18 February 2023 • 12 min read
Shipping Surcharges: Transparent Costs for Smooth Operations
For a variety of reasons, shipping surcharges are added to shipments, and they can dramatically raise the cost of sending products both domestically and abroad.
It takes effort and in-depth understanding of the shipping sector to maintain continuing monitoring over shipping surcharges.
The numerous shipping surcharges levied by carriers are one of the main causes of the increase in shipping expenses. For a variety of reasons, shipping surcharges are added to shipments, and they can dramatically raise the cost of sending products both domestically and abroad.
Furthermore, there are differences in how each carrier applies surcharges, which increases the amount of information logistics managers need to keep in mind when they analyse their invoices. Shipping surcharges can take many different forms on invoices, but they are most frequently labelled as "service fees" or "handling costs."
A shipping surcharge is, at its most basic, a charge that is added on to the base cost of shipping goods. Therefore, using the terms "service fees" or "handling charges" to describe a shipping surcharge is ambiguous.
Types of Shipping Surcharges
1. Bunker Adjustment Factor (BAF) is a surcharge applied to shipping costs to cover the fluctuating cost of fuel. This fee is a result of the increasing cost of fuel, which is a major expense for shipping companies. The BAF is determined by the shipping company and considers factors such as changes in fuel prices, currency exchange rates, and fuel tax regulations. It is typically calculated as a percentage of the total shipping cost and is reviewed and adjusted regularly to reflect changes in fuel costs. The BAF is often passed on to the customer in the form of an additional charge on the invoice.
2. Low Sulphur Surcharge (LSS) is a fee applied to shipping costs to cover the increased cost of using low-sulphur fuel, which is required to meet environmental regulations. These regulations aim to reduce emissions from shipping, including sulphur dioxide emissions, which are harmful to the environment and human health. The LSS is calculated as a percentage of the total shipping cost and is determined by shipping companies based on the cost of low-sulphur fuel and the associated expenses of switching to this type of fuel. This surcharge is passed on to the customer in the form of an additional fee on the invoice.
3. Environmental Fuel Surcharge (EFS) is a fee applied to shipping costs to cover the increased cost of using fuels that are more environmentally friendly, such as low-sulphur fuels. The purpose of this surcharge is to offset the higher cost of these fuels, which are required to meet environmental regulations aimed at reducing emissions from shipping. The EFS is determined by shipping companies and is typically calculated as a percentage of the total shipping cost. This surcharge is passed on to the customer in the form of an additional fee on the invoice. The introduction of environmental regulations has resulted in increased costs for shipping companies, and the EFS is a way for these companies to recover some of these costs while ensuring that they are able to comply with environmental regulations.
4. Terminal Handling Surcharge (THC) is a fee charged by terminals for handling containers and ensuring their safe transfer from the ship to the terminal. This fee covers the cost of handling containers at the terminal, including loading and unloading containers, storage, and other related services. The THC is determined by the terminal operator and is typically passed on to the customer in the form of an additional fee on the invoice. The purpose of the THC is to recover some of the costs associated with handling containers at the terminal, which can be significant due to the increasing volume of shipping traffic. Shipping companies often include the THC in their quotes to customers, making it a transparent part of the overall shipping cost.
5. Oversize Surcharge (OSC) is an additional fee charged for shipping large or overweight packages that require special handling. This fee covers the additional cost of handling and transporting larger or heavier packages, which can be more difficult to handle than standard-sized packages. The OSC is typically calculated as a percentage of the total shipping cost and is determined by the shipping company. This surcharge is passed on to the customer in the form of an additional fee on the invoice. The purpose of the OSC is to ensure that shipping companies can recover some of the additional costs associated with handling oversize packages, which can include the need for special equipment, additional handling time, and increased risk of damage during transit.
6. Peak Season Surcharge (PSS) is an additional fee imposed during high-demand periods, such as holidays, to cover increased costs associated with increased shipping volume. During peak season, shipping companies experience increased demand for their services, which can result in increased costs such as higher wages for workers, longer transit times, and increased fuel costs. The PSS is determined by shipping companies and is typically calculated as a percentage of the total shipping cost. This surcharge is passed on to the customer in the form of an additional fee on the invoice. The purpose of the PSS is to ensure that shipping companies can recover some of their additional costs during peak season, when demand for shipping services is higher and costs are also higher.
7. Accessorial Surcharge is an additional fee applied to shipping costs to cover the cost of services beyond basic transportation, such as special handling, packaging, and delivery services. Accessorial charges are additional services that go beyond the standard pickup, transport, and delivery of a package. Examples of accessorial services include residential delivery, signature confirmation, and lift gate service. The accessorial surcharge is determined by the shipping company and is typically calculated as a percentage of the total shipping cost. This surcharge is passed on to the customer in the form of an additional fee on the invoice. The purpose of the accessorial surcharge is to ensure that shipping companies can recover the additional costs associated with providing accessorial services, which can be more time-consuming and complex than basic transportation services.
How to Lessen or Avoid Shipping Surcharges
The amount of money shippers pay on shipping surcharges can be decreased in a few different ways. Gaining a better grasp of how shipping surcharges are affecting their shipping costs and what options are available that might have decreased or eliminated surcharges is one of the most beneficial things shippers can do.
a. Consolidate Your Parcels: In your order management system, you can combine the items from various orders submitted by the same customer and dispatch them in a single box. Delivering a single box is less expensive than sending multiple packages while still meeting carrier requirements. It may enable you to save money on shipping. It will help you maximise supply chain logistics by saving money and reducing transportation costs.
b. Keep Up with Terms, Fees, and Procedures: To avoid paying exorbitant shipping fees, shippers must carefully consider how to convey their goods. To avoid inflated shipping surcharges and freight costs, several factors may be changed and adjusted. This includes avoiding charges and taxes associated with bulky items or special delivery routes and drop-off locations. If shippers are aware of their possibilities, they may be able to handle orders and arrange routes more effectively. Budget allocation can be made simpler by determining which factors directly affect costs.
c. Audit Bills Thoroughly: Utilize an efficient invoice auditing process to make sure your carrier offers the service levels you pay for. Errors with invoice surcharges might significantly increase shipping costs, which would affect your revenue. Use an invoice auditing application to look for flaws and inconsistencies in your shipping bills so you can better control your shipping expenses.
Shipping Surcharges: Final Word
Keeping track of this information is one of the biggest problems that shippers encounter. Rates for shipping surcharges constantly vary. Private carriers must pay weekly fuel surcharges, while other levies are normally revised every year or every two years.