Surcharges in international sea freight can quickly erode margins and complicate budgeting. From volatile fuel costs to congested ports, surcharges are a endless battle for shippers.
While avoiding these costs altogether is impossible, there are certainly steps you can take to significantly reduce their impact.
In this article we are going to explore how logistics professionals can minimise the risk of surcharges. But we will start by outlining the key drivers for them.
The main causes of sea freight surcharges
There’s a huge range of potential causes for a surcharge in sea freight. But here are the main ones:
- Fuel price volatility
- Changes in fuel price in the short term can lead to a Bunker Adjustment Factor (BAF) being added to the price of a shipment. For more info on the BAF, see here.
- Port congestion
- Ships stuck in congestion can charge shippers a traffic or port congestion fee, to compensate for their costs whilst waiting to dock.
- Peak season surcharges (PSS)
- When volumes are high, carriers often implement an extra peak season surcharge for shippers.
- Demurrage and detention charges (D&D)
- When shippers hold onto their containers too long, or do not come to collect them quickly enough, shippers will collect demurrage and detention costs.
- Emergency risk-related surcharges (war, piracy, etc.)
- Unexpected geopolitical events can cause carriers to charge a surcharge on freight.
Techniques to reduce the risk of sea freight surcharges
Structure contracts to limit exposure to surcharges
Well-drafted contracts reduce your exposure to an unwanted surcharge.
Try to limit or fix any Bunker Adjustment Facture charge over the term of any contract signed. Carriers or forwarders may comply if you can guarantee good volumes.
Another method is to negotiate an extra couple of days extra free storage on quay. This can significantly reduce the risk of demurrage and detention charges. Alternatively, look to specify at what point your demurrage and detention timer begins. Clarifying that your free days only start after customs clearance, rather than on arrival, can buy you vital extra time.
Use supply chain visibility tools proactively
Supply chain visibility is much more than just a seeing where your container is on a map. The real time data that they provide can be vital for avoiding excess charges.
“With visibility and real-time notifications, you can be informed automatically at key junctions in a shipments' transit, dramatically reducing your exposure to surcharges. Visibility tools are smart. Our WTA Platform gives users an advanced warning when there is a risk of a surcharge, so shippers can take mitigating action.”
Anthony Bour, Director of IT, WTA
Visibility allows you to make these vital decisions with all the relevant data available. Meaning you can make the big, surcharge-avoiding decisions correctly.
Optimise container turnaround
By taking steps to minimise the time you hold containers, you are obviously going to see reductions in detention and demurrage fees. But how do you pull this off?
- Pre‑plan customs – Get your documents ready before your goods are discharged from the vessel. Delays post‑unloading are major D&D triggers.
- Organise road haulage with care – Plan well ahead and ensure trucks are scheduled and ready to pick up cargo on the day its available. Use only reliable haulage partners who will pick the goods up as expected.
Strengthen logistics relationships
At WTA we are massive believers in building partnerships in logistics, not just transactional relationships. We encourage customers to come to us for advice. We have experts working across 679 trade lanes every day of the year.
We encourage shippers to make use of this kind of expertise with their freight forwarders, so that you can work to improve overall supply chain performance, including a reduction of surcharges.
“Any logistics service provider should be willing to offer consultancy to a shipper. Experience in this space is vital and freight forwarders should be willing to use theirs to help.”
Gerry Power, Managing Director, WTA
Reduce volumes during seasonal peaks
Shipping has well known peak and slack periods depending on the trade lane. For example, on Asian export routes, this is typically the period between June and October. This comes as shippers try to get product out of Asia in time for Christmas. There is typically a January peak too, in the weeks running up to Chinese New Year.
Consequently, any attempt to stagger shipments throughout the year, or just simply avoid these windows, will reduce your expose to peak season surcharges.
Consider changing routes and ports
Costs vary widely by port and region. Track which ports and routes are costing you the most money on surcharges and look to phase them out.
This is made extremely easy with a visibility tool operating across your supply chain. With real-time data related to costs and timing, you can see which ports and routes are the biggest offenders.
You can also avoid congestion at certain ports by re-considering the routes you use. With every shipment, multiple routing options are available. Be sure you’re using the most optimised and risk-free route.
It’s impossible to remove surcharge risk entirely. The fact is many surcharges happen completely unexpectedly and out of the control of the shipper.
That being said there are genuine moves you can make to reduce your exposure to surcharges, and we have listed the key ones here. A visibility tool and engaging with a transparent freight forwarder is a great place to start. It’s a conversation we’d be very willing to have. Reach out today.
