International shipping costs can increase when a company chooses a mode of transportation that isn’t suitable for the volume and type of goods. If your company needs to ship large, heavy, and non-perishable cargo, ocean freight can be an efficient option.
Ocean freight is a method of transporting goods by sea using cargo ships. This article will discuss what ocean freight is in international shipping, including how it works, how much it costs, and when it makes the most sense to choose this shipping method.
Ocean Freight in International Shipping
In international shipping, ocean freight is often defined as the method of transporting goods between countries by sea using cargo ships. The process includes loading goods at the port of origin, transport by sea, unloading at the port of destination, and delivery to the recipient.
The terms “ocean freight,” “sea freight,” and “maritime shipping” are often used to describe the same activity. However, the term “ocean shipping” has a broader scope because it can refer to shipping activities, ship operations, shipping routes, and shipping company services.
Simply put, ocean freight is a service for shipping goods by sea that is generally used to transport large, heavy, or high-volume cargo at a more cost-effective rate.
Ocean freight plays a vital role in international trade. According to the United Nations Conference on Trade and Development (UNCTAD), approximately 80 percent of the volume of international trade in goods is transported by sea. This percentage is even higher in many developing countries.
The large capacity of ships makes ocean freight suitable for transporting raw materials, machinery, vehicles, manufactured goods, commodities, and large quantities of goods. However, delivery times are generally longer than for air freight.
When Should You Use Ocean Freight?
Ocean freight isn’t always the best option for every shipment. Companies need to choose the mode of transportation based on the nature of the goods and the desired delivery timeframe.
Shipping by sea can be considered under the following conditions:
- The goods are large in size or weight.
- The volume of goods is large enough to fill part or all of a container.
- The shipment does not require extremely fast delivery.
- Cost efficiency is more important than speed.
- The goods are not prone to damage during transit.
- Companies ship machinery, raw materials, vehicles, or products in large quantities.
Ocean freight may not be suitable for products with a very short shelf life, goods that must be received immediately, or high-value shipments with tight deadlines. In such cases, companies should compare it with air freight before making a decision.
Types of Ocean Freight
Before booking ocean freight services, you need to understand the available shipping options so you can choose the service that best fits your shipping needs. Here are the shipping services commonly available:
1. FCL or Full Container Load
Full Container Load is a shipping service where a single shipper uses an entire container for their goods. The shipper pays for the use of the entire container even if the space inside is not fully filled.
FCL does not mean the container must always be full. The term indicates that the use of the container is not shared with other shippers. This service is suitable for high-volume goods, regular shipments, or goods that require more restricted handling.
Containers are typically sealed after loading and reopened according to procedure at the destination. FCL can reduce the need for consolidating and separating goods. As a result, the number of handling operations during transit tends to be fewer compared to LCL.
2. LCL or Less than Container Load
Less than Container Load is a service that allows multiple shippers to share space within the same container. Each shipper pays based on the space used or the calculation method employed by the service provider.
LCL cargo must undergo a consolidation process before shipment. Upon arrival at the destination, the cargo must be separated again through a deconsolidation process. According to Maersk’s explanation of LCL, this service allows shippers to share a container with other shippers. Logistics service providers will combine multiple shipments with matching destinations within their service network.
LCL is suitable for shipments that do not yet require a full container. However, the consolidation and deconsolidation processes can add to handling time.
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How to Ship Using Ocean Shipping
Ocean shipping relies heavily on third-party services known as freight forwarding or shipping services. Freight forwarders are typically third-party individuals or companies that ship goods, pack them, arrange for proper loading and transportation, and ultimately deliver them correctly to their final destination.
This is because it usually requires reliable expertise to help manage the shipment of goods by sea.
Supply contracts are also a crucial part of the process that must be considered. There are standard international shipping terms that govern shipping contracts.
These rules are known as Incoterms, which must be understood in any international movement of goods.
After determining the terms of delivery, the ocean shipping registration process will consist of the following steps:
- Export Transportation: This stage marks the beginning of the shipping journey. At this stage, the goods are transported from the seller’s warehouse to the shipper’s warehouse.
- Export Customs Clearance: Most countries require that goods intended for export undergo customs clearance first. This process involves providing detailed information about the cargo along with supporting documentation.
- Origin Processing: This step covers all the necessary steps to prepare the goods for shipment. The shipment will be placed in an area for inspection and confirmation. After confirmation, the shipper will issue a receipt stating that they have received the goods as described.
If the shipment is FCL, the goods will be packed into a container. If it is LCL, they will be placed in a warehouse to await consolidation with other goods into a container at the same destination port. Finally, the container will be transported by truck to the port of departure to await loading onto the ship.
- Ocean Freight: This is the actual transportation of goods across the ocean. The steps up to this point can take days or weeks, depending on several factors. The shipment itself can take 20 to 60 days, depending on the destination.
- Import Customs: Once the goods arrive at the destination port, they await import clearance. This stage also involves filling out the necessary forms, confirming the shipment, and paying the required fees.
- Destination Processing: This stage covers all activities necessary to verify the goods, inspect documents—including the bill of lading—and transport the containers to the consignee’s warehouse. Here, the goods are unpacked, inspected, and then sorted for import delivery.
- Import Delivery: This is the final step in the shipping process. At this stage, the goods will be transported by land—via rail or truck—to the final destination specified by the exporter.
How to Calculate Ocean Freight Rates
Ocean freight rates are typically determined based on a number of factors, such as the cost per unit of weight and the space occupied. Other costs that may be included in the shipping cost include:
- Insurance
- Additional fees for customs clearance
- Container loading station (applies only to LCL consolidation)
- Pickup and delivery at ports and warehouses
- Routing fees
- Customs clearance
- Additional fuel charges
Ocean freight rates are typically not fixed; depending on a number of factors, prices can rise significantly or even fall below the quoted rate. Some of these factors include:
- Fuel costs: Fuel is essential for shipping, and prices can sometimes fluctuate.
- Exchange rates: Even small fluctuations in exchange rates can result in significant losses for shipping lines, especially given how long it takes to complete a single voyage.
- Supply and demand: Holidays often mean fewer people are working, and this also affects the shipping industry. As a result, there’s usually a surge in demand before holidays like the Lunar New Year, which can lead to higher rates.
- Shipment Size: Obviously, larger shipments involve more work and will cost more.
- Type of Vessel Required: Container shipping is fast, simple, and efficient, making it relatively inexpensive. Other vessels, such as liquid cargo tankers or dry bulk carriers, are typically more expensive.
Managing Ocean Freight with an Integrated System
Ocean freight operations involve a lot of data. Teams must manage quotes, schedules, shipments, documents, costs, invoices, and reports. Using separate files can make it difficult to find information and increase the risk of data discrepancies between departments.
Freight forwarding software can help companies manage these activities within a single system. Operations, finance, and management teams can access the same data sources based on their access rights and the company’s workflows.
Oaktree provides software to support freight forwarding business management, including ocean freight activities. Companies can use the system to streamline the tracking of shipments, documents, costs, and operational reports.
Contact the Oaktree team to learn about features that meet your freight forwarding business needs.
Conclusion
Ocean freight is a method of transporting goods by sea that is suitable for large, heavy cargo that does not require very fast delivery. Shippers can choose FCL to use a single container or LCL to share space with other shippers.
The process includes cargo preparation, booking, export clearance, loading, ocean transit, import clearance, and delivery to the final destination. Total costs are influenced by the type of service, volume, route, container type, cargo characteristics, port fees, customs clearance, and inland transportation.
The choice of service should be based on total cost, risk, schedule, and operational needs. The lowest rate does not necessarily result in the most efficient shipment.