What is in a freight quotation?
An ocean freight quotation usually has three layers:
- Basic freight (ocean freight / basic rate): The cost of carrying the container from port to port.
- Surcharges: Lines covering variable costs such as fuel, currency, seasonality, security and environmental regulation. Their names and calculation methods vary by carrier.
- Local charges: Terminal handling, documentation, seal and release fees charged at the ports of loading and discharge.
When comparing quotations, look at the total cost and the validity period, not just the basic freight.
The most common surcharges
| Abbreviation | Stands for | What it covers |
|---|---|---|
| BAF | Bunker adjustment factor | Changes in ship fuel prices |
| LSS | Low sulphur surcharge | Extra cost of low-sulphur fuel (IMO 2020) |
| EBS | Emergency bunker surcharge | Sudden rises in fuel prices |
| ETS | Emissions trading surcharge | The cost of the EU Emissions Trading System |
| CAF | Currency adjustment factor | Exchange rate movements |
| PSS | Peak season surcharge | Peak season demand |
| GRI | General rate increase | A general freight increase (a price increase, not a surcharge) |
| ISPS | International Ship and Port Facility Security | Port and ship security costs |
| CIC | Container imbalance charge | The cost of repositioning empty containers |
| WRS | War risk surcharge | Risk in war or conflict areas |
Why so many lines? Fuel, currency and regulatory costs change often, so carriers show them as separate, adjustable lines instead of building them into the basic freight. Two important regulatory examples:
- IMO 2020: Since 1 January 2020, the sulphur content of ship fuel has been capped globally at 0.50%. The extra cost of low-sulphur fuel is reflected in the LSS or the BAF.
- EU ETS: Shipping has been included in the EU Emissions Trading System since 2024. Carriers pass this cost on as an ETS surcharge on trades to and from the EU.
Local charges
- OTHC / DTHC: Terminal handling at the ports of loading and discharge.
- Bill of lading / documentation fee: Issuing the bill of lading.
- Seal fee and telex release fee.
- Delivery order fee: Issuing the release document at destination.
Who pays which line?
The Incoterms rule decides how the lines are split between seller and buyer. In the sample quotation below you can change the amounts and choose a rule to see which line falls to the seller and which to the buyer. The amounts are examples, not real prices.
Comparison by rule
| Line | EXW | FCA | FOB | CFR | CIF | DAP | DDP |
|---|---|---|---|---|---|---|---|
| Pre-carriage (factory → port) | Buyer | Seller | Seller | Seller | Seller | Seller | Seller |
| Export clearance | Buyer | Seller | Seller | Seller | Seller | Seller | Seller |
| OTHC | Buyer | Buyer | Seller | Seller | Seller | Seller | Seller |
| B/L fee | Buyer | Buyer | Seller | Seller | Seller | Seller | Seller |
| Basic ocean freight | Buyer | Buyer | Buyer | Seller | Seller | Seller | Seller |
| BAF | Buyer | Buyer | Buyer | Seller | Seller | Seller | Seller |
| LSS | Buyer | Buyer | Buyer | Seller | Seller | Seller | Seller |
| ETS | Buyer | Buyer | Buyer | Seller | Seller | Seller | Seller |
| ISPS | Buyer | Buyer | Buyer | Seller | Seller | Seller | Seller |
| DTHC | Buyer | Buyer | Buyer | Per contract | Per contract | Seller | Seller |
| Delivery order fee | Buyer | Buyer | Buyer | Per contract | Per contract | Seller | Seller |
| Import clearance (brokerage) | Buyer | Buyer | Buyer | Buyer | Buyer | Buyer | Seller |
| On-carriage (port → buyer) | Buyer | Buyer | Buyer | Buyer | Buyer | Seller | Seller |
| Cargo insurance | Buyer | Buyer | Buyer | Buyer | Seller | Seller | Seller |
Reference scenario (same as the matrix in the Incoterms topic). Cargo insurance is compulsory for the seller only under CIF and CIP; under the D rules the seller carries the risk and insures in its own interest, under the other rules the buyer does. Import duties are not included in this example; under DDP they are the seller's.
In practice the lines argued over most are the terminal charges at origin and destination. Under FOB, for example, origin THC is considered the seller's, but at some ports carriers bill it to the buyer together with the freight. That is why the sales contract should state separately who bears the local charges.
Questions to ask when getting a quotation
- Is the rate all-in? Which surcharges are included and which are not?
- How long is the quotation valid? Are surcharges fixed by the sailing date or the booking date?
- What are the local charges at origin and destination?
- How many days of free time (demurrage and detention) are included?
- What is the transit time, and is there transshipment?
Test yourself
- Who pays the BAF on a CFR sale? (Answer: The seller. BAF is part of the main carriage (freight), which the seller pays under CFR.)
- Is a GRI a surcharge? (Answer: No. A GRI is a general increase in the carrier's basic freight.)
- Who pays the destination THC (DTHC) on an FOB sale? (Answer: The buyer. Risk and cost pass to the buyer on loading; destination charges are the buyer's.)