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What Is Ocean Freight? Everything You Need to Know

May 23, 2024

Ocean freight, a cornerstone of global trade, connects economies by facilitating the transportation of goods across vast distances. Its significance is underscored by its essential role in enabling businesses to access distant markets and deliver products worldwide.

In this blog, we explore the intricacies of ocean freight and its pivotal importance in sustaining international commerce. Moreover, Artemus Transportation Solutions provides ISF & AMS Compliance Support for Ocean Freight, streamlining regulatory processes and ensuring smooth cargo shipments.

Table Of Contents

1 What Is Ocean Freight?
2 Types Of Ocean Freight Services
3 Common Terms Related To Ocean Freight
4 What Is Ocean Freight Process?
5 What Is BAF In Ocean Freight?
6 What Is GRI In Ocean Freight?
7 How To Calculate Ocean Freight Charges?
8 Artemus: ISF & AMS Compliance Support For Ocean Freight
9 FAQs
10 Conclusion

What Is Ocean Freight?

Ocean freight, also known as sea freight, is the transportation of goods via ships across oceans and seas. It is a fundamental component of global trade, facilitating the movement of large quantities of goods between countries and continents.

Ocean freight encompasses various methods, including full container load (FCL), less than container load (LCL), roll-on/roll-off (RoRo), and bulk shipping. The process typically involves booking space on a vessel, packaging, and containerizing goods, transporting containers to the port, loading them onto the vessel, ocean transit, unloading at the destination port, and final delivery.

Despite challenges such as longer transit times and regulatory complexities, ocean freight offers cost-effectiveness, large capacity, and extensive global reach, making it a preferred choice for businesses engaged in international trade.

Types Of Ocean Freight Services

Ocean freight services offer various options for shipping goods across oceans and seas. Here are the key types of ocean freight services:

1. Full Container Load (FCL)

In FCL shipping, an entire container is exclusively used to transport goods belonging to a single shipper.
Ideal for large shipments or when goods need to be kept separate from other cargo.
Provides quicker transit times and lowers the risk of damage compared to LCL shipping.

2. Less Than Container Load (LCL)

LCL shipping involves combining multiple shippers’ goods in a single container.
Perfect for smaller shipments that don’t need a full container.
Cost-effective option as shippers only pay for the space they use, but may result in longer transit times due to consolidation and deconsolidation processes.

3. Roll-on/Roll-off (RoRo)

RoRo services are designed for the transportation of vehicles, heavy machinery, and wheeled cargo.
The cargo is loaded onto the vessel at the origin port and unloaded at the destination port.
Offers efficient loading and unloading of cargo, especially for oversized or non-containerized goods.

4. Bulk Shipping

Bulk shipping involves transporting large quantities of unpackaged goods, such as grains, ores, or liquids, in bulk carriers.
Goods are loaded directly into the vessel’s hold without the use of containers.
Ideal for commodities that do not require individual packaging and are typically loaded and unloaded using specialized equipment.

5. Breakbulk Shipping:

Breakbulk shipping involves transporting non-containerized, individually packaged cargo that cannot be loaded directly into containers.
Cargo is loaded onto the vessel individually or in smaller units using cranes or other handling equipment.
Offers flexibility for shipping irregularly shaped or oversized cargo that cannot be accommodated in standard containers.

Common Terms Related To Ocean Freight

Understanding the terminology associated with ocean freight is essential for effectively navigating the complexities of international shipping. Here are common terms related to ocean freight:

Bill Of Lading (B/L): A legal document issued by the carrier acknowledging receipt of goods and specifying terms of transportation.
Freight Forwarder: An intermediary that arranges and manages the transportation of goods on behalf of shippers, handling logistics and documentation.
Customs Clearance: The process of obtaining approval from customs authorities to import or export goods, involving documentation submission, duty payment, and inspection.
Port Of Loading (POL) & Port Of Discharge (POD): The ports where cargo is loaded onto and unloaded from the vessel, respectively, as stipulated in the transportation contract.
Container Yard (CY): A designated area within a port where containers are stored, loaded onto, or unloaded from ships, trucks, or trains.
TEU (Twenty-foot Equivalent Unit): A standard measure used to determine cargo capacity for container ships and terminals. A TEU (Twenty-Foot Equivalent Unit) denotes the dimensions of a standard 20-foot shipping container.
Vessel Schedule: The timetable outlining the departure and arrival times of a vessel at various ports.
Draft: The vertical distance between the waterline and the bottom of a ship’s hull determines the minimum water depth in which a ship or boat can safely navigate.
Gross Tonnage (GT): A measurement of the total internal volume of a ship. It is used to assess port fees, safety regulations, and registration fees.
Container Freight Station (CFS): A facility where LCL shipments are consolidated or de-consolidated, and where customs clearance can take place.

What Is Ocean Freight Process?

Shipping goods across the world’s oceans is a complex process involving various stages and players. Understanding the ocean freight process can help businesses and individuals navigate international trade more efficiently.

Here, we break down the key steps in the ocean freight process from start to finish.

1. Planning & Preparation

Assessment Of Needs:

The process begins with assessing the shipment’s needs, including the type of goods, volume, weight, and destination. This step helps in determining the best shipping method and container type.

Choosing A Freight Forwarder:

A freight forwarder is often employed to manage the logistics. They act as an intermediary between the shipper and various transportation services, ensuring that all parts of the shipping process are handled smoothly.

2. Booking The Shipment

Freight Quotation:

The shipper requests a freight quotation from the freight forwarder or directly from a carrier. This quote includes shipping costs, transit times, and any additional services required.

Booking Confirmation:

Once the quote is accepted, a booking confirmation is issued, securing space on a vessel for the shipment.

3. Export Customs Clearance

Documentation Preparation:

Essential documents such as the commercial invoice, packing list, and export declaration are prepared. These documents are crucial for customs clearance and ensuring legal compliance.

Customs Filing:

The freight forwarder or customs broker files the necessary documents with the export customs authorities. This step verifies that the goods comply with export regulations and that any duties or taxes are paid.

4. Transportation To Port Of Loading

Inland Transportation:

The goods are transported from the shipper’s location to the port of loading. This can involve trucking, rail, or a combination of transportation modes, depending on the distance and location.

Containerization:

If the goods are being shipped in containers, they are loaded into the appropriate container type (e.g., FCL or LCL). Proper packing and securing of the cargo are essential to prevent damage during transit.

5. Loading Onto The Vessel

Arrival At Port:

The container or cargo arrives at the port of loading. Here, it undergoes inspection and documentation checks by port authorities.

Loading Process:

The cargo is loaded onto the designated vessel. The loading process is meticulously planned to ensure efficient use of space and safe transportation.

6. Ocean Transit

Vessel Departure:

The vessel departs the port of loading and begins its journey across the ocean. Transit times can vary significantly based on the route and distance.

Monitoring Shipment:

During transit, the freight forwarder monitors the shipment, providing updates on its progress and estimated time of arrival.

7. Arrival At Port Of Discharge

Port Procedures:

Upon arrival at the port of discharge, the cargo undergoes unloading procedures. Port authorities inspect the shipment and verify documentation.

Import Customs Clearance:

The freight forwarder or customs broker handles the import customs clearance. This involves filing import documentation, paying duties and taxes, and ensuring the cargo complies with local regulations.

8. Transportation To Final Destination

Inland Transport:

After customs clearance, the cargo is transported from the port of discharge to its final destination. This may involve trucking, rail, or intermodal transportation.

Delivery:

The cargo is delivered to the consignee’s location. Upon receipt, the consignee inspects the goods to ensure they have arrived in good condition and as per the agreement.

9. Documentation & Payment

Final Documentation:

The shipper and consignee review and finalize all related documentation, including the bill of lading, commercial invoice, and any inspection reports.

Payment Settlement:

The final step involves settling payments with all parties involved, including the freight forwarder, carrier, and customs brokers.

What Is BAF In Ocean Freight?

BAF, or Bunker Adjustment Factor, is a surcharge applied to ocean freight shipments to account for fluctuations in fuel prices. As fuel costs represent a significant portion of operating expenses for shipping lines, BAF is used to offset the impact of rising or falling fuel prices on shipping rates.

BAF charges are typically calculated as a percentage of the base ocean freight rate and are adjusted periodically based on changes in fuel prices.

While BAF helps shipping lines manage fuel-related costs, it can also introduce volatility and uncertainty into shipping rates, as fuel prices are subject to market fluctuations. Consequently, shippers should closely monitor BAF adjustments and factor them into their transportation budgeting and planning processes.

What Is GRI In Ocean Freight?

GRI, or General Rate Increase, refers to an adjustment made by ocean carriers to increase the base rates for transporting cargo. This increase is typically implemented across various shipping routes and is applied uniformly to all customers.

Carriers commonly use GRI to offset rising operating costs, such as fuel prices, labor expenses, and infrastructure investments.

Unlike other surcharges that are applied selectively based on specific factors, GRI affects all shipments within a specified timeframe, regardless of the cargo type or shipping conditions.

Shippers should be aware of GRI announcements and factor these increases into their transportation budgets and negotiations with carriers to avoid unexpected cost escalations in their supply chain operations.

How To Calculate Ocean Freight Charges?

Calculating ocean freight charges for containers can be complex, but understanding the key components and how they contribute to the total cost can help businesses budget more effectively.

Here’s a step-by-step guide to calculating ocean freight charges for containers coming to the USA, along with some approximate figures to provide context.

1. Determine The Type Of Container

Full Container Load (FCL) vs. Less than Container Load (LCL):

FCL: When you use the entire container for your shipment. It’s cost-effective for larger shipments.
LCL: When your shipment shares container space with goods from other shippers. Suitable for smaller shipments.

2. Understand The Basic Freight Rate

The basic freight rate is the core cost of transporting the container from the origin port to the destination port. Several factors influence this rate:

Distance & Route: Longer distances and less frequently traveled routes can be more expensive.
Container Size: Standard sizes are 20-foot (TEU) and 40-foot (FEU) containers.

Approximate Rates:

20-foot container: $1,500 – $3,000
40-foot container: $2,500 – $4,500

3. Additional Surcharges & Fees

Fuel Surcharge (BAF): Covers fluctuations in fuel prices.
Currency Adjustment Factor (CAF): Addresses exchange rate changes.
Peak Season Surcharge (PSS): Applied during high-demand periods.
Security Surcharge: Covers security measures.
Terminal Handling Charges (THC): Charged for handling the container at the port.
Documentation Fees: Costs for preparing shipping documents.

Approximate Surcharges & Fees:

Fuel Surcharge: $200 – $500
Terminal Handling Charges: $150 – $300
Documentation Fees: $75 – $150

4. Inland Transportation Costs

Once the container arrives at a US port, it often needs to be transported to its final destination. This involves:

Trucking or Rail Costs: Vary based on the distance from the port to the consignee’s location.

Approximate Costs:

Trucking (short distance): $200 – $500
Trucking (long distance): $500 – $2,000
Rail: $300 – $1,000

5. Customs Duties & Taxes

Customs Duties: Based on the type of goods and their declared value. Rates vary by product category.
Merchandise Processing Fee (MPF): 0.3464% of the cargo’s value (minimum $27.75, maximum $538.40).
Harbor Maintenance Fee (HMF): 0.125% of the cargo’s value.

Approximate Fees

Customs Duties: Varies widely (e.g., 2% – 20% of the value)
MPF: $28 – $539
HMF: Varies based on cargo value

6. Insurance Costs

Cargo Insurance: Optional but recommended to cover potential loss or damage during transit. Typically costs 0.3% – 0.5% of the cargo’s value.

Approximate Cost:

$300 – $500 for every $100,000 of cargo value

7. Other Potential Costs

Demurrage and Detention Fees: Charged if containers are not picked up from the port or returned within the allotted free time.
Port Congestion Surcharge: Applied if the destination port is experiencing heavy congestion.

Approximate Fees:

Demurrage: $50 – $150 per day
Detention: $50 – $150 per day
Port Congestion Surcharge: $100 – $300

Artemus: ISF & AMS Compliance Support For Ocean Freight

Artemus Transportation Solutions offers comprehensive ISF (Importer Security Filing) and MS (Manifest Submission) compliance support for ocean freight, ensuring that all necessary documentation and filings are accurately completed and submitted in a timely manner.

The expert team navigates the complex regulations set by U.S. Customs and Border Protection, mitigating risks of penalties and delays. By leveraging advanced technology and industry expertise, Artemus Transportation Solutions streamlines the compliance process, providing peace of mind and operational efficiency for shippers and importers.

FAQs

1. What Is The Meaning Of Ocean Freight?

Ocean freight refers to the transportation of goods via sea vessels across oceans and seas.

2. What Are Ocean Freight Charges?

Ocean freight charges refer to the costs associated with transporting goods via sea vessels, including base rates, surcharges, and additional fees.

3. Who Pays For Ocean Freight?

The shipper or consignee typically pays for ocean freight, depending on the agreed-upon terms of sale (Incoterms) in the contract.

Conclusion

Navigating the complexities of ocean freight is essential for businesses involved in international trade. From planning and booking to customs clearance and final delivery, each step requires careful coordination and compliance with regulations.

By understanding the intricacies of the ocean freight process, businesses can optimize their shipping strategies, reduce costs, and ensure the timely delivery of goods.