Freight Costs- Key Factors That Affect Freight Rates

1. Freight Costs: Key Factors That Affect Freight Rates Freight cost is the amount paid to a carrier company for the transportation of goods from the point of origin to an agreed location. The freight charge is calculated based on the type of mode of transportation and the distance between the pickup place and the place of destination. The shipment of goods may be transported using freight prepaid or freight collected based on the incoterm rules. Whether you are a business retailer, wholesaler, or manufacturer, freight charges are one of the primary costs of running a successful business. You have to move goods from one location to another, ship products to customers, import products for sale, etc., and all that doesn’t come cheap, especially if you are shipping overseas. The bigger the cargo and the longer the distance, the higher the freight costs. These costs are often uncertain. You may not know the exact shipping costs for your goods until your carrier sends the invoice days later. Freight quotes depend on many economic circumstances and other factors. Here’s a more profound look into them. Cargo rates -especially in the international supply chain- are generally unpredictable. Small and medium shippers suffer and experience this instability even more. Some Key Factors That Affect Freight Costs Season Depending on the season that you are moving your cargo on, as well as what kind of cargo you are moving, you could face different freight rates and fees. Certain goods, such as grains and fruits, will have higher cargo rates depending on particular freight seasons. Fuel prices The cost of land and maritime transport is directly related to fuel costs. When fuel prices fall, it becomes cheaper to ship cargo. The uncertainty

2. is that fuel costs are volatile and keep changing, so you never know when transportation costs will be higher or lower. Freight demand Demand for freight is also another factor that can influence the freight costs of your business. Just as these costs depend on the underlying costs, so does it depend on the volumes the operators are shipping. The carriers may be forced to charge limited shipping slots at a premium when shipping slots are limited. But if the shipping business is slow, a courier may provide more competitive rates, at least in the short term. Government regulations Government regulations also impact the shipping industry and freight costs. For instance, many countries often have limitations on the maximum driving hours a day for commercial operators. That affects land transportation. Also, where curfews have been imposed during the covid 19 pandemic, the freight industry is impacted due to the limited working hours. Transportation mode If your business involves shipping goods, you have to select your mode of transportation: land, sea, or air. However, you have to consider two primary things here: the transit time and the costs of the transportation mode you choose. To minimize your transit time, which is the time taken to deliver the products, you have to select faster modes of transport such as air, increasing your shipping costs. So the transportation mode you choose impacts your freight rates and your business as well. Insurance costs Insurance is of utmost importance to secure your costs depending on the goods you are shipping. No matter how careful the operators are, you can never rule out the risks of damages, losses, or even theft during loading, transit, and unloading. That is why it is beneficial to ensure

3. your goods. In some cases, you have to arrange for security which increases your shipping costs. Manpower The number of individuals belonging to different specialties engaged in shipping or delivering your product can modify the cargo rates. If your product needs to be handled by a team of pros, the amount of money you will be paying as air cargo costs will be higher to cover the manpower. Manpower also comprises people who take responsibility and handle the paperwork of your cargo. Container Another factor that plus or minus air cargo rates is the containers used for shipping/transport. These containers serve the role of cargo protectors during transit and it differs depending upon the kind of cargo. The shipping containers are also called System Load Products and these affect the cargo rates depending upon the need for special containers to safeguard your goods. Cargo types The sea/ ocean freight is influenced by the types of goods. For instance, dangerous cargo results in higher cargo rates. This is due to the corresponding requirement of skilled manpower, appropriate containers etcetera. Other cargo like heavy goods and perishable goods also have higher freight rates than the usual goods. Currency Currency is another key factor to consider when shipping your cargo overseas. We all know different countries use different currencies, however, the common denomination used for international shipping freight purposes is the dollar. Therefore, ocean freight rates will depend on the rate of exchange at the moment of the transaction, and so transporters should be aware of the currency to avoid any negative surprises. Ocean/ Sea freight rates are dealt with in US dollars globally.

4. So, the strength or the value of the US dollar highly affects the shipping cost of cargo. Stronger the US dollar currency with respect to your country, the more expensive the ocean freight is. Emergency bunker surcharge (EBS) The carriers often implement a range of surcharges whenever they think it necessary. The EBS is one such surcharge that helps to deal with the fuel price. Shipping lines mostly implement the EBS at the last moment as an emergency step. Therefore, it can completely unsettle the logistics budget of the sea freight forwarders. However, the EBS should not be confused with the BAF (Bunker Adjustment Factor) which the carriers implement to cover the volatile prices of fuel. Conclusion Many factors influence your freight costs. Your carrier takes into consideration all the factors mentioned above when determining your freight charges. But if you are loyal to a particular courier, they may offer preferential rates even when costs of shipping freight are high.