Understanding a freight quotation and tips to ensure an accurate quote

freight quotationIf you are in the business of trade and shipping, you would have surely heard of/dealt with freight quotations along the way..

A freight quotation is a document that outlines the charges involved in the movement of cargo from Point A to Point B..

Depending on the sales contract and Incoterms® rules used, the seller or buyer would approach the Carrier or their Logistics Services Provider (LSP) for a freight quotation..

A freight quotation can be sent by a

  1. Carrier to Customer or
  2. Logistics Services Provider (LSP) to Customer

where Carrier = Shipping Line or NVOCC.. Customer = Exporter or Importer.. LSP = Logistics Services Provider like a Freight Forwarder..


Many customers have lost $$$ on their transactions because of unclear, incomplete or incorrect freight quotations or because they did not understand what a freight quotation entails and what it covers..

Here are some tips on how to understand a freight quotation and how to ensure that you get an accurate one..

 

Freight Quotation – Carrier to Customer

A carrier can quote a customer freight rates either as part of a freight tender, a normal open rate, or a spot rate..

Although the name on the quotation may say “sea freight quotation” there are several other charges included in a quotation and this needs to be segregated and understood clearly..

Sea freight charges

Sea freight is the rate charged by the carrier for movement of the container on a port to port basis.. This rate is usually expressed as a rate per container size/type like USD1000/20’or USD2000/40′..

Apart from sea freight, other usual charges may be as below :

  • Bunker Adjustment Factor (BAF) = a rate charged by the carrier to cover fuel costs for moving the container from port to port.. This may be expressed either as a % of the freight applicable per container size/type (BAF = 2.5% of the freight) or as a variable quantum per container size/type (e.g.) USD150/20’and USD250/40′.. BAF can vary on different trade routes due to the distances and fuel costs ;
  • ISPS = a rate charged by the carrier to cover the costs for the implementation of ISPS code.. This is usually expressed as a rate per container size/type ;
  • IMO2020 Surcharge = a rate charged by the carrier to cover the costs for the implementation of the IMO2020 regulation aimed at reducing sulphur content in the fuel used by ships.. Different carriers have different formulas for the calculation of IMO2020 surcharge and these have been discussed in detail across many articles on this site ;
  • For perishable cargoes which requires a reefer container, there may be additional charges such as PTI, Cold Treatment, Plug-in charges etc ;
  • For out of gauge cargoes there will be additional charges to cover lost slots, special equipment surcharge and if the container is going to an over border country then a deposit etc may also be levied ;
  • Other shipping surcharges such as Currency Adjustment Factor (CAF), War Risk Surcharge, Piracy Surcharge etc may also be applicable based on the trade and route..

Ancillary Charges

Depending on the arrangement with the carrier on container service types like FCL, LCL, Groupage, Door to Door, Pier to Pier etc etc etc, or the type of movement like intermodal or multimodal, a sea freight quotation may include other charges such as below :

The freight quotation could also vary based on the type of haulage involved in pre-carriage and on-carriage.. Like if it is a Carrier Haulage ( when the carrier undertakes the pre-carriage at origin or on-carriage at destination) or Merchant Haulage (when the pre-carriage or on-carriage is done by the customers themselves)..

Mandatory Charges

Apart from sea freight charges and ancillary charges, there are also mandatory and standard local landside charges at both origin and destination that you need to be aware of

  • Terminal Handling Charges (THC) ;
  • Documentation fee ;
  • Local service fees ;
  • Bill of Lading fee
  • Administration fee
  • Etc

When receiving a quotation it is important to understand what each of the charges is for, why it is required, and what it covers..

All these charges together form a freight quotation offered by a carrier to the customer..

Tips to look out for

  1. Ensure that the port pairs (POL/POD combination) are correct and that the rates quoted are in line with the market ;
  2. Identify clearly the point where the carrier’s role/cost starts and ends when employing their services on a carrier haulage basis ;
  3. Understand what is covered in the carrier’s landside charges and carrier haulage charges ;
  4. Where possible, source freight quotations from a few carriers to compare rates, routing, and frequency ;
  5. Understand the terms and conditions of business covered in the Carrier’s freight quotation ;

 

freight quotation - shipping and freight resource

 

Freight Quotation – LSP to Customer

A customer might employ the services of an LSP like a Freight Forwarder to negotiate the rates on their behalf either because they want to outsource the whole shipment process so they have to deal with only 1 entity or the customer knows that the LSP can secure better rates for them based on their buying power with the carriers..

The advantage that a customer has is that the LSP will take care of all the requirements of the customer such as Freight negotiations, Freight Forwarding, Warehousing, Storage, Transportation, Customs Clearance, all related documentation and follow the requirements of the sales contract and terms of shipment..

Therefore the LSP’s freight quotation to the customer will have more line items than a carrier’s freight quotation such as, but limited to, below :

  • Sea freight charges from 1 or more carriers which also serves as a point of comparison of rates, transit times and frequency of the carriers ;
  • Pre-Carriage at origin and On-Carriage at the destination either directly or on carrier haulage ;
  • Mandatory charges from the carriers as mentioned above ;
  • Charges for Customs clearance as required at both ends including duty/VAT, taxes, levies, surcharges etc ;
  • Charges for warehousing, transport, packing/unpacking as applicable ;
  • Port charges including wharfage etc ;
  • Charges to cover other services that the customers may request such as Certificate of Origin, Cargo Tracking Note, EUR1 forms etc etc

All these charges together form a freight quotation offered by an LSP to the customer..

Tips to look out for

  1. Ensure that the port pairs (POL/POD combination) is correct and that the rates quoted are in line with the market ;
  2. Identify clearly the point where the LSP’s role/costs start and end when employing their services ;
  3. Analyse if they have chosen the best routing, rates and the best carrier for your cargo and that the freight quotation from the LSP is taking care of your best interest ;
  4. Ensure that the freight quotation follows the cost allocations outlined in the chosen Incoterms® rules.. You don’t want to end up having to pay additional charges you didn’t cater for ;
  5. Understand the LSP’s terms and conditions of business covered in the freight quotation ;
  6. Where possible, source freight quotations from a few LSPs for comparison of services and rates

General pointers on a freight quotation

The process of freight quotation and information flow between the customer and carrier/LSP could vary based on whether the quotation is to be submitted as part of a freight tender or an open rate or on spot basis..

For ease of communication and simplification, some the customers may request rates on an ALL-IN basis.. But sometimes the customers may end up paying more because the understanding and interpretation of ALL-IN can vary greatly between the various parties involved..

It is therefore advisable for the customers to check all the charges covered in the freight quotation and understand and ensure those are valid and required charges..

In many cases, at the time of freight negotiation/quotation, customers and carriers may also discuss and agree on certain conditions such as normal or additional free time for demurrage and detention at both origin and destination..

These days many freight quotations are done online and in real-time and in many cases, there may not be any involvement or interaction with people..

This is all the more reason for these charges to be inspected and audited to ensure that the freight quotation received is an accurate one and fulfills the requirements of the customer..

You also need to make sure that you understand the processes involved in the shipment, especially if you are a first time importer..

 

Conclusion

Irrespective of whether you are a customer, carrier, or LSP, it is in everyone’s interest that the freight quotation is accurate and covers the requirements of the shipment..

Any discrepancy in the freight quotation will be carried on right through the booking, manifesting, and invoicing stages for the carrier and right through the costing and invoicing stages for the LSP and customer..

If the freight quotation is not checked and verified at the quotation stage prior to confirmation of booking, this could end up costing the customer, carrier or LSP more at the delivery stage when there will be discussions and arguments about what is covered and what is not and who should pay what etc, while the cargo could be incurring storage and other costs, eventually leading to losses for all parties concerned..

It may also be prudent for the customer to do a freight benchmarking exercise to be competitive in today’s fast-paced shipping and freight environment and also streamline their procurement processes and procedures while also improving and managing their costs effectively in order to compete in the shipping and freight industry..

*** End of Article ***

2 thoughts on “Understanding a freight quotation and tips to ensure an accurate quote”

  1. may be it would have been better if you also mentioned liner terms and type of quotation by kind of cargo : general -tc-roulant.
    one question : what is the effect of the cotation all in as far as commission are concerned?

    Reply
  2. Hello,
    Just to precise BAF is not to cover costs of fuel
    Costs are included in proposed BOF.
    BAF, as it names means, is an adjustment to allow the carrier to cover the evolution of the fuel costs.
    As quotation has been made one day with a cost structure and my be valid for months, then the carrier proposes an adjustment, monthly or quaterly, that follows fuel evolution.
    hope this explains

    Reply

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