Freight is the goods carried by ship/train/truck/aircraft. It is the goods transported in bulk by ship. More specifically it is Ocean Freight. Freight rate is the cost of transporting goods. Or, freight rate is a price at which a certain cargo is delivered from one place to another.
Ship owner gains money from freight rate, if high rate then gains more. This price depends on many factors like mode of transportation, goods, weights etc.
Factors affecting freight rate are followings:
- Distance/Route – larger route, more rate
- Season – off season, less rate
- Currency Fluctuation – also decides the rate
- Mode of Transportation/Capacity – depends on how much space you have needed
- Fuel Prices – directly related
- Fines/Fees – also increase the rate
- Weight – cargo weight is also considered
How to determine the Freight Rate?
- Freight rate is calculated by all affecting factors not by a single factor. It’s not simple.
- It is calculated by considering factors on priority basis i.e type of cargo, distance, quantity etc. are considered first.
- There are various systems which calculate the world freight rate.
Types of Freight: It can be of in various types, depending upon ships, agreements, emergency etc.
- Advance Freight– It is payable in advance, before the delivery of actual goods. This is the most important freight.
- Lump Sum Freight– It is the amount payable for the use of the whole or portion of ship. It is calculated on the actual capacity of the ship offered. It is not directly related to the cargo to be carried. It is payable irrespective of the actual quantity delivered.
- Dead Freight– It’s a form of compensation for damaged cargoes. It is the amount paid by or recoverable from a character of a ship for such part of the ship’s capacity as the charterer has contracted for but fails to occupy. Compensation for cargo agreed to be shipped but unshipped because it was unavailable for loading.
- Back Freight– When goods dispatched to a certain port, and on arrival it is refused. Then freight charged for the return of the goods constitutes back freight.
- Pro-rata Freight– It’s an ancient form of freight. It arises when cargo is carried only part of the way and it’s impossible to continue the journey. In this case freight is calculated for completed journey. It should be in an agreement.
- Ad Valorem Freight– Ad valorem means at value. Ad Valorem rate is based on the value of goods. It is calculated according to the value of goods like high value goods – high rate.
Full Container Load (FCL) & Less than a Container Load (LCL): FCL is the shipment of larger and completely filled cargo. LCL is the shipment of smaller volume cargo and belonging to several shippers.