Why freight rates jumped in 2021, and what is actually in a quote

Anyone who booked a container from Asia this year has seen the same thing: the price on Monday is gone by Friday, and the space you were promised is “subject to availability.” Ocean freight has always moved up and down. This year it moved like a stock ticker. Here is what pushed it, and then how to read a quote so you know what you are paying for.

What happened to the market

Start with demand. When much of the world stayed home in 2020, people stopped spending on restaurants and travel and bought furniture, electronics, exercise gear and home office chairs. Most of those things are made in Asia and shipped in containers. Retailers that had cut orders in the spring of 2020 found themselves restocking at speed by the second half of the year.

Supply could not follow. Carriers had cancelled sailings early in the pandemic, expecting a slump that never arrived. Containers ended up in the wrong places, with full boxes piling up in North American and European ports while exporters in China waited for empties. A box that does not come back is a box that cannot be loaded.

Then came the knock-on delays. Terminals struggled with volume and with sick or isolated workers. Ships queued outside ports in California for days. The Ever Given blocked the Suez Canal for about six days in March 2021. A COVID outbreak at the Yantian terminal in Shenzhen in May slowed one of the busiest container ports in southern China. Each event on its own was survivable. Stacked on a system with no spare capacity, they were not.

Why a scarce container costs more

A carrier sells a fixed number of slots on each sailing. When shippers want more slots than exist, the price of a slot rises until enough of them give up. Shippers with long contracts held a better position than those buying on the spot market, but even contract cargo could be rolled to a later vessel when a ship was full.

That last point matters for planning. In a tight market the price is only part of the story. Whether the box actually sails on the date you booked is the other part.

What is inside an ocean freight quote

A quote looks like one number. It is usually several, added together. The names vary between carriers and forwarders, but most quotes contain some version of the following.

• Base ocean rate. The price of moving a container (or a volume of cargo, if it is shared space) from one port to another.
• Bunker or fuel surcharge. Often called BAF. It moves with fuel prices and is adjusted on a schedule the carrier sets.
• Peak season surcharge. Added when demand runs high, usually in the months before the year-end holidays.
• Origin charges. Terminal handling at the loading port, document fees, export clearance, and trucking from the factory or warehouse to the port.
• Destination charges. Terminal handling at the arrival port, release or delivery order fees, and the cost of moving the cargo to its final address.

Customs duties and taxes are separate again. They depend on the goods and their classification, not on the freight, and a freight quote normally does not include them.

Demurrage, detention and the clock that starts without you

Two terms appear in the small print and cause most of the unpleasant surprises. Demurrage is what the terminal or carrier charges when your loaded container stays in the port past the free days. Detention is what the carrier charges when you keep its container, or its chassis, outside the port past the free days allowed.

Free time varies by carrier, port and contract. It can be a few days or longer, and it often starts when the container is discharged, not when you receive the notice of arrival. After that, a daily charge begins and tends to step up the longer the box sits.

In 2021, with yards full and trucks hard to get, importers paid these charges on cargo that was stuck through no fault of their own. Ask what the free days are before you accept a quote. A cheap rate with three free days can cost more than an average rate with ten.

Why two quotes for the same route differ

Put two quotes side by side for the same port pair and the totals may be far apart. The reasons are usually mundane.

1. One quote includes origin and destination charges and the other lists only the ocean leg.
2. The Incoterm is different. A price on FOB terms and a price on EXW terms cover different stretches of the trip, so they cannot be compared directly.
3. The carriers are different, with different transit times, different reliability and different free time.
4. The validity dates are different, so one number reflects last week’s market and the other reflects this week’s.
5. One is for a full container and the other is for part of a container shared with other cargo, which is priced and handled differently.

A low total that leaves out destination charges is not a low price. It is an incomplete one.

Validity: how long a number is good for

Every quote has an expiry. In a calm market a quote may hold for weeks. In 2021 many held for a few days, and some carriers repriced mid-month. If you approve a quote after its validity date, you are asking for the new price, whatever it turns out to be.

Check also what the validity applies to. Some quotes are valid for the booking date, others for the sailing date, and the difference decides who pays if the vessel slips a week.

What you can compare, and what to ask

You cannot compare freight on price alone, but you can compare it on a short list of questions. Ask for each quote in writing and line them up.

• Which charges are included, and which are listed as “at cost” or “subject to”?
• What are the free days at the destination port, and when do they start?
• What is the validity, and does it refer to booking or to sailing?
• Which Incoterm does the price assume?
• What is the expected transit time, and how often has the service been delayed?

Importers into Panama will also want to know how the cargo gets from the port to the warehouse, and who arranges customs clearance, because those steps carry their own fees and their own waiting time.

Reading a rising market calmly

Rates will not stay at this level forever, and nobody can say when they will fall. What stays useful is the habit of reading a quote line by line. An importer who knows what each charge is for can see which part of the price is the market, which part is the carrier’s policy, and which part can be negotiated or avoided. Often that last part is the free time, the routing, or the date the cargo is booked.

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