Which Factors Affect Container Shipping Rates?

Which Factors Affect Container Shipping Rates?

2022 Jul 18

Every importer yearns to ship their goods at the lowest rates possible. The shipping rates may be influenced by factors that the shipper has no control over, like fuel prices and those that the shipper can control, like the shipping method. Before shipping goods, it is, therefore, crucial to be aware of these factors. This guide will 

Factors Affecting Container Shipping Costs 

1. Shipping Season

Like any other industry, the shipping industry has both high seasons and low seasons. These seasons highly have an influence on the shipping costs. Whenever the demand for goods is higher than usual, that is a high season. The high season is characterized by the following:

Increase in demand for goods

  • Port congestion
  • Shortages in trucking services
  • Container shortages
  • Delayed services

The low season, on the other hand, is characterized by the following:

  • Low demand for goods
  • Fast delivery of services
  • Adequate containers
  • Adequate trucks

The low season is simply the opposite of the high season.

In China, the high season is usually from July to November or December. Also, holiday seasons are peak seasons. If you ship goods during the holiday season, don't be shocked when you hear the shipping prices. The prices are usually very high due to the high demand for goods. The Chinese holidays that you should take note of are:

  1. The New Year: This is the first holiday every year, and people get 3 days off. It takes place from Jan 1 to Jan 3.
    Spring Festival (Chinese New Year): This is the biggest holiday in China. It takes place for one week, from Jan 31 to Feb 6. 
  2. Qing Ming Festival (Tomb-Sweeping Festival): A holiday where Chinese people worship their ancestors and welcome spring. It takes place for 3 days, from Apr 3 to Apr 5.
  3. Labor Day (May Day): During this holiday, tourism in China is usually very high. It is a 5 days holiday, and it takes place from Apr 30 to May 4.
  4. Dragon Boat Festival (Duanwu Festival): A traditional cultural festival where Chinese people get 3 days off. It takes place from Jun 3 to Jun 5.
  5. Mid-Autumn Festival: After the Chinese New Year, this is the second most valued holiday. It takes place for 3 days, from Sept 10 to Sept 12.
  6. National Day (Golden Week): This holiday takes place from Oct 1 to Oct 7. 
    Container shipping rates are very high during these seasons. You should therefore plan your shipment early and avoid the high seasons.

2. Container Type and Capacity

There are different container types. The container you choose to get will determine how much you will pay. The types of containers available are as follows:

Dry standard containers: These are the most common shipping container. They have no special features such as refrigeration. They come in different sizes - 8ft, 10ft, 20ft, 40ft, 40HC,etc. 20ft and 40ft containers are the sizes used by most shippers. 

Refrigerated ISO Containers: These containers have temperature regulators and are used to ship perishable goods, such as fruits and vegetables. They are also known as Reefer containers.

ISO Tanks: These are containers that are mainly used to ship liquids. They are made of materials that are corrosion resistant. 

OOG (Out of Gauge) Containers: Some goods have weird shapes. OOG containers are specifically designed for such goods. Examples of OOG containers are Flat Racks, Open Top, and Open Side containers. 

The cost of shipping goods with a reefer container is higher than the cost of using a dry container due to the added features in reefer containers.

In terms of container capacity, containers whose volume is high cost more than containers whose volume is low. 

3. General Rate Increase (GRI)

GRI is an adjustment made to the freight rates by carriers whenever there is an increase in demand. The GRI fee is meant to help the carriers recover from the low market. This fee can be applied to some shipping routes or all of them. GRI has to be announced 30 days before it takes effect. This fee can be imposed once a year or several times a year. It all depends on the market stability. The greater the market stability, the fewer the times the GRI is applied.

4. Emergency Bunker Surcharge (EBS)

EBS is a last-minute fee imposed on the shippers by shipping lines whenever there is an increase in fuel prices. The fee is implemented based on the rate of increase in fuel costs. The higher the surge in fuel prices, the higher the EBS fee. Unlike Bunker's Adjustment Fee (BAF), EBS is implemented without notice, hence the name 'emergency'. Shipping lines implement EBS when they deem to, as this is one of the fees they can impose at their will. EBS is usually received by the shippers with backlash since, by being charged, they are covering up for something they cannot control. 

EBS costs vary by cargo, carrier, container type, and the nature of the goods (whether dry or reefer). The cost for a 20ft container will range from $50 to $60 from China to the US. The cost for a 40ft container will range from $90 to $180. Carriers announce Emergency Bunker Surcharges (EBS) due to high fuel prices, New Low Sulfur Emission Standards, and the decline in the spot rates and financial losses.

5. Extra Charges

Demurrage, detention, and fees from customs inspection as some of the additional charges. By taking precautionary measures, shippers can avoid these charges. 

So, what is demurrage? This is a fee meant to limit the overuse of a shipping container and to compensate for the use of the container. As you rent a container, you are given some days to use it and return it once you are done. You will pay no fee for the number of days given. Once you exceed those days, you will pay demurrage. The more you stay with the container, the more you will pay since the fee increases day-by-day. 

Detention fees apply to local trucking to compensate for the detention of the trucker. This occurs when you take longer than anticipated to load or unload your goods. Unlike demurrage which is billed daily, detention is billed hourly. 

Per diem (per day) charges apply when you use equipment longer than you were supposed to. The charges are made per day. These charges are based on what kind of equipment you have and the carrier you are dealing with.

6. High Shipping Demand

High shipping demand is associated with port congestion, container shortages, and trucking shortages. These factors lead to delays, and delays cause the freight rates to increase.

7. Shipping Method

Container shipping gives a shipper two options: LCL (Less Container Load) and FCL (Full Container Load). The method you choose depends on the type and volume of goods you are shipping. If you are shipping goods that have a volume of less than 15 cubic meters, LCL is the shipping option to choose. For bulkier goods, FCL is the right choice. 

If you choose LCL, you will share a shipping container with other shippers and only pay for the space your goods occupy. In FCL, there is no sharing of container space since you get an entire container for your goods. If you choose FCL, you can decide how much you want to utilize the container space, ie. whether you will fill it or not. Either way, the shipping cost does not change since you will pay for the entire container. 

FCL is more suitable for delicate goods. This is because goods are handled less as compared to LCL. Also, few people have access to your goods.

If you choose LCL, you have to further choose the container type and size. Your choice will depend on the nature, size, and weight of your shipment. The container you choose will determine the shipping cost.

8. Shipping Distance

How much distance will be covered from the Port of Loading to the destination port? The shipping distance influences both the shipping time and the shipping rates. The longer the distance, the higher the shipping rates, and the longer the transit time. 

9. Currency

The rate of exchanges keeps fluctuating. A strong currency makes imports cheaper and exports expensive. If the currency value drops, the exports will be cheaper, and the imports will be more expensive. The factors that influence the fluctuation of currency include political stability, interest rates, inflation, the balance of trade, public debt, the economic health, among others.

Whenever there are changes in the currency, the Currency Adjustment Factor is applied. To avoid being subject to this surcharge, negotiate an all-inclusive contract. 

10. Incoterms

Incoterms determine who, between the seller and buyer, is responsible for the shipment at certain stages of the shipping process. The common incoterms used for container shipping are:

  1. Ex Works (EXW): When the buyer makes orders, the seller only makes the goods available and does the packaging. The rest of the process, like loading goods onto the vessel and performing customs clearance, is the buyer;s responsibility.
  2. Free On Board (FOB): The seller is responsible for loading the shipment onto the shipping vessel and covering all costs.
  3. Cost, Insurance & Freight (CIF): The seller covers the cost and insurance for the freight and delivers it to the Port of Delivery.
  4. Delivery Duty Paid (DDP): The buyer names a place, and until the goods reach that place, all the responsibilities and risks are on the seller.

How Are Freight Rates Determined?

Freight rates are influenced by factors the following factors:

  • Shipping method
  • Distance from the port of loading to the final destination.
  • Weight and size of shipment
  • Points of pick-up and delivery
  • The goods being shipped

How to Reduce Freight Rates

To get lower shipping rates, consider the following tips:

  • Compare quotes
  • Compare shipping modes
  • Diversify warehousing
  • Evaluate the profitability of the goods before making orders

Factors that Influence Freight Costs 

  • Fuel Costs: An increase in fuel costs makes it expensive to operate container ships and cargo trucks. This leads to an increase in shipping prices.
  • Customer loyalty: Once you become a frequent shipper, you will be likely to receive preferential rates.
  • Government regulations: The government can give certain regulations that will either increase or decrease the shipping costs.
  • Nature of goods: Some goods are delicate and require special handling. The shipping price for such an item will be higher than the shipping cost for other shipments.

Other factors include shipping time, distribution pattern, shipping routes, etc.

Conclusion

Container shipping rates can be affected by the small changes in the market, and most of the time, shippers have no control over this. On the bright side, you can optimize logistics costs by implementing the tips in this guide.

FAQs

Q) What are the 4 basic costs of transportation?

A) Line haul, pick-up and delivery, terminal handling, and billing and collecting.

Q) What are the factors influencing the cost of transportation?

A) Fuel prices, labor costs, shipping mode, urgency, distance, government regulations, shipping routes, etc.

Q) How are shipping rates determined?

A) Shipping rates are calculated based on the shipping point, point of origin, expected delivery times, and the weight and dimensions of the package.

Q) What is the cost of freight?

A) This is the transportation fee you pay to a carrier to ship the goods from the origin to the final destination.

Q) Is it cheaper to ship fewer items?

A) No. It is actually more expensive. For cheaper rates, consolidate the few items into a bulky shipment.

Q) How many types of containers are there?

A) At least 16 types of containers are currently available.

Q) When is the peak season?

A) The peak or high season is from August to October.