Shipping Review

The amount that the carrier (e.g. shipowner or

charterer) charges for transporting cargo overseas is

known as the freight rate. In addition to the freight rate,

a carrier may levy other charges, such as BAF, CAF

and THC,1 war risk premiums, piracy surcharges, a

container sealing fee, an electronic release of cargo

fee, and late fees (e.g. for late collection of a bill of

lading, or late issuance of shipping instructions).2, 3

Freight rates can be obtained through an agent or a

shipbroker. In some cases, such as in the liner sector,

notice of freight rates has traditionally been published

in newspapers. Today, the internet is the preferred

medium. Some shipbrokers also calculate, maintain

and publish indices together with historical data to give

an indication of how the market is performing. Each

segment of the market (e.g. tanker, bulk, containers

etc.) has it own characteristics and is influenced by

different factors. In the bulk cargo market, vessels

are usually chartered for a specific period of time or

for a particular voyage. Rates for time charters will be

different from voyage charters, with the former more

focused on the long-term trend. In general, freight

rates are affected by the supply of vessels and by the

demand for the goods being carried. Thus, transport

services are a derived demand (that is to say, it is not

the transport service per se that is demanded, but the

good that is being moved). The number of competitors,

the availability of alternative transport modes, and

short-term fluctuations in demand and supply will also

have an effect on prices. Most manufactured goods

are shipped by container vessels, and competition

for transport is high. When there is no demand for

manufactured goods, these vessels may sometimes

carry alternative cargoes, such as scrap goods for

recycling. However, oil can only be shipped in tankers

(pipelines excepted), and therefore wild fluctuations

in freight rates can occur. Other...