceeds a certain level. It is shown as a certain percentage (%) or amount of the basic rate.

This is the charge that needs to be considered except the prime cost and profit when calculating the export price.

(Source : Clipart Korea)

① Terminal Handling Charge (THC)
This is a charge imposed when moving and handling cargo at a port or terminal. The distance from the moment cargo is stored in a container terminal and to the side of a vessel in a main lane, or from the side of a vessel in a main lane to before passing the gate of a container yard (CY, a yard packaged to attract containers).

② CFS Charge (Container Freight Station)
This is the charge levied when working including loading, mixing, and sorting cargo at the container freight station (CFS) in the case of Less than Container Load (LCL) transportation where the container is not full.

③ Documentation Fee
This is the fee imposed when issuing a bill of lading at a place of shipment. It is a charge levied on when issuing a Delivery Order(D/O) at a port of discharge.

④ Wharfage
This is the charge levied by the user to maintain and renovate the wharf, and it is imposed when using the wharf. The wharfage is divided into vessel entry/departure fee, berthing fee, anchoring fee, laid-up fee, and cargo entry/departure fee.

(Source : Clipart Korea)

⑤ Drayage Charge
This refers to the inland transport cost where containers or other cargo vehicles are moved to the wharf when importing and exporting, and the cost for moving containers or small cargo to the shipper’s desired place.

⑥ Container Cleaning Fee
This is a fee required to clean and dispose waste in a container when it needs to be cleaned for maintenance before and after loading following the characteristics of cargo. It is generally imposed per container.

⑦ Demurrage Charge
This is a charge imposed when cargo is not taken out within a certain period of time. It is proportional to the delayed period, and it is a cost a shipper has to pay to a carrier.

⑧ Detention Charge
This is an opposite of demurrage charge. It is a charge imposed on a carrier for the container the shipper borrowed or when a trailer is not returned within a certain period of time.

⑨ Handling Charge
This is a charge imposed in return of services from the forwarder handling import/export cargo, such as notice on cargo arrival, transferring of cargo manifest for bill of lading, and communication expenses including communication with overseas partners.