Roughly 90% of the world’s goods are transported by sea, with 60% packed in large steel containers and other commodities like oil and grain poured directly into a vessel’s hull.
Given the global reliance on ocean freight, supply chain decisions are always going to be heavily influenced by factors like geopolitical uncertainty, supply chain disruptions, unpredictable weather, and fluctuating costs. To ensure your cargo reaches its destination on time and within budget, the following elements must be carefully factored into your strategy. Read on to explore how to navigate these challenges and optimize your ocean freight strategy for greater efficiency, cost avoidance and reliability.
What does ocean freight mean?
Let’s start with the basics. Ocean freight (or sea freight) is the transportation of goods overseas by large container ships or other vessels.
Shippers have a variety of container options to choose from, depending on the type of cargo they are transporting, its size, and its specific requirements. Here are the main types of containers used in ocean freight:
- Standard Dry Containers (DC or Standard Containers) – these are typically 20-foot (TEU) or 40-foot (FEU) long
- High Cube Containers
- Reefer Containers (Refrigerated containers)
- Flat Rack Containers
- Open Top Containers
- Tank Containers
- Ventilated Containers
- Insulated Containers
- Double Door Containers
- Palletwide Containers
How does ocean freight work?
Ocean freight involves selecting a port of departure and arrival based on factors such as proximity, shipping routes, and available vessels. The vessel is also chosen based on the type and size of the cargo. You then work with a carrier of freight forwarder to book space for your goods, completing customs checks ahead of the voyage, and loading cargo onto the ship – all before the sea voyage itself. Then your goods go through arrival in your destination port, customs clearance, before unloading and onward travel to storage facilities or a final destination.
Deciding the right transport mode for your freight
Before you book your freight, you need to work out which mode of transport is right for you. Alongside ocean freight, shippers might consider air freight if shipping internationally – a mode of transport that is often faster and more reliable than ocean freight. That said, it often comes with higher costs, lower capacity, and more restrictions.
Ocean vs air freight: What are the pros and cons?
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Ocean freight |
Air freight |
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Cost |
Lower costs Ocean freight is the cheaper option, generally charged on volumes rather than weights. The cost benefits of choosing ocean over air increase with higher density cargo. |
Higher costs Air freight is more expensive than ocean freight, with that cost difference widening significantly for heavier cargo. |
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Capacity |
More capacity A cargo ship can hold more than an airplane with limits broadly dictated by spatial availability rather than weight. |
Less capacity Airplanes have strict weight limits to meet to successfully fly. Therefore, they have a more limited capacity than ocean vessels. |
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Speed |
Slower Ocean freight is a lot slower than air freight. Transporting goods can take several weeks depending on route availability. |
Faster Airplanes travel at higher speeds than ocean vessels and take more direct routes. This makes air freight a significantly faster shipping option – particularly useful for perishable goods. |
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Protection |
Higher chance of loss and damage Ships frequently stop at multiple ports, transferring containers between vessels. This transshipment process increases the chances of mishandling, damage, or even cargo being misplaced. Ocean freight is also more vulnerable to environmental exposure. |
Lower chance of loss and damage While airplanes can be subject to turbulence, their shorter journeys mean they can be more easily timed for fair weather windows. Plus, any movement will be for a shorter period of time versus ocean transportation. |
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Restrictions |
Fewer restrictions While hazardous substances can be considered too dangerous for transport, ocean freight does have fewer restrictions than air. Individual carriers set their own tolerance for risk within international and national laws and carrier regulations. |
More restrictions In general, there are more restrictions on what goods you can transport by air than by sea. Corrosive, toxic, and flammable items – plus gases and chemicals – are strictly regulated and often prohibited from being shipped via air freight. |
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Reliability |
Higher chances of delays Bad weather or port delays can add days or even weeks to ocean freight journey times, especially if vessels need to reroute to avoid port fees or dangerous seas. |
Lower chance of delays While bad weather or customs issues can delay flights, disruption tends to be more short-lived. |
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Emissions |
Lower CO2 emissions CO2 emissions from ocean freight are dramatically lower per tonne-kilometre than air, mainly due to lower fuel consumption. |
Higher CO2 emissions According to the International Transport Forum, air freight emits 47 times more carbon per tonne-kilometre than sea freight. |
Arranging your freight
Your shipping decisions don’t end with ocean versus air, you also need to weigh up your container, contract, carrier, and port options.
Ocean freight shipping options
There are two main shipping options, Full Container Load (FCL) or Less than Container Load (LCL) also known as grouped shipment. With FCL, your goods are transported in a full and sealed container minimizing the chance of loss, damage, and delays while goods are sorted. LCL comes into play when your goods aren’t numerous enough to fill a container. Instead, they are grouped with those of other companies in the same container to save costs and space and maximize capacity.
Ocean freight container options
You also have options when it comes to the size of container you use – 40ft shipping containers (FEUs) or 20ft shipping containers (TEUs). These each have different rates, so it’s crucial to understand the market to avoid unnecessary costs. It's also important to note that fluctuations in the FEU and TEU market spread can significantly impact shippers.
Ocean freight tendering
Freight tendering is the process by which shippers select carriers or freight forwarders to handle the transportation of their goods. Shippers outline their requirements, and carriers bid for their business, competing on rates and reliability.
However, freight tendering can be a long and cumbersome process, involving significant time and effort to gather the necessary data, evaluate bids, and negotiate terms. It's not just about finding the lowest price; the reliability of suppliers is equally important. Unreliable carriers can lead to delays, increased costs, and disruptions in the supply chain, which can have a major impact on a shipper’s operations. The freight industry has also witnessed instances of opportunistic behavior by carriers during the tendering process.
Given the stakes, it's crucial to enter the process with as much accurate information as possible to make well-informed decisions that minimize risk and ensure long-term success
Ocean freight contract types
Contracts for ocean freight fall into four main categories:
Long-term contracts: These contracts are often fixed for a year or longer (at Xeneta, any freight contract with a validity of three months or more is considered long-term). They typically keep rates and surcharges at the same agreed level for the entire contract length barring any major disruptive global events.
Short-term contracts: Here, rates and surcharges are fixed for a shorter period (Xeneta considers a short-term contract as 28 days or less). This provides more opportunities to renegotiate as rates fluctuate.
Index-linked contracts: These contracts map rates to an external index, so each shipment during that contract will be priced at a rate that reflects market fluctuations. While the most flexible option, index-linked contracts do come with their own risks.
Spot contracts: Used for one-time shipments, you agree a price based on current market spot rates as and when you need to make a shipment.
Port considerations
Selecting a port for your shipment isn’t just about finding the most suitable location – though that will be a considerable factor. You need to make sure the port you choose has the right infrastructure, services, and equipment to handle your specific cargo. Different ports also have different fees which will add to your overall shipment cost.
Hidden costs to watch out for…
Port fees: the fee paid to port authorities for using their facilities
General Rate Increases (GRIs): where ocean carriers increase base rates, usually due to increased demand.
Surcharges: an additional fee added by the carrier to cover expenses like special deliveries or additional handling.
Detention: the charge the merchant pays for detaining carrier's equipment outside the port, terminal or depot, beyond the free time.
Demurrage: the charge the merchant pays for detaining carrier's equipment inside the port, terminal or depot, beyond the free time.
Combined Demurrage & Detention (also called merged D&D): instead of separating demurrage and detention into separate categories, the carrier allocates a single pool of 'free' days that covers both. During this time, the merchant may use the carrier's equipment. If the number of free days is exceeded, the merchant may incur additional charges.
Free time: the period of time offered by the carrier to the merchant 'free of charge', covering both demurrage period and detention period, beyond which additional charges may apply.
Insurance: an additional fee to protect goods from loss or damage during transit.
Customs: government-imposed fees on goods entering their country.
The importance of data in ocean freight
Information is power when it comes to making cost-effective decisions around ocean freight. The right data helps you understand market movements to get the best rates for your shipments, compare reliability and performance for different carriers, analyze port options; to name just a few. The more real-time, granular data you can get hold of, the better. But here are some areas to prioritize:
Ocean freight rates: This is the basic freight charge for the movement of containers between two ports. It’s crucial to have visibility into market spread and shifts and fluctuations over the short- and long-term to benchmark yourself against your peers, maximize your negotiating power, and get the best deals possible.
Delta of market freight rates: The delta of market freight rates refers to the difference or change in freight rates between two points. This could be used to compare different modes of transport, different points of time, or different types of cargo.
Transit times: Transit times are never fixed in ocean shipping. From minor disruption due to bad weather to major disruption from unplanned global events, such as the rerouting round the Cape of Good Hope to avoid the Red Sea, keeping on top to the market with real-time data will help to prepare for – and potentially avoid the fallout of – market disruptions.
Port and route analysis: By analyzing different trade routes and port pairs, you can plan your cargo’s journey with all the information you need to make it as reliable, cost effective, and timely as possible.
Carrier performance data: With comprehensive insight into a variety of carriers, you can select who you want to work with based on comprehensive performance metrics. And access to carbon emissions data can help you align your partnerships with your organization’s wider ESG goals.
Xeneta: One platform for all your data needs
Xeneta is the comprehensive source of freight market intelligence trusted by the world's biggest buyers and sellers of ocean and air freight.
We have more than 600 million crowdsourced, duplicate-free datapoints spanning over 160 thousand ocean port-port pairs and 58 thousand airport-airport pairs.
Our granular, real-time, actionable data covers:
- Long-term and short-term rates
- Ocean and air coverage
- Low-high market spread
- Spend benchmarks
- Surcharges
- Carrier rates
- Tender benchmarking
- Schedule reliability
- Capacity and blanked sailings
- Future rates
- Carbon emissions
We go beyond benchmarking to give you the data and expert analysis you need to scenario plan, negotiate better rates, optimize your supply chain, and inform your strategy for the future. Get a live demo to see how our platform and analysts could transform how you approach shipping.
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