Ocean Freight Costs Explained: Base Rate, BAF, THC, Surcharges

Ocean freight costs line by line: base rate, BAF, ETS and other surcharges, THC, ISPS, PSS, GRI, demurrage and detention, with a worked tiles example.

A freight quote looks simple until you try to compare two of them. One forwarder quotes USD 1,400 "all in", another USD 1,050 plus BAF, LSS, ISPS, THC and documentation, a third USD 1,200 "subject to surcharges at time of shipment". Behind these figures sits the same structure: a base rate, a stack of surcharges, origin and destination charges, and the risk of demurrage and detention if the container stays too long.

This lesson takes an ocean freight invoice apart line by line. You will learn what each surcharge pays for and how often it changes, which charges are paid at which end and by whom under each Incoterms® 2020 rule, how demurrage and detention work, and how to build a reliable freight estimate. A worked example costs a 20' container of ceramic tiles from Oran to Dakar, compares the estimate with the actual cost, and shows the effect on margin.

All amounts in this lesson are illustrative. Rates and surcharges vary by carrier, lane, season and month, so always work from a current quote.

The structure of an ocean freight price

Every sea shipment cost can be split into four blocks:

1. Origin charges: pre-carriage to the port, export customs clearance, origin terminal handling, documentation, seal, VGM and security fees.
2. Ocean freight: the base rate plus surcharges for fuel, currency, regulation, security, risk and season.
3. Destination charges: destination terminal handling, delivery order and documentation, import clearance, on-carriage to the buyer.
4. Time-related charges: demurrage, detention and port storage when free time is exceeded.

Base rate and main surcharges

Terminal handling charges at origin and destination

THC pay for handling the container in the terminal: receiving it, stacking it and loading it on the ship at origin (OTHC), or discharging it and moving it to the gate at destination (DTHC). They are billed by the carrier or its agent in local currency according to a local tariff, and they can differ significantly from port to port.

Other fixed charges usually billed with THC:

• Documentation or B/L fee: issuing the bill of lading; a further fee for corrections or amendments.
• Telex release or sea waybill fee: releasing the cargo without original bills.
• Seal fee: the high-security bolt seal.
• VGM submission fee, if the forwarder submits it for you.
• Advance manifest fees: filing cargo data before loading for countries that require it, such as the ENS for the EU or AMS for the United States.
• Delivery order (D/O) fee at destination, charged to release the cargo to the consignee.

Who pays what under each Incoterm?

Destination THC and unloading costs follow the contract of carriage: under CFR or CIF, if the seller's freight contract includes them, the seller cannot recover them from the buyer unless agreed. Check the split for any deal in the Incoterms matrix.

Demurrage, detention and port storage

Carriers give a period of free time during which the container can be used without charge. After that:

• Demurrage is charged for each day a full container stays inside the terminal: an import container not collected, or an export container delivered too early.
• Detention is charged for each day the carrier's container is outside the terminal: an empty box kept at the exporter's site, or a full import container not returned empty in time.
• Port storage is a separate charge by the terminal operator for occupying the yard, in some ports billed in addition to demurrage.

Tariffs usually escalate: for example USD 40 per day for the first five days after free time, then USD 80, then USD 120 for a dry 40', more for reefers and special equipment. Some carriers grant combined free time (demurrage and detention together), others count each separately.

Worked example: a 20' of ceramic tiles from Oran to Dakar

A tile manufacturer near Oran sells one 20' container to a building-materials distributor in Dakar, CFR Dakar: 1,000 m² of porcelain tiles, 21,000 kg gross on 21 pallets. The sale price is USD 12.00 per m², or USD 12,000. Ex-works product cost is USD 8,600.

Two items moved between the estimate and the shipment: the BAF was revised upward at the start of the month, and the vessel's late arrival at Oran kept the container four extra days in the terminal. The margin fell by 12% of its value although the sale price did not change. Destination THC, the delivery order and import clearance in Dakar are the buyer's costs under CFR, but the exporter quoted them to the buyer in advance to avoid disputes.

How to read and check a freight invoice

1. Check that the container numbers, B/L number and route match your booking.
2. Compare each line with the quote: same base rate, same surcharges, same currency and exchange rate.
3. Check the date that set the surcharges: the quote date, the gate-in date or the sailing date, as agreed.
4. Look for charges not in the quote and ask for a justification.
5. Verify demurrage and detention days against actual gate-in and gate-out times.
6. Record the actual cost against the estimate for the shipment, and update your price list.

Common mistakes with ocean freight costs

• Comparing base rates instead of totals.
• Accepting floating surcharges without an estimate, then absorbing the increase.
• Forgetting destination charges when selling DAP or DDP.
• Letting free time run out because documents arrive late.
• Never comparing estimated and actual costs, so prices drift below cost over time. The lesson on shipment profitability covers this discipline.

Putting it into practice

On Incoforms, each shipment has a costing sheet where you enter freight, port fees, insurance, customs and other lines, first as estimates when you quote, then as actual amounts when invoices arrive. The sheet shows the cost per kg, the margin and its risk, and the gap between estimate and actual, so every new quote can start from what the last shipment really cost.