Ocean Freight 101: The Backbone of International Trade

Over the years, international trade has expanded significantly, supported by advances in logistics and shipping. Among the available shipping methods, ocean freight remains a dominant force, facilitating nearly 90% of global trade. This mode of transportation is crucial for exporters and importers worldwide, enabling the movement of goods on a large scale in a cost-effective and secure manner. Today, an astounding 200 million containers traverse the seas annually, connecting businesses across continents.

What is Ocean Freight?

At its core, ocean freight is a method of transporting goods via sea routes. Goods are packed into containers, which are then loaded onto cargo ships to be delivered across the globe. This practice is essential for international trade, offering a reliable and affordable solution for moving bulky, heavy, or voluminous cargo.

Why Choose Ocean Freight?

Ocean freight is a preferred choice for several reasons:

Handling Large Shipments:

Ocean freight is ideal for transporting large, bulky, or heavy items such as vehicles, industrial machinery, and furniture. It accommodates goods of various sizes using standardized containers, commonly available in 20-foot and 40-foot dimensions.

Cost-Effective Solution:

Compared to air freight, ocean shipping is significantly more affordable, making it an attractive option for businesses aiming to optimize logistics costs.

Versatility for Small Shipments:

Smaller shipments can also benefit from ocean freight through Less than Container Load (LCL) options, where multiple small shipments share a container. This reduces costs for businesses with smaller cargo volumes.

Improved Safety and Flexibility:

Modern cargo ships are equipped to safely transport hazardous and specialized goods, a feature that air freight cannot always offer due to restrictions.

Eco-Friendliness:

Ocean freight is one of the most environmentally friendly shipping options, with lower CO2 emissions compared to other modes of transport.

How Ocean Freight Works?

Understanding the step-by-step process of ocean freight shipping can demystify its complexity:

Agreement Between Parties:

A trade agreement is made between the buyer and seller, often from different countries. The agreement specifies the Incoterms (International Commercial Terms) that define responsibilities, ownership, and cost distribution for shipping.

Packaging and Labeling:

Goods are packed and labeled in compliance with international shipping standards to ensure smooth customs clearance and handling.

Freight Booking:

A freight forwarder is engaged to book the necessary container—either Full Container Load (FCL) or Less than Container Load (LCL)—depending on shipment volume.

Transport to the Port:

The goods are transported from the supplier’s facility to the departure port. Freight forwarders often handle this step to ensure seamless logistics.

Marine Insurance:

Insurance coverage is secured to protect the shipment against risks during transit.

Loading and Documentation:

The goods are loaded into containers and onto the vessel. A bill of lading, an essential shipping document, is issued by the carrier. This document serves as proof of the shipping agreement and includes critical details of the shipment.

Customs Clearance:

At the origin port, the shipment undergoes customs clearance to verify compliance with export regulations.

Shipping the Goods:

The container is transported via sea to the destination port.

Arrival and Import Customs Clearance:

Upon arrival, the goods are inspected and cleared by customs authorities in the destination country. Applicable duties and taxes are paid.

Final Delivery:

The shipment is transported from the port to the buyer’s location, completing the process.

Understanding Ocean Freight Costs

Ocean freight is one of the most cost-efficient ways to transport goods. However, the total cost depends on several factors:

• Nature of Goods: Fragile or hazardous goods may require special handling, increasing costs.
• Weight or Volume: Charges are calculated based on either the weight (in tons) or volume (in cubic meters), whichever is higher.
• Shipping Distance: Longer routes incur higher transportation costs.
• Container Type: Choosing between FCL and LCL impacts the pricing significantly.

FCL vs. LCL Costs:

FCL (Full Container Load):

FCL is suitable for large shipments, offering an entire container exclusively for the shipper’s cargo. While it incurs higher base rates, it provides enhanced safety and less risk of damage.

LCL (Less than Container Load):

LCL is cost-effective for small shipments, where the cargo shares space with other goods. It is economical but may involve longer transit times.

Also Read: Understanding FCL and LCL: Key Differences in Shipping and Logistics

Additional Costs in Ocean Freight:

• Inland Transit Charges: Cost of transporting goods to/from ports.
• Terminal Handling Charges: Fees for managing goods at port terminals.
• Documentation Fees: Costs for preparing and processing shipping documents.
• Security Charges: Fees for ensuring the safety of goods during transit.
• Customs Duties and Taxes: Charges for import/export clearance.
• Insurance: Marine insurance premiums for covering risks.
• Fuel and Currency Adjustment Factors (BAF/CAF): Surcharges to manage fuel price and currency volatility.

Key Incoterms in Ocean Freight

FOB (Free on Board):

• The seller’s responsibility ends once the goods are loaded onto the ship at the origin port.
• The buyer assumes all costs and risks from the point of loading.
• Commonly used when the buyer prefers control over the shipment after it leaves the origin port.

Read more about: Everything You Need to Know About FOB in Export

FAS (Free Alongside Ship):

• The seller delivers goods alongside the vessel at the port of shipment.
• The buyer is responsible for loading the goods onto the ship and paying for ocean freight.
• Typically used for bulk cargo or specialized shipping methods.

CFR (Cost and Freight):

• The seller arranges and pays for the transportation of goods to the destination port.
• However, the buyer bears the risk of loss or damage once the goods are loaded on the ship.
• Insurance is not included in CFR terms, leaving it to the buyer’s discretion.

Read more about: What You Need to Know About CFR Shipping Terms in International Trade?

CIF (Cost, Insurance, and Freight):

• Similar to CFR, but the seller also provides insurance for the goods during transit.
• Ideal for buyers who prefer additional security without managing insurance separately.
• Risk transfers to the buyer upon loading the goods onto the ship, but the seller bears the insurance cost until arrival.

Read more about: What is CIF in Shipping?

Significance of Incoterms 

• Incoterms simplify international trade by clearly defining the roles, risks, and responsibilities of buyers and sellers.
• They help avoid disputes and streamline the shipping process by setting clear expectations for both parties.

Ocean Freight vs. Air Freight

When deciding between ocean and air freight, consider these factors:

1. Size and Weight of Goods: Air freight is unsuitable for heavy or bulky shipments, while ocean freight accommodates larger loads.
2. Cost: Air freight is significantly more expensive than ocean shipping.
3. Speed: Air freight offers faster transit times, making it ideal for time-sensitive goods.
4. Material Restrictions: Certain hazardous goods can only be transported via ocean freight.

Types of Ocean Freight Ships

Container Ships:

• Designed to carry standardized containers (20-foot and 40-foot).
• Commonly used for general cargo such as electronics, clothing, and furniture.
• Efficient and versatile, allowing easy loading, unloading, and intermodal transport.

Bulk Carriers:

• Transport unpackaged bulk goods such as coal, grains, ores, and cement.
• Equipped with large open holds to accommodate loose cargo.
• Subdivided into dry bulk carriers (e.g., for grains) and liquid bulk carriers (e.g., for chemicals).

Tanker Ships:

• Specially designed to carry liquids, such as oil, gas, chemicals, and water.
• Divided into various categories like crude oil tankers, product tankers, and LNG (Liquefied Natural Gas) carriers.
• Equipped with advanced safety measures to prevent leaks or spills.

Roll-On/Roll-Off (Ro-Ro) Ships:

• Used to transport wheeled cargo like cars, trucks, and trailers.
• Features ramps that allow vehicles to roll on and off the ship efficiently.
• Common in automotive supply chains and international vehicle trade.

Reefer Ships:

• Reefer ships are specialized vessels for transporting perishable goods like fruits, vegetables, and pharmaceuticals.
• Equipped with temperature-controlled compartments to maintain cargo freshness.
• Ideal for goods requiring strict refrigeration.

General Cargo Ships:

• Handle goods that cannot fit into containers or require special loading/unloading methods.
• Suitable for heavy machinery, industrial equipment, or oversized cargo.

Specialized Ships:

• Include heavy-lift ships (for oversized loads), livestock carriers, and offshore supply vessels.
• Designed for specific industries or cargo types requiring unique handling or transport solutions.

Conclusion: Credlix – Your Trusted Partner in Global Supply Chain

Ocean freight has become indispensable in international trade, offering a cost-effective, reliable, and versatile solution for transporting goods across the globe. Whether you’re an exporter looking to move bulk cargo or a small business aiming to optimize costs, ocean freight is a powerful tool to expand your business reach.
To streamline your global logistics, consider partnering with Credlix, a leading global supply chain company. Credlix offers innovative solutions, ensuring smooth and efficient freight operations. From managing shipments to handling customs clearance, Credlix simplifies your logistics so you can focus on growing your business.