What is ocean freight: a complete guide

Alibaba.com DECEMBER 21, 202012 MIN READ
What is ocean freight: a complete guide

Ocean freight, also called sea freight, is the movement of goods internationally by sea. Ocean freight is far and away the most popular option for shipping goods internationally. Roughly 90% of goods1 are transported around the world by sea. But while it’s popular, that doesn’t mean it is the only option or the best one, for that matter.

Whether you are just starting or are a veteran of international shipping, most business owners find that they need to review their shipping options from time to time. If you’re currently at that point where you need to ask “Does ocean freight make sense for me?”, we’re here to help.

In this article, you’ll learn all you should know about ocean freight, including what it means, how it works, how much it may cost, and when it makes the most sense to choose ocean freight.

What is ocean freight?

Ocean freight is the method of transporting goods through the sea. It is an important part of cross-border trade that lets people move massive amounts of goods between countries.

The goods are typically transported on ships through the open ocean. There are many kinds of shipping options available for different kinds of goods. One of the most popular is container shipping, technically named containerization. With this option, goods are shipped using containers with standard sizes of 20 to 40 feet.

Apart from ocean freight, there are other international freight transport modes, which include courier, express air freight, and standard air freight. These transport modes involve shipping by air and are therefore much faster than ocean freight. They typically take between 1 to 2 weeks. But they are also far more expensive than ocean freight and can only take smaller shipments.

Ocean freight, reliant on a network of sea freight logistics, ensures efficient goods movement across international waters, bolstering trade relationships globally. While ocean freight certainly is not cheap when shipping small quantities, it scales really well. For larger shipments, it produces a better overall cost. This is why it has become such an important part of international trade. Despite this, ocean freight is much slower, as the typical time for the arrival of most shipments is between 40 to 60 days.

Common ocean freight terms

Before we go deep into this guide, it is crucial to understand some of the ocean freight terms commonly used in this expansive industry. Here's a quick glossary designed to help you navigate through the intricate world of international shipping:

Common Ocean Freight Terms

  • Bill of Lading (B/L): This document, issued by the carrier, acknowledges the receipt of goods and details the shipment, serving as a critical title document.
  • Container: These standardized large metal boxes come in various sizes (like 20-foot or 40-foot lengths) and are fundamental for shipping goods.
  • Freight Forwarder: Think of them as your ocean freight logistics guide—they manage the shipment process, ensuring goods move smoothly from the seller to the buyer.
  • Incoterms (International Commercial Terms): These standardized terms define the roles and responsibilities of buyers and sellers in international trade contracts.
  • Less than Container Load (LCL): When goods don't fill a complete container, they're combined with others in a single container for shipment.
  • Full Container Load (FCL): This shipping method dedicates an entire container to goods from a single shipper.
  • Demurrage and Detention: Charges incurred for delays in loading/unloading containers or for keeping containers beyond the allowed free time. They are typically in addition to the ocean freight rates.
  • Free on Board (FOB): This term specifies that the seller delivers goods on board a vessel at a named port, with responsibility transferring to the buyer once loaded.
  • Port of Discharge: This is the designated port where cargo is unloaded from a vessel.
  • Routing: It determines the path a shipment will take from its origin to its destination, including any intermediate ports.
  • Tariff: Published sea freight rates, charges, and rules applied by carriers for transportation services.
  • Vessel: A ship or large boat used for transporting cargo across oceans.

Types of ocean freight services

As mentioned earlier, container shipping is one of the most popular options for sea freight logistics. This is largely due to its relative safety and ease of handling. Containers can be moved very easily without disturbing the goods being shipped. However, they are only a good option for certain kinds of goods, such as dry or already packaged goods.

When it comes to ocean freight services or sea freight services, there are essentially two types of shipping services that are available – LCL or FCL. LCL, or less than container load, and FCL, or full container load, are integral components of efficient sea freight logistics.

FCL shipments basically involve shipping your goods via one or more containers that you use exclusively. Only your goods will be in the container, ensuring that your shipment will be undisturbed until you open the container by yourself. This option makes the most sense when you have goods that can fill a container or that nearly fill it up.

With LCL shipments, the goods intended to be shipped are usually less than it takes to fill a container. So, instead of having a container all to yourself, which can be relatively expensive, you can split the cost and share the container with goods belonging to other people. But the downside to this option is that your goods may be more vulnerable to mishandling or damage during the voyage.

How to ship using ocean freight

Ocean freight logistics relies heavily on the services of third parties called freight forwarders. Freight forwarders usually mean a third-party individual or company who picks up your goods, properly arranges them to be loaded and onboard for shipping, and eventually correctly delivers to the final destination. This is because it is usually necessary to have trusted eyes and hands that can help collect your goods from the seller, arrange shipping and place your goods aboard the ship.

The shipping contract is also an important part of the process you should know about. There are standard international shipping terms that govern ocean freight contracts. These are called “Incoterms”, short for international commercial terms. It defines how far along the process will the seller be held responsible for the goods, and at what point will the buyer take over the liability for the shipment.

The most popular incoterms are:

  • FOB (Free on Board): Under the FOB agreement, buyers and sellers share the responsibility of the delivery process. Seller takes obligations to make sure the goods are packaged, labeled appropriately, and loaded correctly ready for shipping. Once the goods have been loaded onboard, the obligations transfer to the buyer.
  • EXW (Ex Works): An EXW contract places the majority of responsibility on the buyer. The buyer picks up goods at the manufacturer’s and is responsible for the transit of the goods to their final destination.
  • DDP (Delivered Duty Paid): With DDP, the seller takes the maximum obligations and buyers take minimum obligations. The terms dictate that the seller will be responsible for the costs of shipping, insuring the goods and inland transportation.

There’s obviously a lot to learn about how these Incoterms work and which makes the most sense for you.

After deciding your shipping terms, the process of concluding the ocean freight will involve the following stages:

1. Export haulage: This is the start of the shipping journey. At this stage, your goods will be transported from the seller’s warehouse to your freight forwarder’s warehouse.

2. Export customs clearance: Most countries require goods that are meant for export to first go through clearance. Clearance will include providing a detailed declaration of the cargo, along with supporting documentation.

3. Origin handling: This stage covers all the activities that will be necessary to prepare your goods for shipping. The cargo will be put in a staging area for inspection and confirmation. Once confirmed, the freight forwarder will issue a cargo receipt confirming that they have received the goods as described. If the shipment is FCL, the goods will be stacked in their container. If LCL, they will be placed in the warehouse to await consolidation with other goods in a container headed for the same destination port. Finally, the container will be trucked to the port of departure to await loading on the ship.

4. Ocean freight: This is the actual transportation of goods across the ocean. The stages up to this point may take days or weeks, depending on several factors. Ocean freight itself will likely take anywhere from 20-60 days, depending on where the goods are headed. Ocean freight tracking systems provide real-time visibility into the location and status of shipments during transit across the sea. Accessible through online platforms, sea freight tracking tools offer customers transparency and reassurance regarding their shipments' whereabouts.

5. Import customs clearance: Once the goods arrive at their destination port, they will await import clearance. It also involves completing the necessary forms, declaring the cargo and paying the necessary fees.

6. Destination handling: This stage covers all the activities necessary to confirm the goods, check the documents including the bill of lading and transport the container to the freight forwarder’s warehouse. Here, the goods will be opened, checked and then sorted for import haulage.

7. Import haulage: This is the final stage of the process. At this stage, the goods will be transported inland by train or truck to the final destination determined by you.

The freight forwarder can be charged with handling every stage of the process. Or you may decide to make alternative arrangements for certain stages to save costs.

How are ocean freight rates calculated?

Ocean freight rates are usually determined based on a number of charges, such as the cost per weight of goods and the space they take up. This aspect of sea freight logistics is crucial in determining the overall expenses involved in shipping goods internationally. For instance, ocean freight typically costs around 50 cents per kilogram (kg)2. Other charges that may be included in the freight rate include:

How are ocean freight rates calculated

  • Insurance
  • Customs security surcharge
  • Container freight station (this applies to LCL consolidation only)
  • Pickup and delivery at ports and warehouses
  • Routing charges
  • Customs brokerage
  • Fuel surcharge

Understanding and analyzing these factors affecting sea freight rates are imperative for businesses seeking to optimize their shipping strategies.

Moreover, ocean freight charges are not static. Depending on several factors, the price may go significantly higher or may fall even lower. Some of these factors include:

  • Fuel costs: Fuel is critical to shipping goods via sea freight, and the prices can sometimes be volatile. When prices rise, you can expect rates to rise as well.
  • Exchange rates: Slight fluctuations in exchange rates can result in a severe loss for shipping lines, especially considering how long a single trip can take.
  • Supply and demand: Festive holidays often mean people work less, and this also affects the shipping industry. As a result, just before festive holidays like Chinese New Year, there is usually a spike in demand that can drive freight rates up.
  • Size of shipment: Obviously, larger-sized shipments will include a lot more work and will cost significantly more.
  • Type of vessel required: Containerized shipping is quick, easy and effective, which makes it relatively cheap. Other vessels, such as tankers for liquid cargo, or bulk carriers for unpackaged dry goods may cost more.

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What are the pros and cons of ocean freight?

As you have learned already, ocean freight may be popular, but it has both its high points and low points. Some of the advantages you can expect from ocean freight include:

  • Higher shipping capacity: Sea freight is perfect for bulky shipments. Other shipping options are only viable for lighter products that are not being shipped in bulk.
  • Cheaper costs: Overall, ocean freight is much cheaper than other options, costing just 50 cents per kg. Compare this to standard air freight which costs roughly $4 per kg and express air freight, which costs $6 per kg.
  • Fewer restrictions: Shipping by air freight is subject to several restrictions relating to the type of goods you can ship. For instance, you cannot ship flammable products like perfumes or biochemical products like some medicines on air freight. There are fewer restrictions for shipping by sea.
  • Lower carbon footprint: Ocean freight produces relatively lower emissions than air freight. New regulations introduced by the International Maritime Organization will reduce these emissions even further.

Despite the positives, here are some negatives to keep in mind:

  • Longer shipping time: Ocean freight is so much slower than air freight, which is usually five to six times faster. Taking the example of the freight between the US and China, shipment by sea will take about 30-40 days, whereas shipment by air only takes about a week, and express air may only take 3 days.
  • Unpredictable shipping: Ocean freight is more vulnerable to external shocks like bad weather, customs delays and port congestion. This can easily add days or weeks to your delivery.
  • Less protection: Since they are in transit for much longer, goods shipped by ocean freight are more susceptible to damage.
  • Less reliable: Due to the many moving parts involved in ocean freight, goods are at a greater risk of being mishandled or misplaced.

When does it make sense to choose ocean freight?

You should consider going with ocean freight if you are shipping large or bulky goods, or when it is vital to reduce your shipping costs to save money. Ocean freight also works very well when you have a high volume of orders within the same period.

But if you are deciding to go with ocean freight, you should generally leave more than enough time for the goods to arrive. If you do not have flexible delivery dates, then you may be better off looking elsewhere. The complexity of the process and the potential for delays may put you in a less than ideal situation otherwise.

Overall, ocean freight represents a great option for international shipping, but only in the right circumstances. It can be a relatively cheap option, but this is often offset by the ambiguity in the process.

When does it make sense to choose ocean freight

Next steps for importing and exporting overseas

Alibaba.com’s mission is to make international trade easy for everyone. As part of this commitment, Alibaba.com Freight was created to provide an intuitive, transparent, and painless solution to international shipping.

With the integration of a reliable sea freight calculator, Alibaba.com Freight now empowers users with instant shipping choices, multiple pricing options, and unprecedented control over the whole process.

Ready to start expanding globally and improving the odds of your B2B business succeeding? Speak to an Alibaba.com expert now!

References
1. http://rosegeorge.com/site/books/ninety-percent-of-everything
2. https://www.freightos.com/freight-resources/ocean-freight-explained/

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