Ocean Freight Explained: Calculating Costs And Price Trends
What is Ocean Freight Shipping?
Ocean freight is the most common mode of transport that importers and exporters use. In fact, a full 90% of everything is shipped by ocean. The other international freight transport modes (courier, standard air freight, express air freight) are all faster, but they are also more expensive. Smaller shipments, and products with a high value, generally go by these other modes.
If ocean freight is too slow, but air freight is too pricy, some forwarders are now offering a relatively new service, often called expedited freight. This service is often nearly as quick as air freight, but it costs more like ocean freight. It works by streamlining ocean freight processes and only tying in with the faster ocean services and premium trucking services.
Why Ship Cargo by Ocean?
- Capacity and Value – One container can hold 10,000 beer bottles! And ocean freight is cheaper. As a rule of thumb, any shipment weighing more than 500 kg is too expensive for air freighting.
- Less restrictions – International law, national law, carrier organization regulations and individual carrier regulations all play their part in defining and restricting what goods are considered dangerous for transport. Generally, more products restricted as air cargo than ocean cargo, including: gases (e.g. lamp bulbs), all things flammable (e.g. perfume, Samsung Galaxy Note 7), toxic or corrosive items (e.g. batteries), magnetic substances (e.g. speakers), oxidizers and biochemical products (e.g. chemical medicines), and public health risks (e.g. untanned hides). For further information check out the Freightos Hazardous Material Table.
- Emissions – CO2 emissions from ocean freight is miniscule compared with air freight. For example, according to this research, 2 tonnes shipped for 5,000 kilometers by ocean will lead to 150 kg of CO2 emissions, compared to 6,605 kg of CO2 emissions by air.
Why Not Ship Cargo by Ocean?
- Speed – Airplanes are about 30 times faster than ocean liners; passenger jets cruise at 575 mph, while slow-steaming ocean liners move at 16-18 mph. No surprise then, that a shipment going by air freight from China to the US usually takes at least 20 days more than by ocean freight.
- Reliability – Port congestion, customs delays, and bad weather conditions generally add many more days to ocean freight than air freight. To date, there has been more takeup of tracking technology in air freight than ocean freight. That means that ocean freight is more likely to get misplaced than air freight. This is especially true when the ocean shipment is less than a container load. That said, ocean freight is slowly becoming more reliable, in order to compete with air freight.
- Protection – Ocean cargo is more likely to get damaged or destroyed than air cargo. That’s because it is in transit a lot longer, and because ships are more subject to movement. But don’t worry too much about cargo falling off ships. The urban myth says 10,000 lost per year, but it’s more like 546 of the 120 million container movements per year that fall in the drink. Even less likely is piracy. Hot spots in recent years have included the Horn of Africa, the Gulf of Guinea, and the Malacca Straits.
LCL or FCL?
Ocean freight breaks down to two further options: a full container load (FCL) and a less than container load (LCL). With LCL, several shipments are packed into one container. This means more work for the forwarder, there’s extra paperwork involved, as well as the physical work of consolidating various shipments into a container before the main transit, and de-consolidating the shipments at the other end. This gives LCL three disadvantages over FCL:
- LCL takes more time to deliver than an FCL shipment. The Freightos Freight Team typically recommend allowing an extra one or two weeks,
- There is an increased risk of damage, misplacement and loss with LCL.
- LCL costs more. In the Freightos’ Freight Team’s experience, the main transit cost is roughly double the per cubic meter charge as for FCL.
If it is practical to consider bringing in a larger shipment, the tipping point for upgrading from LCL to FCL (the smallest sized container is a 20 footer) is somewhere around 15 cubic meters.
How Is Ocean Freight Costed?
With the exception of particularly heavy goods, most LCL is priced per volume of goods, and not by weight.
For most products, use these rules of thumb for which selecting the most cost-effective mode:
- Shipments weighing more than 500 kg becomes uneconomic to go by air freight. Ocean freight is around 50 cents/kg, and a China-US shipment will take around 30-40 days.
- At about $4 per kilo, a China-US shipment between 150 kg and 500 kg can economically go air freight, and will take around 8-10 days. Express air freight is a few days quicker, but more expensive.
- Packages that are lighter than 150 kg can economically go by courier (express freight). At about $6 per kilo, a China-US shipment will take around 3 days.
For products with a high value of goods per tonne, use this chart instead. It is based on recent quotes and freight rates from the Freightos marketplace.
Common ocean freight charges:
Expect to see these items on ocean freight quotes and invoices:
- Customs security surcharges (AMS, ISF)
- Container Freight Station (these are the consolidation charges, and apply for LCL only)
- Terminal Handling charges (charges by the port authority)
- Customs brokerage
- Pickup and delivery
- Accessorial charges (fuel surcharges, handling hazardous materials, storage, etc)
- Routing charges (e.g. Panama canal, Alameda Corridor)
Top Ocean Freight Shipping Rates
How much will your shipment cost all up? You can use this free calculator to get instant ocean cargo estimates.
Or you can request a quote directly on the Freightos Marketplace.
INSTANTLY COMPARE AIR FREIGHT QUOTES FROM TOP FORWARDERS
Are International Ocean Freight Prices Changing?
For several decades now, world trade has been fueled by an increasingly abundant supply of cheap products that kept getting cheaper. So cheap, that actual freight costs were almost irrelevant. But since 2012, there has been a dramatic fall in sea-freight rates – more than 75% on some routes. Part of this was due to plunging oil prices, but a lot too has been market forces at play. Carriers went on a container ship spending spree at the same time that demand for container freight began levelling off. Demand isn’t forecasted to reach supply levels until 2022, by some estimates. That’s rough news for ocean carriers, but great news for importers and exporters.
Who Are The Top 5 Ocean Forwarders?
Ocean freight is a highly fragmented market, with the top 10 air forwarders dominating only 43% of the market.
- Kuehne + Nagel – A clear leader, whose ocean freight revenues are estimated to be around 65% larger than its nearest rival. But in a highly fragmented market, its share is estimated at just 9.2%.
- DHL Global Forwarding – Although coming in second, DHL’s ocean freight revenue is smaller than their air and truck operations. In 2015, DHL Global Forwarding ocean freight revenue reached $3,850 m.
- Sinotrans – China’s largest freight forwarder is listed on the Hong Kong stock exchange, but wholly owned by the government. Much of its ocean freight business takes place in the coastal cities of Eastern China.
- DB Schenker – Headquartered in Germany, the freight giant employees nearly 100,000 employees around the world. In 2015, it’s ocean freight volumes were 1,942m TEUs.
- DSV – The Danish company’s acquisition of other leading forwarder UTi, approximately doubled ocean freight forwarding revenues of DSV a year ago. Their 835,487 TEUs of ocean freight in 2015 brought in $1,7580 m in revenue.