What affects delivery costs (and how to minimize them in 2023)

With rising rates brought on by the COVID-19 pandemic, freight costs are taking center stage in the freight and logistics industry. Businesses of all sizes are working around the clock to reduce costs in an ever-changing market.

Below we will take a closer look at what affects the cost of transportation and analyze how it can be reduced in 2023.

What affects delivery costs?

Factors influencing the cost of shipping goods from China are varied and include:

• Weight and dimensions of packaging
• Distance
• Delays postponing transportation to the next billing period
• Storage costs
• Port surcharges
• Costs, duties and taxes
• Biosafety inspections and quarantine
• Driver demurrage
• Container detention
• Useless trips

We’ve detailed each of these aspects below to help importers understand why their shipping costs may be higher than they originally expected.

Weight and dimensions of packaging

The main factor influencing the cost of delivery is the weight and dimensions of the parcels being sent. The larger and heavier the package, the more you will have to pay.

Obviously, the size of the load does not depend on you.

But you can use different types of packaging to keep your costs minimal. The package size must be large enough to securely contain the shipment, but tight enough so that shipping costs do not increase unnecessarily. More compact packaging also protects the cargo from vibrations that can cause damage.

Distance

Another factor influencing the cost of transportation is the distance between the port of departure and the final destination. Typically, the further away the package, the higher the shipping cost.

It is clear that the distance between two different ports cannot be determined.

However, there are many ways to transport goods, each of which involves different cost options - be it transshipment, cross-trading, coastal shipping or air transportation. Therefore, it is very important to take all this into account in order to ensure the most cost-effective transportation of goods.

Delays postpone cargo transportation to the next billing period

Currently, freight rates change every two weeks and invoices are issued according to the actual time of shipment.

For example, a shipment may be scheduled for August 25th and then rescheduled for September 2nd. This change is significant because it means that a new freight charge will be charged in the new billing period.

This may be difficult to predict in a market where increased congestion causes significant delays in transportation.

Storage costs in case of vessel delay

If cargo is delayed, it may need to be stored at a container terminal. This occurs when the cargo is packed in a Full Container Load (FCL).

The cargo will remain in the warehouse until the ship accepts the containers for transportation. Unfortunately, these costs are usually borne by the importer or exporter.

The likelihood of the vessel being delayed increases. Reliability of adherence to schedules is currently 36% worldwide. Although, according to Sea Intelligence, in May 2021 the most reliable carrier out of the top 14 was Maersk Line (schedule reliability was 46.2%). ZIM, Hapag-Lloyd and Hamburg-Sud had schedule reliability above 40%, while six other carriers (including MSC and CMA CGM) were in the 30%-40% range.

Currently, it is extremely difficult to predict with certainty when and whether your shipment will be shipped on time.

Port congestion surcharges

As a result of unexpected delays and growing port congestion, carriers began requiring importers to pay fees known as “congestion surcharges.”

In Australia, container surcharges were prompted by a strike in September 2020. The Australian Seafarers’ Union has gone on strike at several ports, delaying cargo and slowing unloading vessels.

This has forced several shipping companies to pass on costs to importers and exporters by introducing “congestion charges.”

This trend continues today. For example, in July 2021, Hapag-Lloyd announced the introduction of a transshipment fee of $5,000 per FEU or $4,000 per TEU for spot freight from China to the United States and Canada.

We don’t expect these fees to go away anytime soon. In July, the MUA announced the start of a new series of strikes in 2021 against the shipping company Svitzer. We are talking about three work stoppages in Melbourne and Westernpoint with a total duration of 12 hours.

Fifty cargo and container ships are anchored near the port amid a global shipping congestion crisis, aerial view.

Costs, duties and taxes

One of the most difficult tasks when transporting goods is understanding what customs duties and fees must be paid at any given time.

Different government agencies around the world levy different taxes. For example, China imposes value added tax and consumption tax on goods shipped there.

But there are also some tricks. For example, even if you are charged customs duty in Australia, there are ways to get it refunded.

Talk to your freight forwarder to see what you can do to minimize your liability in this area.

Customs or quarantine inspection

Unfortunately, as the importer, you are responsible for paying all costs associated with the inspection. If your goods have been selected at random and your consignment meets all biosafety requirements, you will usually not be charged. If your goods are sent for processing, you will have to bear all associated costs.

Common forms of biosecurity control are inspection, treatment, isolation, holding until further information is available, or insect identification. Investigations are also conducted when suspected violations are identified.

In 2017, Department and ABF staff examined a shipment of prawns in Melbourne and discovered they were contaminated with white spot disease. The shipper, EB Ocean, swapped the shrimp for clean ones to avoid quarantine checks. The company pleaded guilty to offenses under the Biosecurity Act and was fined $80,000 in 2019.

In 2020, a Tasmanian gym enthusiast was also fined $20,000 after ABF discovered he was importing large quantities of steroids into Australia from Malaysia. He was found to have ampoules containing oxandrolone, stanozolol and nandrolone decanoate. He was found guilty of importing prohibited goods in violation of the Customs Act 1901.

Demurrage of the driver at the point of departure or destination

Transport companies and drivers transporting containers and LCL (Less than Container Load) cargo typically have to wait while their containers are loaded and unloaded.

Most truck drivers allow 1-2 hours of free waiting time to pick up a full container and 1-2 hours to unload a full container.

But after that time, they start charging for additional time at a prorated hourly rate - a waiting charge. This phenomenon is known as "driver demurrage" or "driver delay".

As an importer, you must work closely with the freight forwarder to ensure that you have all resources in place and ready to pack or unpack your shipment as quickly as possible.

Useless trips

A wasted trip is a trip that has taken place, but for one reason or another cannot be fully completed, making it “useless.”

An example of a useless trip would be a situation when a driver goes to deliver cargo, but he is not there. The trip took place but was not completed.

In this case, the importer is invoiced for the cost of the unsuccessful trip, and the driver delivers the goods again.

Container detention

Container detention refers to a fee for storing a container for a certain time after its arrival.

If you are importing a full container load (FCL), you typically have a certain amount of time (usually 7 days) to store the container. However, you can apply in advance to increase this time.

This period allows you or your forwarder to pick up the cargo, deliver it to the site, unload it and then return the container to the pier.

Rates after 7 days of free time vary depending on the shipping line. Typically, you can expect to pay between $150 and $300 per container per day.

Detention and demurrage (D&D) fees have doubled in 2021, according to a recent report published by Container xChange. The average fee for container detention and demurrage at the world’s largest container ports was $720.