ocean tariffs basic principles -...

Ocean Tariffs – Basic Principles

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Prof. Ashok Advani - Jaipuria Institute of Management, Noida

Liner vs . Tramp Shipping


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Liner Service

A service that operates within a schedule and has a fixed port rotation with published dates of calls at the advertised ports A liner service generally fulfills the schedule unless in cases where a call at one of the ports has been unduly delayed due to natural or man-mad causes Example: CSAV – IMEX 1 Service Nhava Sheva - Mundra – Jeddah – King Abdullah – Gioia Tauro – Valencia – Rotterdam – Antwerp – Felixstowe Nhava Sheva – Felixstowe [26 Days] Mundra – Felixstowe [23 Days]



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Liner vs . Tramp Shipping L iner Ships • Fre ight bas i s d i f fe rent f rom a t ramp vesse l

• F i xed schedu le o f ar r i va l & depar ture • Depar tures not de layed • Do not wa i t fo r the h ighest b idder • Car ry whatever ava i l ab le • Car ry most cargoes o f organ i zed sector


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Tramp Shipping

A Tramp Service or tramper on the other hand is a ship that has no

fixed routing or itinerary or schedule and is available at short notice

(or fixture) to load any cargo from any port to any port

Example :

A ship that arrives at Durban from Korea to discharge cargo might

carry some other cargo from Durban to Oakland on the West Coast of

USA which is an entirely different direction

From Oakland it could carry some cargo and go to Bremerhaven

Liner vs . Tramp Shipping Tramp Ships • Fre ight bas i s d i f fe rent f rom a l i ner vesse l

• No f i xed schedu le o f ar r i va l & depar ture • Any POL to any POD • Depar tures de layed • Wa i t fo r the h ighest b idder • Car ry what pays max imum f re ight • Car ry most ly bu lk cargoes


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Components of Ocean Tar i f fs


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Components of Ocean Tar i f fs Organ izat iona l Overheads [F ixed]

• Depreciation • Interest on borrowed capital • Administrative cost


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Components of Ocean Tar i f fs Voyage or Operat ion Overheads [F ixed]

• Fuel • Wages for staff & crew members • Insurance premium • Canal Toll charges • Port charges


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Components of Ocean Tar i f fs Voyage Var iab le Costs

• Cargo handling charges


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Components of Ocean Tar i f fs

Ocean tar i f f s based on three bas i c pr inc ip les


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Ocean Tar i f fs – Three Basic Pr inc ip les Cost o f serv i ce pr inc ip le P rov id ing a regu lar & cont inuous serv i ce Recover costs + pro f i t Set t ing o f l ower l im i ts o f f re ight


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Ocean Tar i f fs – Three Basic Pr inc ip les Cost o f serv i ce pr inc ip le


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Ocean Freight = Organizational Overheads + Voyage or Operational Overheads + Voyage Variable Costs + Profit


Ocean Tar i f fs – Three Basic Pr inc ip les Va lue o f serv i ce pr inc ip le Bet ter qua l i ty o f serv i ce

• Shorter routes • Transit times • Storage & handling facilities on vessel

P remium to be moderate – compet i t i veness in g loba l markets


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Ocean Tar i f fs – Three Basic Pr inc ip les Va lue o f serv i ce pr inc ip le


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Sets the higher limit of the ocean freight


Ocean Tar i f fs – Three Basic Pr inc ip les What the t ra f f i c can bear Cargoes capac i ty t o bea r f r e i gh t

H ighe r f r e i gh t ra tes w i l l make p roduc t s uncompet i t i ve Commod i ty de te rm ines the f r e i gh t [Ca rpe t s , Hand i c ra f t s , R i ce , Co i r ]


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Ocean Tar i f fs – Three Basic Pr inc ip les Three bas i c pr inc ip les - Thumb ru les Dec i s ion a complex process Many fac tors cons idered


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Ocean Tar i f fs Determinat ion - Factors Vo lume o f cargo Ava i l ab i l i ty o f cargo Suscept ib i l i ty o f damage Suscept ib i l i ty to p i l fe rage Va lue o f goods Pack ing S torage Weight vs . Measurement Heavy L i f t s


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Ocean Tar i f fs Determinat ion - Factors Ext ra Lengths Compet i t i on f rom other car r i ers Compet i t i on w i th goods coming f rom other sources Cargo v ia compet i t i ve por ts D i s tance Cost o f hand l ing F i xed charges Insurance Por t fac i l i t i es


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Ocean Tar i f fs Determinat ion - Factors Por t charges and dues Cana l to l l s Por t l ocat ion Poss ib i l i ty o f secur ing return cargoes


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Ocean Tar i f fs Determinat ion - Factors 2 important Quest ions: Rate a t wh ich sh ipper w i l l be a t t rac ted to sh ip a par t i cu lar commodi ty Can the sh ipp ing l i ne a f ford to car ry the cargo at th i s ra te?


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FIB Freight Invest igation Bureau


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Freight Invest igation Bureau [FIB]

Set up in 1959 Under DG Sh ipp ing Branches

• Kolkatta • Kochi • Kandla • Chennai • Vishakapatnam


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Current Ocean Freight Rates


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POD 20’ 40’

Shanghai $100 $175

Tokyo $175 $275

Melbourne/Sydney $750 $1510

New York $1300 + DDC $ 2300 + DDC

ANR/HAM/FXT/ROTT $600 $1100

APAPA $1950 $3600


Current Inland Haulage Rates Ex ICD TKD


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POL 20’ 40’

Nhava Sheva

0 – 19.9 MT INR 36400 -

19.9 – 26.9 MT INR 48,100 -

26.9 – 29.9 MT INR 50,100 -

0 – 23.1 MT - INR 64,500

23.1– 29.0 MT - INR 64,500


Current Inland Haulage Rates Ex ICD TKD • IHL are bas i s Gross Weight

• Gross Weight = Cargo Weight + Tare Weight • Tare Weight = Empty Conta iner Weight

• Tare 20’ = 2.5 MT • Tare 40’ = 4.5 MT

• IHL inc ludes Por t THC • Por t THC – NSICT

• 20’ = INR 6,400 • 40’ = INR 10,900


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Components of Ocean Tar i f f • Bas i c Ocean Fre ight

• BAF • CAF • E IS • PSC • Peak Season Surcharge • Aden Gu l f Surcharge • P i racy Surcharge • In ternat iona l Secur i ty Charge • L iner Out


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Freight & Other Charges

What is the difference between BAF & CAF ?

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BAF

BAF – Bunker Adjustment Factor

Applied due to fluctuations in global oil prices

Used to stabilize the freight costs

Applied on basic ocean freight

Usually a composite amount & decided on a monthly basis

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BAF supplements fluctuating fuel costs


CAF

CAF – Currency Adjustment Factor

Applied due to fluctuations in exchange rates

Used to stabilize the freight costs

Applied on basic ocean freight

Usually a percentage & decided on a monthly basis

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CAF supplements currency value fluctuations


What is the difference between BAF & CAF ?

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Major difference

BAF is related to oil price and CAF is related to foreign

currency


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Administrative Fee - B/L Fee - Documentation Fee

Fees for paperwork This service covers the creation and processing of all standard transport documents (e.g. B/L or Delivery Order etc) Usually applied per

• Bill of Lading • Delivery Order • Transport Document


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All in Rate

The cost of transportation includes all the additional fees provided for under the conditions of carriage

Example

In the case of Freight being quoted as an “All In Rate” for U.S. , Europe or other trade lanes, the amount includes all charges such as Freight, BAF, CAF, loading, unloading etc


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Basic Ocean Freight (BAS/OF)

Covers the service of transportation of cargo from the first port of loading to the last port of discharge [Example: Nhava Sheva to Ningbo via Hong Kong] [Example: Nhava Sheva to Port Kelang via Singapore] It is applicable to all shipments Applied per container


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Carrier Security Service (ISPS/SEC/SER)

Service provided by the carrier to perform due diligence in maintaining vessel security compliance to the International Ship and Port Facility Security Code (ISPS Code) which is a comprehensive set of measures to enhance the security of ships and port facilities Global initiative & a part of SOLAS

This service is applicable to all shipments Applied per container [ISPS – International Ship & Port Facility Security]


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Change of Destination (COD)

Service provided by carrier upon the customers request to amend the destination after a container is gated in at the port of origin, but prior to the arrival at the port of discharge

This service is not applicable in the following scenarios:

• Return shipment

• Re-export

• Inland change request

• Extending inland haulage (Imports process)

Applied per container


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Container Cleaning Fee (CCL)

Fee covers the additional costs for normal, extra or special cleaning and is applicable when the container does not meet the standard cleanliness criteria (inside and outside) upon empty return from the customer This service of additional cleaning of the container may also be triggered by customer request Applied per container


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Detention penalty/Detention fee (DET - Import/DTS - Export)

Import: Imposed for excess usage of container since its arrival at the terminal (full) until the return of empty containers at the nominated terminal, minus free days Export: Counted from pick-up empty from terminal to return to terminal (full) minus free days This fee is applicable to all containers that remain in the customers possession longer than the agreed free time Not applicable for shipper owned containers


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Electronic Data Interchange Fee (EDI)

Applicable when carrier arranges submission of electronic data, on behalf of the customer, to ports / Customs or other Government authorities The fee is applied based upon customers request Exception: In Greece and Israel, this fee is mandatory and is applicable to all shipments Applied per Bill of Lading (B/L) / Transport Document (TP Doc)


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Emergency Risk Surcharge (ERS)

This fee covers additional costs faced by the carrier when moving cargo in dangerous regions including those that are threatened by hazards, violence or piracy The charge covers extra bunker cost due to • Longer routing • Faster sailing • Insurance coverage • Additional security measures

The fee will be applicable to bookings that are from, to or transited through the affected areas


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Freight Collection Fee (CLF)

Applied when the carrier

• Collects freight charges locally

• Collects freight charges in a local currency

The fee is set by local authorities in certain countries

Would apply to both import or export shipments

The charge could be

• Fixed fee or a percentage of the total freight

Application per

• Bill of Lading (B/L)

• Transport Document (TP Doc)

• Per container

• Percentage of freight


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Heavy Weight Charge/ Heavy Weight Service (HWS)

Covers additional operational expenses incurred for handling heavy cargo that weighs more than the standard limit for a shipment The carrier can provide this service as long as the cargo does not weigh more than the legal safety limit allowed for transport These limits may vary from country to country Usually 20ft containers exceeding the weight of 14,000 kg Gross are subject to a heavy weight surcharge. An empty 20ft container weighs approximately 2,300 kg 40ft containers are not subject to a heavy weight surcharge Both 20ft & 40ft containers can carry a load of up to 26,000 Kg


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Panama Canal Fee (PCC)

Fee to cover the costs associated with transit of the Panama Canal Applicable to all shipments moving through the Panama Canal Applied per Container


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Suez Canal Fee (SCC/STT)

A fee to cover the costs associated with transiting the Suez Canal Applicable to all shipments moving through the Suez Canal Applied per Container


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Port Congestion Surcharge (PCS)

Applied by shipping lines to cover losses caused by congestion and idle time for vessels serving the congested port Shipping lines impose a surcharge on the freight to recover revenue lost Another factor which influences port congestion surcharge would be labour disputes Port congestion surcharges are applied as

• A percentage of the freight rate • Per Container


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Peak Season Surcharge (PSS)

A seasonal fee applied during high volume shipping periods in certain trades Is normally charged on cargo moving from ASIA to U.S.A. This fee remains in effect for the duration of a typical Peak Season Peak Season : June 1 - October 31

Components of Ocean Tar i f f

FCL vs . LCL


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Components of Ocean Tar i f f

F re ight Ton Concept [LCL]


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