What Affects Ocean Freight Rates?

More often than not, transporting commodities internationally includes traveling through oceanic routes on container freighters. Third party logistics providers, freight forwarders, and brokers alike are all too familiar with the levies imposed on the long voyages of international trade.

Understanding ocean freight rates and the ways and means of its applicability is important because if a shipper undertakes to transport goods without proper knowledge, this could have a huge impact on the landed cost of their goods.

We aim to demystify the intricacies behind ocean freight rates. At Jaguar, we value transparency every step of the way. We’ve rounded up 5 main factors that affect ocean freight rates:

Bunker Fluctuations: Bunker fuel is a considerable cost for crude tanker companies. Closely related to the cost of oil, there is a direct relationship with the cost of oil and the cost of bunker fuel and therefore the ultimate cost of freight. When oil prices rise and fall within international markets, there is a direct impact on freight rates. The volatility of oil prices is correlated to fluctuating international ocean freight costs.

Seasons: For many goods, especially reefer cargo, seasons plays a large role in the cost of transportation. Some goods become more expensive to ship during high seasons, due to demand and supply changes. Inclement weather can cause many smaller ships to be docked, decreasing supply while demand increases, spiking shipping fees.

Fees and Service Charges: Terminal fees are charged both at the embarking point, and the intended destination. During Hanjin’s bankruptcy, many of their ships were stuck out at sea due to the inability of the company to pay the terminal fees. Services charges can be any extra charge levied by port authorities.

Currency Fluctuations: The U.S. dollar is the common denomination used for international transactions, however, the currency exchange rates fluctuate on a daily basis. This fluctuation can be a basis of fluctuating ocean freight rates.

Container Capacity: Shipping containers are designed to operate at maximum capacity. Should the container not reach optimum capacity, ‘economies of scale’ come into play, wherein the shipper becomes responsible for the cost of the empty part of the container although the quantity of actual goods shipped is less than what fits in the container. It is therefore vital to get as close to 100% container utilization as possible.

Ocean shipping is a complex operation, often requiring established business relationships with parties on both ends of the shipping and receiving spectrums. Our team of logistics specialists has deep and current knowledge of international supply chain management. Get in contact with us today to explore more supply chain solutions.