What is an ocean container shipping freight rate? A simple question, but not always easy to answer due to the complexity of surcharges that make up the total amount a shipper pays to move their goods.
This confusion leads to further questions, such as how a shipper knows if a surcharge is justified or when/how to push back against paying it.
The nuance in this confusing scenario extends further to whether surcharges can actually benefit a shipper in certain situations.
This blog will shed light on surcharges to help answer these important questions and give shippers a clear understanding of risk and opportunity in their freight procurement strategy.
Xeneta methodology
It is important to be clear on the surcharge methodology contained in this blog. Xeneta benchmark rates include the base rate and then all surcharges considered necessary for passage, such as Bunker Adjustment Factor (BAF), EU ETS, Peak Season Surcharge (PSS), IMO 2020 and security surcharges.
Not included in these benchmarks are ‘extra’ surcharges, such as premium surcharges for space guarantees or green surcharge for cleaner fuel.
When it comes to Terminal Handling Charges (THCs), Xeneta defines the default methodology which can vary from ‘no THC’ to any combination including ‘origin’, ‘destination’ or ‘both’. All four possible THC combinations are available for customers to view in the Xeneta platform, but for the purposes of this blog all THCs are removed.
When is peak season surcharge not a peak season surcharge?
The subject of surcharges is topical right now due to carriers pushing peak season surcharges during a relatively subdued traditional Q3 peak season. The calendar may say it is peak season, but if the demand for ocean container shipping doesn’t justify the title, should shippers be paying the surcharge?
If you are shipper caught in surcharge confusion, you need data to bring transparency to your freight strategy…
Surcharge example – South East Asia to North Europe
Here we demonstrate why it is so difficult to gain a clear understanding of surcharges in the market.
The average long-term rate (including surcharges as described in the methodology above) on the trade from South East Asia to North Europe is USD 2 330 per FEU (40ft container).
The problem is that there are numerous surcharges being applied on this trade, but they are not included in all contracts. That means it is not possible to say what percentage a specific surcharge contributes to the average all-in rate on a trade.
What a shipper can do is look at the average amount being paid against each individual surcharge on the trade and benchmark it against what they are paying.
The table below shows the average amounts being paid for each surcharge on the trade from South East Asia to North Europe.
| Surcharge (USD per FEU) | |
| EU ETS | 108 |
| Fuel | 554 |
| Peak Season | 593 |
| Red Sea | 335 |
Lack of transparency in surcharge calculations
Lack of transparency in surcharges is something Xeneta customers constantly raise. For example, some charges, such BAF (fuel), are more directly attributed to the cost of providing the service than others.
A BAF surcharge is based on oil prices and typically updated quarterly in a 12-month ocean container shipping contract. However, in many cases, shippers simply do not understand the calculation behind the figure they are asked to pay.
Like anything in life, when you purchase product or service, you want to know where your money is going and whether you are paying under or over the odds. Freight is no different, so you can understand shippers’ concerns.
Fuel surcharge example - South East Asia to North Europe
The Xeneta fuel surcharge data includes BAF as well as fees such as the IMO 2020 Sulphur Cap and Emission Control Areas (ECA).
On the trade from South East Asia to North Europe, the market average for fuel surcharges is USD 550 per FEU. However, there is a significance variance in the amount shippers are paying within this average, with a market low at USD 190 per FEU, mid low at USD 390, mid high at USD 700 and high at USD 770.
A lack of transparency doesn’t just exist for shippers – carriers are also in the dark on some surcharges. For example, the cost of complying with EU ETS legislation is difficult for carriers to forecast. The cost depends how much fuel a ship burns as well as the price of allowances at the time a carrier chooses to purchase them.
It is undeniable there is an issue around transparency when it comes to surcharges, but ultimately the most important figure for a shipper is the all-in rate they pay to move their goods, regardless of how it is made up and what they pay for each surcharge. Just because you pay the market high of USD 770 per FEU for fuel surcharge on the trade from South East Asia to North Europe does not necessarily mean your all-in rate in uncompetitive if you have a low base rate.
This raises an intriguing question: is paying higher surcharges always bad news for shippers?
The all-in rate is all-important
The table below shows the all-in rate paid by seven different shippers on the trade from South East Asia to North Europe.
| Surcharge (USD / per FEU) |
Shipper A | Shipper B | Shipper C | Shipper D | Shipper E | Shipper F | Shipper G |
| Base rate | 3172 | 795 | 2800 | 1430 | 3592 | 895 | 1900 |
| BAF | 350 | 700 | 700 | 213 | 700 | ||
| EU ETS | 110 | 52 | 88 | 110 | |||
| Red Sea | 350 | 110 | 210 | 150 | |||
| PSS | 650 | 104 | 20 | 650 | |||
| Other | 20 | 120 | |||||
| Total | 3872 | 2385 | 2956 | 2340 | 4033 | 2505 | 1900 |
The data in this table makes two things very clear.
Firstly, there is significant variance in not only what different shippers pay for each surcharge, but also which surcharges they are being hit with.
Secondly, and perhaps most importantly, how much a shipper pays in surcharges does not always dictate the competitiveness of the all-in rate.
For example, Shipper B is hit with five different surcharges while Shipper A pays for just two. However, Shipper B has a far more competitive base rate, meaning they pay a much lower all-in rate of USD 2385 per FEU compared to Shipper A at USD 3872 per FEU.
Not all surcharges linked to cost, negotiating power in the market
Surcharges can be both good and bad for shippers, depending on the market. In a rising market a carrier will impose extra surcharges at any opportunity, typically done in the form of a peak season surcharge.
In a falling market, shippers can press carriers to lower their surcharges (or keep surcharges flat but lower the base rate).
The term ‘peak season surcharge’ is a misnomer in many respects because carriers will apply them during other periods. For example, peak season surcharges were applied earlier this year when shippers hit the accelerator on shipping goods following the temporary lowering of US tariffs in May.
Perhaps the peak season surcharge was justified at that point, but shippers’ argument is that it is still being applied after the frontloading storm has passed.
Surcharges can bring opportunity for shippers
Surcharges linked to specific events can also prove beneficial to shippers in the longer run, with a clear example being conflict in the Red Sea.
If a shipper is signing a new ocean container shipping contract for 2026 with a hefty Red Sea surcharge on top of a lower base rate, you could argue this presents an opportunity to reduce the all-in rate by requesting the carrier lowers/removes the surcharge as/when the situation improves.
A shipper with a higher base rate and no Red Sea surcharge would not have a ready-made argument for a lowering of the all-in rate in the same scenario.
Perhaps what is important for a shipper is not just focusing on the base rate or the surcharges they are paying, but ensuring they remain agile and able to react to different scenarios during the contract period.
Importance of surcharges on backhaul trades
Surcharges are put into an entirely different context on backhaul trades.
On the trade from North Europe to Far East, average long term rates have fallen to just USD 154 per FEU, but this turns into a negative rate when surcharges are removed.
Clearly, any shipper pushing for the lowering of surcharges on this trade will have a tough job on their hands.
Surcharge situation could get even more complicated
A new cost some carriers will face in the coming months are the USTR Port Fees, due to enter into force in mid-October. As with any additional cost pressure, carriers will try to pass it on to shippers.
Some carriers will be able to avoid the fees completely, while Chinese operators or those with ships built in China will be hit hardest.
For example, if COSCO calls at a US port with a 14 500 TEU vessel, it will be hit with a USD 4.2m fee (around USD 700 per container).
It will be interesting to see how much of this cost is passed on, but shippers should consider this when identifying their preferred carriers on trades into the US. Even those carriers unaffected may offer a shipper zero port fee surcharge in one hand but take money from them with the other hand by increasing other surcharges.
Data brings transparency to surcharges
A shipper can use data to achieve a better way of procuring freight when it comes to surcharges.
Quite simply, a shipper should not blindly pay a surcharge just because a carrier tells them to. But without the kind of data highlighted in this blog, how do they put forward a credible argument to the carrier over why they shouldn’t pay a surcharge? Or at least why the surcharge should be lower.
This data also allows a shipper to be smarter in their procurement, particularly when it comes to maintaining flexibility in contracts. Focusing on the bottom dollar in your base rate may seem like a good idea during a tender, but it can restrict your options down the line and come with financial and operational repercussions if the situation turns against you.
Understanding and benchmarking each surcharge you are paying – and being ready to act quickly and decisively when situation demands it - is the modern way to procure freight and manage supply chain resilience.
