Understanding Ocean Freight Fundamentals
Imagine 8,000 semi trucks in one place… that place is a container ship. Container ships have massive economies of scale, which is why ocean freight is almost always the most affordable methods of shipping (if you’re shipping more than a couple of pallets).
But don’t be fooled by the seemingly low cost of ocean freight. There are many variables that affect cost and reliability of this shipping method. Delays, late charges, warehousing fees and storage costs are some of the common extras applied to ocean freight when you leave it up to a third-party to manage. Ocean freight can be complex and if shippers don’t have a strong understanding of the line-items on their transportation bill, they risk paying more.
Ocean freight has been further complicated by the global Covid-19 pandemic. We’ve seen an increased demand in exports from China largely. Shipping ports around the world are operating at reduced capacity, or altogether stopped due to Coronavirus outbreaks. As a result, container freight rates are up to three times higher than equivalent rates last year and we’re seeing longer lead times.
Don’t let this discourage you from ocean freight. Things will normalize in the coming months. For savvy shippers who are willing to learn how ocean freight works, you can still make it an affordable transportation option. These are questions we recommend importers and exporters should ask when considering ocean freight.
ARE YOU SHIPPING PRODUCTS INTO CANADA FROM ANOTHER COUNTRY?
Questions IMPORTERS should ask:
1. Do you know the Incoterm that you’re using to purchase your product?
The incoterm indicates what part of the shipping you’re responsible for. You might take on less responsibility to coordinate shipping, but you’ll have less control of the shipment and you may also pay a premium.
2. Do you understand all the charges on your invoice when you’re billed for an ocean freight shipment?
There can be a lot of hidden fees in ocean freight and you may be paying for things you don’t need. By taking control of your ocean freight, you can often find ways to reduce other costs.
3. Is the supplier including the transportation price in the per-unit price of your product or is it being quoted separately?
As an importer, you don’t pay duty on transportation fees. However, if your supplier embeds the transportation price into your product so it appears that shipping is “free,” you’re essentially paying duty on shipping. It’s always better to pay for your transportation costs separately.
4. Do you know the all-in transportation costs from door-to-door?
This is critical information because often the ocean costs represent under 50% of the total transportation invoice. Understanding the total door-to-door transportation costs helps manage expectations, understand the true cost of goods and assists with budgeting.
ARE YOU SHIPPING PRODUCTS FROM CANADA TO ANOTHER COUNTRY?
Questions EXPORTERS should ask:
1. Do you know the points of transport where breakdowns occur and what the potential costs are for late or delayed shipments?
Ocean freight is handled frequently in a door-to-door shipment. The ability to pinpoint where error can happen can help prevent delays, late fees, and penalties.
2. Do you need to buy or rent a shipping container?
Often, importers and exporters rent shipping containers. However, there are instances where buying a shipping container is a more cost effective option.
3. How much of a container load do you need for your shipment?
Do you need LCL (Less than Container Load, shared space) or FCL (Full container load). Both options come weighted with different cost and timeline efficiencies.
4. Do you know if your marine cargo insurance covers pirate attacks?
We’re sort of joking about this one. But it your goods are travelling in known vulnerability zones, often standard marine insurance doesn’t cover this.
Ocean freight can be complex and overwhelming but JORI Logistics is here to make it easy to understand. If you’re interested in learning more about ocean freight, join us for the:
Ocean Freight Basics 101
Thursday, February 25th
1PM – 2:30PM MT