How freight rates are calculated: a practical breakdown

What a freight rate actually covers

A quoted freight rate normally covers the main carriage only — the leg from the origin port or airport to the destination port or airport. Everything before and after it, and every regulatory cost in between, is charged separately unless the quote says otherwise.

So a complete freight cost has four layers: the base rate, the carrier's surcharges, the local charges at each end, and the customs and tax costs of importing. Which of those four you pay, and which the other party pays, is decided by the Incoterms rule in the sales contract — not by the freight quote.

The base rate, and how the quantity is measured

The base rate is the transport itself. What differs between modes is the unit it is charged on.

Full container load (FCL)

Priced per container, by container type — a 20ft, a 40ft or a 40ft high cube — regardless of how full it is. Once you are paying for the box, unused space costs the same as used space, which is why the break-even against shared-container shipping matters.

Less than container load (LCL)

Priced per revenue ton, which is the greater of the volume in cubic metres and the weight in tonnes — the weight-or-measurement basis, usually written W/M. One cubic metre and one tonne are treated as equivalent, so light bulky cargo is charged on its volume and dense cargo on its weight. There is normally a minimum charge, commonly one revenue ton.

Air freight

Priced on chargeable weight, which is the greater of the actual gross weight and the volumetric weight. The IATA volumetric divisor is 6,000 cubic centimetres per kilogram, so one cubic metre of air cargo is treated as roughly 167 kg. Express couriers commonly use a divisor of 5,000 instead, which produces a higher chargeable weight for the same box.

A worked example makes the difference concrete. Eight pallets, each 120 × 100 × 110 cm and weighing 180 kg:

The shipment is billed as 1,760 kg although it weighs 1,440 kg — 22 per cent more than the scale says. Reducing pallet height by 15 cm would remove 240 kg of chargeable weight without removing a single carton, which is why packing dimensions are worth optimising before the rate is negotiated.

Surcharges: why the invoice is longer than the quote

Surcharges exist because some of a carrier's costs move faster than its tariffs. Rather than reprice every lane when fuel or exchange rates shift, carriers separate those elements out and revise them on their own cycle. The ones you will see most often on a Thai import or export:

BAF

Bunker Adjustment Factor — the fuel component, tied to a bunker price index and revised on the carrier's own cycle, commonly monthly or quarterly.

LSS

Low Sulphur Surcharge — the additional cost of compliant low-sulphur fuel, applied on lanes that pass through emission control areas.

CAF

Currency Adjustment Factor — covers movement between the carrier's tariff currency, usually US dollars, and the currency of the local charges.

THC

Terminal Handling Charge — the terminal's cost of moving the container across the quay. Charged separately at origin and at destination, and destination THC is very often not in an ocean freight quote.

ISPS

The port and vessel security charge levied under the International Ship and Port Facility Security Code.

PSS

Peak Season Surcharge — applied when demand for space exceeds the capacity on a trade lane, typically around known seasonal peaks.

GRI

General Rate Increase — a tariff-wide increase announced by a carrier for a trade lane, usually with a few weeks' notice.

CIC

Container Imbalance Charge — the cost of repositioning empty containers back to where the demand is.

DOC

Documentation fee — issuing the bill of lading and the associated paperwork, charged at both ends on most lanes.

Others appear when circumstances call for them: congestion surcharges at busy ports, war risk premiums on affected routings, canal transit charges, and advance manifest filing fees on lanes that require them.

The costs that are not on the freight line at all

Even a complete freight rate with every surcharge named leaves out the local costs at each end. On a Thai import these typically include:

• Origin: export customs clearance, haulage to the port, container stuffing or CFS handling, fumigation or heat treatment where required, and the verified gross mass declaration
• Destination: the import declaration, import duty and VAT, terminal handling, the delivery order, the container deposit, and haulage to the final address
• Time-based: storage at the terminal, demurrage on the container inside the port and detention on it outside — the fastest way for a cheap rate to become an expensive shipment
• Cargo insurance, normally rated on the CIF value plus an agreed uplift

Incoterms decide who pays for which layer

A rate without a delivery term attached is not comparable to anything. Incoterms 2020 allocate cost and risk between seller and buyer, and two quotes on different rules can differ by a large margin while describing exactly the same physical movement. Simplified to the cost side only, the common rules divide up like this:

How to get a better rate — and a comparable one

Freight pricing is negotiable, but most of the leverage comes from being easy to quote accurately rather than from haggling.

• Give complete cargo data up front: commodity and HS code, exact dimensions and weights per package, stackability, whether the goods are hazardous, temperature requirements, cargo-ready date and the delivery term. Vague enquiries are quoted with padding, because the forwarder is pricing the uncertainty as well as the freight.
• Commit volume where you genuinely have it. A contract rate against a minimum quantity buys stability, which over a year is often worth more than the lowest spot rate in a good month.
• Plan around the known peaks rather than through them — the build-up before Lunar New Year, the factory closures around it, and the pre-holiday rush on westbound lanes in the second half of the year. Booking earlier costs less than a peak surcharge plus a rolled container.
• Find your LCL-to-FCL break-even and check it periodically. There is a volume at which a full container becomes cheaper than shared space, and it moves with the market — ask your forwarder where it currently sits on your lane.
• Compare quotes on the same Incoterms rule, the same validity period, the same inclusions and the same free time. Two rates that differ by a few per cent but by a week of free detention are not close.
• Ask about free time explicitly. Extra days of demurrage and detention are frequently worth more than the difference in the rate, particularly on cargo that needs an inspection.

In summary

Understanding how a freight rate is assembled does two useful things. It tells you which parts of a quote are genuinely negotiable and which simply pass a cost through, and it makes an unusually low number easy to interrogate — a rate well below the market almost always has a charge sitting outside it.

If you have a shipment coming up and want a transparent, all-in quote with every charge named on a stated Incoterms rule, Worldlink Shipping is happy to put one together — including the customs and duty side, which we handle ourselves as a licensed broker.