The Calculation of Freight Rates

The costs paid for the delivery of a certain cargo between two destinations are referred to as freight rates. Although the definition is simple, their calculation is not, being based on a number of factors which include the mode of transport, the nature, form, weight and volume of the cargo and the distance between destinations. Therefore, here is a short guide on the calculation of freight rates depending on the abovementioned criteria, starting with sea freight rates.

Sea freight rates

This type of freight rates vary depending on two variables. They are:

- The charges the carrier sets for handling the cargo and clearing it at the ports;
- The containerization requirements, i.e. Full container loads (FCL) versus Less than container loads (LCL). Here are a few details on the two.

Full Container Loads (FCL)

The shipping line sets a flat fee to be paid for the transportation of full container loads (FCL) which varies depending on the type of container, destinations, time of year and volume, among others. Lower rates can be obtained for larger volumes or by closing a contract with the shipping line. It should also be noted that freight forwarders may also offer discounts depending on their various volume agreements.

Less than Container Loads (LCL)

Less than container loads (FCL) constitute an ideal alternative to the abovementioned FCL or groupage shipping. Available in all big ports, they produce profits for sea freight consolidators, who pay the costs of a full container, place several smaller shipments in it and finally load and transport it while charging the clients with a pro rata rate calculated for either 1,000 kg or 1 m3 (w/m).

FCL versus LCL
The choice between FCL and LCL is usually determined by cost. Here is an example for a better understanding of the differences.

Let's assume you want to transport a 2,000-kg and 10,000 m3 cargo from London to Durban. The costs of a FCL delivery in a 20"² container would amount to £2,500 whereas those of an LCL delivery would amount to £950 w/m.

The costs may increase depending on the final destination or the provision of tracking services. However, most forwarders have already included tracking services in their standard pricing offers.

Also, you should know that sometimes these charges are partially or fully integrated in the ocean freight rates for simpler calculations, which explains the sometimes big variations.

Let's assume you need 4 pallets weighing 1,000 kg and measuring 4,000 m3 shipped from London to Hong Kong. The total costs would amount to £400 using the first pricing method and to £175 versus approximately £240 using the second.

Solutions to simplify these calculations further are being researched, we at Freight Filter also investing in the development of accurate sea freight calculators.

Destination charges

The present guide is compliant with the UK export regulations and CFR incoterms.
As stipulated by these regulations, transportation is usually done from "Door to port" and the charges additional to the prepaid freight rates will be supported by the buyer. They may also be calculated as part of an international sea freight rate, in which case a clarifying note will be added.

We hope this guide has helped you obtain a better understanding of sea freight rates. Similar articles on the other types of freight rates, starting with air freight rates, will follow.