Freight Rate Calculation

Conference Discounts & Contract Shippers

When a general cargo contract is signed between a shipper and the conference, the contract shipper is prohibited from participating directly or indirectly in any arrangements relating to the carriage of cargo by any vessel not operated by one of the conference carriers.

The freight conference offers discounts or rebates to the contract shipper, also known as ‘loyal’ shipper, who gives its entire support to members of the conference. The contract shipper usually enjoys an immediate discount (about 9.5%) on the freight rate ruling at the time of shipment. Some contracts may grant a rebate (about 10%) after a certain period (usually 6 months or more) of loyalty to the conference instead of immediate discount on each consignment.

Measures of Freight Cost Calculation

The freight rate on export goods is often based on W/M (weight or measure), that is, based on the weight or the volume of cargo (the cube or measurement of cargo). A cargo that is large in relation to its weight is charged according to its total cube, while a cargo that is heavy in relation to its size is charged according to its gross weight.

The freight cost by weight or measure that will give the carrier the higher revenue is the rate that applies. In general, light cargo is charged based on measure, while heavy cargo based on weight. The unit of ton being used in the freight cost calculation may differ among carriers. It can be a metric ton (2204.6 lbs. or 1000 kgs.), a short ton (2000 lbs. or 907 kgs.), or a long ton (2240 lbs. or 1016 kgs.). The exporter must verify with the carrier which unit is being used. In practice, the most frequently used is the metric ton.

Units of Weight or Measure Commonly used in the Freight Cost Calculation,

MT = metric ton

Kg. = kilogram

lb = pound

CBM = cubic meter

1. cms. = cubic centimeters
2. ft. = cubic feet
3. ins. = cubic inches

Example of freight calculation

A case has a gross mass of 2 MT.

The dimensions of the cargo are: 2.5 X 1 X 2 metres

The tariff rate quoted by the shipping line is: USD 110.00 weight or measure (freight ton)

• Step 1: Determine the volume: 2.5 X 1 X 2 = 5 cubic meters Compare to the mass = 2 MT.
• Step 2: Calculate the freight with the greater amount either the mass or the volume:

5 X USD 110.00 = USD 550.00

Freight would be paid on the volume and not the weight as the former is higher. All shipping lines carrying cargo in a break-bulk form insist on payment based on a minimum freight charge which is equivalent to one freight ton, one cubic meter or one metric ton.

The unit of ton being used in the freight cost calculation may differ among carriers. It can be a metric ton (2204.6 lbs. or 1000 kgs.), a short ton (2000 lbs. or 907 kgs.), or a long ton (2240 lbs. or 1016 kgs.). The exporter must verify with the carrier which unit is being used. In practice, the most frequently used is the metric ton.

Some freight carriers may use the (long ton) 2240 lbs. (as weight) or 40 cu. ft. (as measure) in the freight cost calculation. Some freight carriers may use the terms U.S. shipping ton and British shipping ton. 1 U.S. shipping ton is equivalent to 40 cubic feet, and one 1 British shipping ton is equivalent to 42 cubic feet. Other units may be used in the inland freight cost calculation. For example, the inland freight could be charged on a per package basis, but within a maximum allowable weight and/or cube per package. Some carriers may rate a product on a weight basis only.

In the case of irregular shaped cargo, the weight or measure applies, where the measure is determined by taking the three widest dimensions that describe the smallest cubic space enclosing the cargo.

Freight Adjustments (CAF and RAF)

From time to time, abnormal or exceptional costs arise in respect of which no provision has been made in the tariffs. For example a shipping line cannot predict the movement of the US Dollar or the sudden increase of the international oil price. These increases have to be taken into account by the shipping line in order to ensure that the shipping line continues to operate at a profit. These increases are called surcharges. BAF and CAF are floating charges, which increase or decrease the base freight amount. BAF (Bunker Adjustment factor) charge reflects the direction of changes in oil prices.

Example

Freight rate: Mumbai to Singapore

Freight rate: US Dollar: 4000.00 per 20-M container+ BAF 5%

US Dollar 4000.00 X 5% = US Dollar 200.00

Adding the two amounts together Freight rate: US Dollar 4200.00

CAF (Currency Adjustment Factor) charge represents the influence of the changes in the currency rate to the freight. Usually BAF is a fixed amount, while CAF is usually specified as a percentage of the base freight amount.

Example

Freight rate: Mumbai to Singapore

Freight rate: US Dollar: 4000.00 per 20-M container+ CAF 6%

US Dollar 4000.00 X 6% = US Dollar 240.00

Adding the two amounts together Freight rate: US Dollar 4240.0

BAF and CAF are applied by sea lines, which unite together to form the so-called regional conferences. Different BAF and CAF rates are applied when transporting form different countries.