29 June 2021 • 31 min read
Incidental Shipping Fees and Customs Costs
Know all the incidental charges or extra costs in shipping. Find about these freight & customs related extra ocean freights costs that can catch you off-guard
The freight quote you receive from a carrier or freight forwarder is an estimate of the total cost of importing or exporting a consignment of goods from one point to another based on the chosen mode of transport. It includes a bunch of fees and surcharges calculated on the basis of the information (cargo and route details) provided by you. However, exporters and importers must be aware that the costs included in the quote are not the only shipping charges they will incur. There are wide-ranging incidental charges, many of which might apply to their shipment under specific circumstances. Some incidentals might be impossible to anticipate, but fortunately not all.
This two-part guide takes a deep look at the incidental charges that can impact your overall shipping cost. For better understanding, we have divided them into four sections (although many charges might apply to more than one section).
Part I of the guide will tackle:
- Freight-related incidental charges
- Customs-related incidental charges
Part II will deal with:
- Transport-related incidental charges
- Marine cargo insurance-related incidental charges
But before that, let’s first take a quick look at the unavoidable charges in your shipping bill.
Know Your Freight Costs
Freight is what you pay to ship your goods internationally. Freight depends on the nature of your cargo, the distance it travels and so on. But some charges that apply to almost all shipments are:
1. Ocean freight:
This can be broken down into the following:
- Basic ocean freight: The base fare charged by the carrier for the port-to port leg of the journey. It is calculated on the basis of cargo volume (cubic meter) or weight. For a Full Container Load (FCL) shipment, a flat rate per container is charged. In Less than Container Load (LCL) shipping, freight is usually charged on the basis of volume and sometimes on the basis of weight (when the cargo weighs more than a ton and its weight is more than its volume).
- Surcharges: Carriers levy surcharges to cover the cost of services that go beyond basic ocean transport. Some surcharges that will most likely be included in your freight quote are the Bunker Adjustment Factor (BAF) that covers fuel price fluctuations, the Currency Adjustment Factor (CAF) that makes up for exchange rate fluctuations, and the ISPS (International Ship and Port Facility Security) Code fee that covers the cost of regulating and monitoring ship, crew and port security. In addition, you might see a few more surcharges in your quote, such as:
- Low Sulphur Surcharge (LSS), for use of low-sulphur fuel for cargo transported across Emission Control Areas
- Peak Season Surcharge (PSS), for operational costs incurred during shipping peak season (February-March in India, August-November globally)
- War Risk Surcharge, for cargo moving in areas with a high war risk due to geo-political instability
- Emergency Risk Surcharge (ERS), for cargo moving in regions under the shadow of piracy and violence
- Canal Surcharge, which depends on the route taken by the vessel, such as the Panama Canal charge
2. Local charges (origin and destination):
Also called port charges, these are paid at and specific to ports. Some local charges you cannot avoid are:
- Terminal handling charges (THC): These cover the cost of terminal access, labour, equipment use and equipment maintenance for loading and unloading of containers and their transport to and from the vessel. Terminal handling charges vary from port to port.
- Documentation fee: This is charged for the issuance of shipping documents such as bill of lading (B/L), delivery order (DO) and certificate of origin.
- Palletisation: To minimise the risk of damage, shipments are almost always secured with pallets. Most carriers charge a standard pallet rate for this service.
- Fumigation fee: These days, most cargo is secured in wooden pallets. And many importing countries require cargo containing elements of wood to produce a fumigation certificate stating that the goods and packaging are free of insects. An approved fumigation company will issue the certificate after treating the cargo and pallets for pests and bugs and charge a fumigation fee.
3. Transport charges (origin and destination):
Inland transportation charges come into play when cargo is shipped door-to-door, door-to-port and port-to-door:
- Drayage: Drayage is the movement of a container via truck or trailer over a short distance – say, from the shipper’s warehouse to the port, or from the port to a rail yard. More often than not, a consignment is moved by drayage service more than once during the shipping process. Drayage is, thus, part of a larger logistics chain and crucial to multimodal transport. Drayage fees vary according to the place of loading/unloading, equipment required and time taken.
- Trailer pick-up/drop-off: Shippers pay a trailer charge when they use trailer services to pick up empty containers from a container yard, drop them off at their warehouse for stuffing and move the stuffed containers to the port.
- Rail haulage: When cargo is transported by truck to a rail terminal for forward movement to a port or terminal, a rail haulage charge kicks in.
- Barge service: Moving cargo in bulk on inland waterways requires barge services, for which you pay a fee.
4. Customs charges (origin and destination)
- Customs clearance fee: This is a fee you pay your customs broker (customs agent) for arranging customs clearance of your cargo, including filing the necessary paperwork for it. Also called customs brokerage.
- Port Registration: The customs department of each country might require first-time exporters and importers to fulfil certain conditions, such as a port registration. These conditions and services are country-specific. In India, for instance, exporters and importers must register their Authorised Dealer (AD) Code at the port where their goods are cleared for customs. The AD Code is a 14-digit numerical code issued by the bank where the exporter/importer has a business account. If your AD Code is not registered with the port, you cannot generate a shipping bill. To register, you must submit the code with relevant documents (income tax returns, Goods and Services Tax registration, bank statements, Import Export Code, etc) to the Customs House at the port, for which you will be charged a fee.
- Commodity-related charges: These relate to goods that are traded in bulk and called “commodities” (such as agricultural products, fuels, metals). The charges are mostly packaging-related. For example, plants, plant products and other regulated products such as fruits, vegetables and grain require a phytosanitary certificate, issued by an appropriate authority in the exporting country, stating that the goods are free of pests and meet the importing country’s requirements. Similarly, some destination ports deny entry to certain imports, especially those with wooden packaging, unless they come with a fumigation certificate stating that there is no insect infestation. The issuance of such certificates is preceded by an inspection of the goods and the necessary treatment to free them of pests, for which a fee is charged.
5. Cargo insurance
Carriers are legally bound to provide insurance for the cargo they transport. But this coverage is limited. Shippers have the option of insuring their goods as well by purchasing a marine cargo insurance policy. While this is not mandatory, it is highly recommended. Insurance premiums differ depending on the portion of the journey (sea or land or both) and the risks (theft, damage from collision, etc) covered as well as the value of the cargo.
Don’t forget to budget for customs duties/taxes
Apart from freight and logistics, duties and taxes are the next major contributor to your shipping expenses. These can sometimes exceed your freight cost, so it’s important to budget for them to avoid a nasty shock later on.
- Customs duty: This is a duty levied on goods that cross international borders. It is called an export duty when levied at the port of origin and import duty when levied at the port of destination. In India, and in several other countries, customs authorities determine duty amount on the basis of the Cost, Insurance and Freight (CIF) Incoterm – declared merchandise value + insurance cost + shipping cost. Customs duty can be broken down into:
- Basic customs duty
- Additional customs duty (applicable to all imports except alcohol and spirits)
- Other duties – such as the anti-dumping duty, which some countries and blocs (US, European Union, India, etc) levy on foreign imports they believe are priced below the fair market price. India also charges a 3% education cess with the normal customs duty
- Taxes: The calculation of import taxes varies from country to country. In India and the European Union, these are calculated on the basis of the CIF Incoterm. In the US, the Free on Board (FOB) Incoterm – value of the goods – is taken into account.
- Country-specific charges: The customs departments of some countries have mandatory import declaration requirements, charges for which will most likely be included in your freight quote:
- AMS: As a security measure, ocean shipments to the US require an advance cargo declaration on the AMS (Automated Manifest System). The AMS filing fee is covered by the exporter, and in some cases by the importer depending on the Incoterms agreed upon.
- ISF: US Customs requires importers to make an electronic Importer Security Filing (ISF) – also called 10+2 – of goods being imported into the country. The importer’s agent handles the filing, for which they charge an ISF filing fee. If filing is not done at least 24 hours before cargo is loaded at origin, a late fee might also apply.
- ENS: Like an AMS filing, an Entry Summary Declaration (ENS) is mandatory for cargo bound for the European Union. This is filed by the carrier, which charges an ENS filing fee. The ENS fee is also called a cargo data declaration (CDD) fee.
- CTN: Similarly,imports to 24 African countries need to fill up a cargo tracking note (CTN) – with details of the cargo and its movement between ports – in order to clear customs. The CTN must be submitted before the cargo reaches its destination and can be filed electronically. It is also called a waiver certificate.
- Japan AFR: Similarly, Japan-cound carriers must submit cargo information to Japan Customs under the Advance Filing Rule (AFR). They charge a fee for this service.
That takes care of the most common tariffs and charges on your shipping bill. The following two sections will deal with incidental charges that you might encounter under specific circumstances.
Freight-related Incidental Charges
From sudden tariff hikes to documentation fees, here are some common freight-related incidentals you might encounter:
- Cargo rollover: In the off chance that your shipment fails to make it on the scheduled ship (for reasons such as an overbooked vessel or problems related to customs or documentation), it will have to be accommodated on another vessel that sails on a later date. This means your cargo has been rolled over. If responsibility for the rollover lies with the carrier, the extra cost of rescheduling will be borne by it. If the fault lies with you, you will naturally end up paying for it.
- Cargo shut-out: A cargo shut-out is when a shipment fails to make a scheduled sailing after completing the export customs clearance and gate-in at the terminal. If the carrier is responsible, it covers the rescheduling cost. But if the shut-out was requested by the exporter (for reasons such as a cancelled export order) and if vessel nomination is changed (vessel nomination being the process by which the importer nominates a ship for the exporter to ship the goods on), the exporter must pay a shut-out charge. This shut-out fee is charged per container, with the rate varying according to the size of the container. Since a shut-out container has to be moved back to the container freight station/container yard or the exporter’s warehouse (a move called back to town), additional incidentals might apply. These include a per-day ground rent if the shut-out container is held at a port or container storage facility, or customs examination charges if customs demands a cargo examination.
- Back to town: We discussed back to town when talking about cargo shut-out. When a shut-out container is taken back to town – for example, back to the shipper’s warehouse instead of proceeding for export – the shipper pays additional loading and transportation charges.
- Demurrage: If a container remains in a port beyond its allotted free time – before loading (export) or before final delivery (import) – the shipper must pay the carrier a per-day demurrage fee.
- Detention: Similar to demurrage, a detention fee is charged for use of a container outside a port. An exporter pays a detention fee when they pick up an empty container for packing and don’t have it back at the port within the allotted free time. For an importer, the fee applies if they fail to return an empty container to the port within the free time.
- B/L amendment: This is a fee paid to the carrier to make changes to the bill of lading after it has been issued. It varies from carrier to carrier and the fee usually increases with the time elapsed after issue of the original B/L.
- Switch B/L: Also paid to the carrier, this covers the cost of issuing a second bill of lading to replace the original. The second set of documents is usually issued with the shipper details edited for various reasons.
- Late SI filing: The party (shipper or freight forwarder) who fails to file the shipping instructions (SI) within the SI cut-off must pay a late fee.
- General Rate Increase (GRI): When carriers increase base rates on the basis of demand and supply, it is called a general rate increase (GRI). A GRI announcement can be unexpected at times and mess up your shipping budget.
- Cargo weight misdeclaration: A shipper who under-declares/over-declares their cargo weight is liable to pay the freight difference along with an administration fee, any other charges that might apply (such as cargo measurement cost), and possible damages. In the event of a misdeclaration, a carrier might change the transport mode on the bill of lading (from port-to-door to port-to-port, for example), leaving the shipper to bear the extra expense of transporting the cargo to the final destination.
- Reefer temperature variance: If the temperature of a refrigerated container (reefer) at the time it enters a terminal does not match the temperature mentioned on the booking note, the carrier might charge a temperature variance fee.
- Missed sailing caused by documentation delay: Missing a scheduled sailing sometimes boils down to a documentation delay. For example, it is often seen that the customs clearance is not completed on time, which leads to a delay in the handover of customs-related documents to the carrier. For the shipper, a missed sailing means re-scheduling expenses as well as possible demurrage fees.
Customs-related Incidental Charges
Watch out for incidental charges at the customs clearance stage. Some might pertain to the actual process of customs clearance (both at origin and destination), but many more are general expenses you might not have factored in at all. Let’s take a look at them:
- Customs inspection: At times, wholly unexpected to you, customs might deem it necessary to inspect, examine or scan your shipment. The reasons for this could be varied – to check if the goods are as declared, to check for security risks such as radiation, and so on. You will have to cough up the inspection, examination and scanning costs. Additionally, incidental charges for loading/unloading, transportation to the inspection facility and equipment use could also apply. Delay charges such as demurrage and detention – on account of customs officials holding on to your container for inspection – could also be added to your bill.
- CFS change: At times, your customs broker might be compelled to arrange an alternative container freight station (CFS) for your cargo to be stuffed and undergo customs clearance because of congestion at the original CFS. This could lead to added expenses as the handling charges for different CFSs might differ.
- Force majeure charges: An unprecedented, uncontrolled “force majeure” event, such as Covid-19, can play havoc with shipping schedules and lead to huge unforeseen expenses. Lockdowns and mobility restrictions brought about by the pandemic resulted in stranded cargo, blank sailings and labour shortages at ports. Shippers were forced to pay extra to hire expensive labour, have lapsed documents re-issued, and cough up delay and storage fees such as demurrage and detention.
- Document amendment: If your documents are not in order – for instance, the container seal number does not match the entry on your bill of lading – the carrier will charge a document amendment fee to have the error corrected.
- Missing/inaccurate document: A missing, incomplete or inaccurately filled document can lead to customs holding up your cargo. If your cargo has been held up, customs might allow you to submit the missing document or re-submit an accurate/complete document, which would lead to incidental charges. As a result of the hold-up, you might also end up paying a delay fee such as demurrage, or a storage fee to have the container stored at an appropriate facility till the documentation issue is resolved.
- Professional packing: A shipper using professional packing/unpacking services for their cargo would incur an incidental packaging charge. It’s always good to know beforehand if your cargo needs this special service and to budget for it.
- Ad-hoc labour services: Similarly, the requirement of certain services such as palletisation and repackaging would invite incidental labour charges.
- SOLAS VGM weighing and submission: The Safety of Life at Sea (SOLAS) guidelines make it mandatory for packed export containers to declare their verified gross mass (VGM, which is weight of empty container plus cargo weight, including packaging) prior to loading. The shipper may weigh the container at their own weighbridge, or at a third-party weighbridge or port/terminal for a fee. They must then submit the VGM declaration with the carrier, which charges a submission fee. While these are not incidental charges, cargo loss as a result of accidents caused by VGM non-compliance is a huge concern, resulting in financial losses and unforeseen expenses for all stakeholders, including the shipper.
While incidental charges might not always be easy to predict, preparing, planning and budgeting for them the best you can will save you trouble down the road.
If you found Part I on freight and customs-related incidental charges useful, watch out for Part II, which deals with unexpected costs related to transport and marine cargo insurance in the shipping process.
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