Have you been looking to cut your expenses? If you use ocean freight, examining it is a good place to start. Here are 5 under-the-radar factors that might increase your shipping costs without you realizing it. Let’s look into the hidden factors affecting ocean freight rates, their impact, and the best strategies to avoid them.
Why understanding hidden costs is crucial for ocean freight efficiency
Keeping your shipping expenses in check, whether you are using air or ocean freight, is crucial. You might believe that you have found the best freight rate, but hidden fees can stack up without you noticing it.
Since ocean freight services worldwide are essential for global trade, becoming familiar with the hidden factors affecting ocean freight rates will help you better manage your resources, avoiding unnecessary expenses that affect your budget.
These hidden factors affecting ocean freight rates cause cash flow bottlenecks, damaging your budget and enabling you to keep your prices competitive.
Understanding them will help you:
- Improve the accuracy of your budget forecasting
- Avoid delays, penalties, and unexpected fees
- Optimize your supply chain and its performance
- Give you access to better rates
The Real cost of oversight
Many companies choose their ocean freight provider based on initial pricing, trying to find low-cost services. However, many don’t know that when challenges arise, it is likely that additional fees will occur.
These fees are rarely openly disclosed in the initial quote unless you know what to ask for. As these fees add up, ocean freight becomes quite expensive quickly going over the designated budget. Here’s an example of how this happens:
Let’s say your business is shipping goods from China to the U.S. Your shipment encounters an unexpected port delay due to weather conditions.
Suddenly, you are faced with $5,000 unexpected extra charges because of congestion surcharges.
When recurrent, these hidden factors affecting ocean freight rates become a problem. They can drastically and easily affect your margins if left unchecked.
Competitive advantage through cost awareness
Becoming cost aware, keeping track of your and analyzing your ocean freight expenses will help you save money and they gain a competitive advantage for you to better utilize your resources.
By doing this, you can :
- Predict rate increases before they hit
- Negotiate better rates and avoid undisclosed fees.
- Shorten delivery timelines through more strategic planning
Knowing how to calculate ocean freight costs and extra fees caused by these factors will allow you to better plan your budget and account for the unexpected.
Let’s take a closer look at the most common hidden factors affecting ocean freight rates and how they impact your bottom line.
Hidden factor #1 – Port congestion surcharges
Not all ports operate at the same speed, some are more prone to delays, labor shortage, or congestion due to high demand and high traffic.
Because of these delays, ocean freight companies charge congestion fees, which are extra charges added because the ship has to wait a longer time at the port. However, it is rarely outlined upfront.
It is one of the most impactful hidden factors affecting ocean freight rates, especially during peak seasons and holidays when congestion and bottlenecks are almost inevitable.
Case example – Los Angeles port backlogs
During 2021, the COVID-19 crisis led to a high demand for import products and a rapid increase in container volumes. The Port of Los Angeles experienced significant delays.
This continued up until 2022 with 109 container ships waiting outside the port of Los Angeles and its neighboring Long Beach Port which led to increased shipping costs, demurrage, and congestion surcharges.
In October 2021, the ports announced a $100 daily surcharge to be imposed on containers staying long at terminals.
Mitigation strategy
Here are some proven strategies you can implement to reduce these fees:
- Plan for alternate routes in case of contingency.
- When possible, schedule your shipments during off-peak periods.
- Always monitor real-time congestion data and shipment status
- Partner with a trusted and experienced provider like EP Logistics, which discloses all fees upfront and offers you tools for strategic route planning.
Hidden factor #2 – Container imbalance and equipment shortages
Another key hidden factor influencing ocean freight rates is container imbalance, when containers are not positioned where they’re needed most for shipping.
This happens when many shipments are going one direction, let’s say from Asia to the U.S., but not as many are going back the other way. So one side ends up with a shortage of containers.
The short supply increases the price to get the container, known as the reposition fee, as the shipping company has to pay fuel, port, labor, and handling fees to get them back.
Case Example – The Asia-US container imbalance case
During the pandemic, we saw a container shortage in Asia while the U.S. had an excess. This imbalance led to higher spot rates and surcharges for container repositioning. A spot rate for a 40-foot container from Shanghai to Los Angeles surged from $1,500 pre-pandemic to over $12,000.
Mitigation strategy
Working with a logistics partner like EP Logistics allows you to integrate the best practices of container management to minimize the impact of container imbalance and optimize your operations by:
- Analyzing the current availability and forecasting the future trends.
- Choosing routes with better container availability.
- Giving you access to flexible shipping options, such as alternative containers and cargo sizes.
At EP Logistics, we leverage our expertise in global ocean freight to ensure your cargo is never stranded due to container imbalance.
Hidden factor #3 – Detention and demurrage fees
Demurrage is a penalty fee you pay when your container stays too long at the port after it has arrived, and you haven’t picked it up. It usually happens when:
- There is a delay in trucking
- The paperwork isn’t ready
- The warehouse can’t receive the items
- Congestions occur
- Holidays slow operations down
If your cargo stays too long at a port or terminal, demurrage fees can range anywhere from $100 to $300 or more per day per container.
Similarly, detention is also one of the hidden factors affecting ocean freight rates. This is the charge you pay when you keep the container outside the port and haven’t returned it by the deadline specified.
Financial impact per day
Charges for holding containers outside the port beyond the free period are calculated by counting the total days from when the container leaves the port until it is returned, minus free days, and then multiplied by per day rate.
So imagine your business has to pay $150 per container, per day for demurrage. Multiplied by 10 containers delayed for 7 days, makes a loss of $10,500.
How to avoid them
- Coordinate delivery and pickup in advance.
- Use specialized freight software for better visibility.
- Ensure your documentation is complete and submitted on time.
- Maintain smooth and open communication with your transportation provider.
Hidden factor #4 – Incorrect container selection
Choosing the wrong container—either too big or too small—can lead to unnecessary costs and even cargo damage. It’s a hidden factor that often gets overlooked when calculating ocean freight rates.
Wasted space = Wasted budget
Using a container that’s too large for your shipment means paying for empty space, along with higher port and trucking fees. On the flip side, if the container is too small, your cargo may not fit, leading to expensive last-minute adjustments or delays.
For instance, a 40′ container might cost $2,400, while a 20′ costs $1,400. If you’re shipping 12 pallets, which don’t fit in a 20′, you’d need to upgrade to a 40’—but if those extra 8 pallet spaces aren’t being used, that’s potentially $1,000 of underutilized spend per shipment.
Optimization tip
Finding out about all shipping container options is a must to avoid wasting your money. When you partner with us at EP Logistics, we help you:
- Accurately measure your cargo dimensions and weight, and calculate the type and size of the container needed.
- Choose the option that better suits your need, whether standard, high cube, refrigerated, or specialized containers
- Plan your load and unload as well as the routes, to optimize your operations and avoid delays that cause unnecessary additional fees.
- We offer customizable, flexible, comprehensive logistics solutions to avoid overpaying for unused space or services.
Hidden factor #5 – Inconsistent fuel surcharge policies
Because fuel prices are constantly fluctuating, shippers change surcharges accordingly to make up for the impact of fuel prices on shipping costs. The tricky part is that not all providers apply these charges the same way, same period, or same package.
This inconsistency is one of the lesser-known hidden factors affecting ocean freight rates and can make it hard to compare quotes, leading to unexpected charges when fuel prices rise.
Real-World rate variance
For example, imagine shipping a 20′ container from Shanghai to LA. The first carrier quotes you $1,400 with fuel included, and the second one offers you a lower base rate of $1,200 but adds a $300 fuel surcharge, making the total $1,500. On paper, second rate sounds lower, but the final cost is higher.
To make it trickier, the second carrier updates its fuel charges monthly, so if prices spike, your final bill could increase again.
This is how inconsistent fuel surcharge policies turn into surprise and unexpected rates, even more so if you do not have a contract with the carrier, as spot rates tend to spike more drastically.
Strategy: Leverage long-term agreements
To protect your budget and avoid unplanned fees:
- Negotiate long-term contracts with fixed fuel clauses that won’t change with fuel cost fluctuations.
- Work with trusted, experience-proven providers like EP Logistics, who offer transparency in quotes and a full breakdown of their rates.
- Stay up-to-date and review fuel index benchmarks periodically.
How EP Logistics helps you navigate the hidden costs of ocean freight
With over 20 years of experience in export and import across Mexico and the U.S., managing all logistics operations from warehousing to customs clearance, road, ocean, and air freight, we optimize your operations and mitigate and reduce potential risks and disruptions.
Our team at EP Logistics offers:
- Customizable logistics services to adapt to your specific business and industry needs.
- Experience in international route planning and forecasting.
- Reliable, flexible, and cost-effective freight services.
- Solutions that are already integrated with advanced technologies like real-time tracking, AI forecasting, and data analytics to optimize your operations.
- Transparent pricing and full disclosure of surcharges and fees.
Smarter planning with cross-border expertise
Our team of expert customs brokers is highly knowledgeable of customs regulations, requirements, and procedures to help you avoid delays, shipment holds, and penalties.
With their international experience, the team will also offer you guidance on how to better navigate freight and logistics challenges, environmental regulations, and ocean freight expenses and to implement strategic and alternate route planning.
Don’t let invisible costs sink your supply chain
Hidden costs in ocean freight can easily drain your budget without you even realizing it. Identifying the most common hidden factors affecting ocean freight rates allows you to keep fees in check, ask better questions when contracting with providers, and detect potential money leaks early to strengthen the use of your resources.
Contact our team at EP Logistics today and discover the different ways we can help you optimize your operations while taking care of your budget and maximizing your profits!
