How to Understand Your Freight Quotation
Every freight forwarding quote contains fine-print language at the end. Shippers often view the end of a contract as less critical, bore-me-to-tears, boilerplate language—however, while it may be boring, the fine print includes some of the most important details of your quote.
Failing to read the entire contract can cost you money. Unclear language, incomplete or incorrect information, and small but necessary details can be addressed when companies read every word. It’s too late to change terms once parties enter the agreement.
Each word in a contract — including fine print details — is part of the final legal agreement. Freight partners can enforce the fine details as much as the “meat” of the contract. The fine print often contains language that dictates how parties interpret and enforce a contract.
Read the Fine Print
Reading the fine print and asking questions ensures you get what you pay for and don’t pay for things you don’t need.
The larger, readable print outlines basic terms, but the fine print describes the details, including surcharges that may not be included in the quote. The fine print may also include information about charges that didn’t come up in the initial quote because they were not initially applicable. Importers might add five lines for the final price, only to discover an additional four charges when their bill arrives. Additional charges can tack on thousands of dollars.
Make apples-to-apples comparisons when gathering quotes. Too often, shippers decide solely on price, then enter a contract without looking over the details. Low bidders sometimes hide charges in the fine print, while high bidders give all charges upfront.
Dissect all sections of a quote—every situation is different, and every freight forwarder uses a different quote format. Similar charges may appear in various spots on the forms.
Know Your Incoterms®
Incoterms® are international trade selling terms that the buyer and seller agree to. Governments and legal authorities across the globe accept these rules. Understanding Incoterms® is vital when trading internationally because the rules define who is responsible—buyer or seller—for specific tasks, costs, and risks.
Know which Incoterms® apply to your shipments and make sure the freight quote includes them before entering a contract. The person preparing the quote may assume it’s a port-to-door shipment instead of a door-to-door shipment. Or the contract may put door delivery on the shipper when it’s the consignee or carrier’s responsibility.
Here are some Incoterms® and definitions to help companies select how to import and export goods:
- ExWorks (EXW): The seller makes the product available at a designated location, and the buyer incurs transport costs.
- Delivered Duty Paid (DDP): The seller arranges carriage and delivery of goods to a destination, clears goods for import, and pays all applicable taxes and duties. Risk transfers to the buyer once goods arrive and are available for unloading.
- Free on Board (FOB): Sellers assume all risk and cost for export, but the buyer takes over the containers and risk once they arrive at the port of export.
- Free Carrier (FCA): The seller holds responsibility for packaging and loading goods in port. The buyer then ships goods, unloads them at the buyer’s port of choice, and transports goods to the destination.
- Delivered at Place (DAP): The seller delivers goods, prepares for unloading at an identified destination, and assumes all risks for delivery and prep. Buyers assume the risk and cost of unloading.
Looking for more on Incoterms®? Click here to download our full list.
Choosing the Incoterm® rule that fits a shipment depends on location. Choose FOB, FCA, or EXW when buying and selling in the United States or Canada. These three Incoterms® provide the most control over goods. With EXW, sellers must have goods ready for collection at an agreed-upon place of delivery (the seller’s factory, mill, plant, or warehouse).
Buyers and sellers in Western Europe benefit from EXW, as Western Europe and the United States have similar Customs regulations related to the Foreign Corrupt Practices Act (FCPA). In other regions, FOB and FCA make more sense because many countries do not adhere to FCPA.
A knowledgeable freight partner can help select the right Incoterm® rule, but companies must make sure the rule gets listed correctly in the contract.
Be Aware of Other Charges
Carriers charge a sea freight fee to move containers from port to port. Carriers express this rate as a per-container size/type charge, i.e., $1,000 for a 20-foot container or $2,000 for a 40-foot container.
Sea freight charges are standard, but other costs also factor in. These include:
- Bunker Adjustment Factor (BAF): Carriers charge BAF to cover fuel costs as they move containers from port to port. They express BAF as a percentage of the freight applicable per container size or type (such as 2% of the freight) or as a variable quantum per container size or type (such as $100 per 20-foot container or $200 per 40-foot container). BAF varies by trade routes.
- ISPS: Carriers issue ISPS charges to cover implementing the International Ship and Port Security (ISPS) code. They charge ISPS as a rate per container size/type.
- IMO 2020 Surcharge: Carriers issue this fee to cover implementing the IMO 2020 regulation, which limits sulfur content in ship fuel. Every carrier uses a different formula to calculate IMO 2020 surcharges.
- Perishable Cargo: When perishable cargo requires a reefer container, additional charges, such as PTI, cold treatment, and plug-in fees, apply.
- Out-of-Gauge Cargo: Carriers charge fees to cover lost slots and special equipment needs. They may even charge a deposit when moving containers to border countries.
A host of other charges also exist, depending on the trade and route. For example, carriers may charge a Currency Adjustment Factor, War Risk Surcharge, or Piracy Surcharges.
Ancillary charges also apply when working with freight forwarders for services like FCL, LCL, Groupage, door-to-door, pier-to-pier, and even intermodal or multimodal movements. Who pays these fees depends on the Incoterm®. For example, shippers bear carriage and pre-carriage fees for DDP shipments.
These fees can include:
- Pre-Carriage—Movement that happens before carriers load containers onto the vessel.
- Carriage—Movement that happens when the container is on the ship.
- On-Carriage—Movement that happens after carriers discharge the container from the vessel.
- Consol/Deconsol—Charges for combining loads into a consolidated shipment or deconsolidating shipments.
- Chassis Usage—Carriers assess a chassis fee when a shipment travels by truck to a destination.
Besides sea freight fees and ancillary charges, freight contracts also include mandatory and standard local fees at the origin and destination. These fees include terminal handling charges, documentation fees, local service charges, Bill of Lading charges, and other administrative fees. Freight companies often bury these fees in the fine print.
When reviewing a contract, pay attention to all-inclusive or administrative fees. When the contract includes these words, ask questions about what the fees include.
A freight forwarding quote contains many details. Companies must read contracts carefully, closely examine the fine print, and ask questions to ensure there are no surprises later.