You must have seen cargo being delivered from one location to another? Ever wondered the rates a company has to bear to ship the goods from one destination to another? This cost involved in transporting the products is called the freight rate. This article lets you know the details of freight rates and how you can calculate them.
What exactly are freight rates?
Freights are the products that are shipped from one place to other for commercial gains. Generally, this term is associated with ships but nowadays, it is used to denote transportation via rail, road, air and other modes of transport. Freight is generally referred to bulk transportation of goods.
How to calculate freight rates?
Freight rates can be calculated based on the below-given factors:
- Rate of Ocean Freight: It basically denotes the rate to calculate the transportation of goods over the sea. There are other modes of transport like courier or standard air freight but they aren’t equipped enough to handle the volume of freight that a ship can carry.
- Inland Haulage: This charge is applicable when you are loading your freight from one port to an inland container freight station. This is another crucial factor in determining freight rates.
- Terminal Handling Charges: This is the amount you have to pay for your goods to arrive at the port and towed away to the consolidation warehouse.
- Documentation: A proper documentation with the complete commercial invoice, bill of lading, origin statement and license has to be there. Payment of a nominal fee for the certificates is a must which is taken into the calculation of freight rates.
- Custom Clearance: A customs clearance fee covers the process of preparation to submission of customs entry documentation to the CBP.
- Surcharges: There may be additional surcharges imposed by a particular port for additional security.
- Bunker Adjustment Factor: This factor is a crucial aspect in the determination of your freight rates as fuel prices may fluctuate and a surcharge may be imposed.
- Currency Hedging: This is a sort of a contract to help in case of sudden changes in currency exchange. And in order to protect, you have to shell an amount for your cargo.
These are the charges that you have to keep in mind before you book your next freight. The charges vary from country to country. You may check out the updated freight rates of different countries on the internet.
Factors affecting sea freight rate
The sea freight rate generally depends on three factors. They are:
Terminal handling charges are effective shipping line charges to meet the cost of paying the container terminals for loading and unloading.
Cost of Handling goods
The handling of goods at the port during and after discharging is a factor that affects the calculation of freight rates.
You can calculate by using the formula: (Average number of minutes to pack an item/60) * hourly rate.
Types of Container
There are basically two types of containers: FCL and LCL. LCL is calculated on the basis of volume in cubic metres. It is basically how much space is taken up by the cargo. Volume and price are directly proportional to each other. It depends on FCL prices fluctuations which are natural due to supply and demand. If a trade route is congested, then automatically the price decreases. Oil price, currency exchange risk and peak season surcharge affect the FCL price.
Similarly, there are other modes of cargo transportation like air, road and railways. Standard freight rates, courier determines air freight rates while FCL and LCL rates determine railway load. Overall the entire transportation and the freight rates depend on demand and supply along with a particular route usage. It also indirectly depends on certain market forces and macroeconomics.