Part II — The Commercial Framework
Freight Rates & Surcharges
How an ocean or air rate is actually built — the base rate plus the alphabet of surcharges (BAF, CAF, THC, GRI, PSS) that turn a quote into the real number.
A freight rate is almost never a single number. The figure a carrier publishes is a base rate, and on top of it sits a stack of surcharges that move with fuel, currency, congestion and demand. A forwarder who quotes only the base rate will lose money on every shipment; the skill is knowing the full stack and which parts of it will change before the cargo sails.
The base rate and the chargeable unit
Recall from Chapter 3 that freight is billed on a chargeable unit, and the rate is applied to it:
- Ocean FCL — priced per container (per 20’/40’/40’HC box), regardless of how full it is.
- Ocean LCL — priced per CBM or per 1,000 kg, whichever is greater (the W/M rule).
- Air — priced per kg of chargeable weight (the greater of actual and volumetric).
A freight rate is the price charged by a carrier for moving a unit of cargo between two points by a given mode. It is quoted against a defined chargeable unit (per container, per CBM/1,000 kg, or per kg) and is normally exclusive of surcharges, which are added separately.
Recall the weight/volume ratio framework from Chapter 3 — it sits underneath every rate: sea is charged 1:1 (per CBM or per 1,000 kg, whichever is greater — the “W/M” rule), land ~1:3, air 1:6 (1 CBM = 167 kg). The base rate is applied to whichever unit the ratio selects. Get the chargeable unit right first (Chapter 3); then build the surcharge stack below.
The surcharges — the alphabet you must know
These appear on quotes and invoices as line items. The exact set varies by carrier and lane, but these are the ones a Middle East / India forwarder sees constantly:
| Code | Surcharge | What it covers |
|---|---|---|
| BAF | Bunker Adjustment Factor | swings in marine fuel (bunker) price |
| CAF | Currency Adjustment Factor | exchange-rate movement (rates often set in USD) |
| THC | Terminal Handling Charge | the port/terminal’s cost to handle the container (charged at origin and destination — OTHC/DTHC) |
| GRI | General Rate Increase | a carrier’s across-the-board rate rise on a trade lane |
| PSS | Peak Season Surcharge | extra charged in high-demand periods |
| ISPS | Security charge | mandated port/vessel security costs |
| DOC | Documentation fee | issuance of the B/L and paperwork |
| War risk / ERS | War-risk or emergency surcharge | routing through high-risk waters |
The 2003 notes treat surcharges as a short, stable list. Two big shifts since then:
- IMO 2020 capped sulphur in marine fuel at 0.5%, forcing carriers to burn more expensive low-sulphur fuel — many replaced or supplemented BAF with a Low Sulphur Surcharge (LSS / LSF). (Covered fully in Chapter 26.)
- The 2021–2022 disruption made GRI and PSS far more aggressive and frequent, and added congestion and equipment-imbalance surcharges that barely existed in 2003. A quote can now be valid for days, not weeks — always state validity.
Building a real quote — worked example
A customer asks for an all-in price, Shanghai → Jebel Ali, one 40’ container:
Base ocean rate: USD 1,200 / 40’ + BAF: USD 180 + THC origin (OTHC): USD 130 · THC destination (DTHC): USD 150 + DOC fee: USD 40 All-in carrier cost ≈ USD 1,700, before the forwarder’s own margin and any local delivery/customs.
The customer hears “USD 1,200” from a competitor and asks why you are higher. The answer is that the competitor quoted a base rate and the surcharges will appear later. Quote all-in, and itemise — it is the difference between a transparent quote and a dispute at invoicing.
Validity, and why rates move
Ocean and air rates are time-bound. They move with:
- Fuel (BAF/LSS) and currency (CAF).
- Supply and demand — capacity on the lane vs. cargo wanting space; this drives GRI and PSS.
- Disruption — a closed chokepoint, a congested port, a blanked sailing (Chapter 26).
Every WorldZone quote should carry three things in writing: the all-in figure with surcharges itemised, the validity date, and the Incoterm scope (which legs are included). This protects both the customer and the margin: it prevents the “but you quoted less” dispute, and it makes sure a rate that has since moved isn’t honoured at a loss weeks later. The chargeable-unit arithmetic from Chapter 3 plus this surcharge stack is the quote.
What to take from this chapter
- A rate = base rate + a stack of surcharges; never quote the base alone.
- Learn the codes — BAF, CAF, THC, GRI, PSS — they are on every invoice.
- IMO 2020 reshaped fuel surcharges (LSS); disruption made GRI/PSS volatile.
- Always state the all-in price, validity date, and Incoterm scope.