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Activity: Ocean Freight Rates

In this activity, you will calculate rates based on weight or measurement to garner the most revenue.

Ships have a fixed capacity with weights and dimensions. They are not like trucks or trains where you can quickly add on another piece of equipment or another run, or leave behind an excess piece of equipment on the return haul. The capacity of the ship that goes out is the same capacity that must return. This affects rates.

Ocean rates are quoted on specific commodities. There are no government defined Class Rates or Classification. Rates are figured on a W/M (Weight or Measurement) basis or on a flat rate per container. The W/M is a weight-to-the-size-of-the-cargo ratio, and whichever garners the most revenue is the one that will be used.

Here’s how it works:

• On most vessels the relationship is standardized in metric at one cubic meter per tonne; or in pounds – at 2,240 pounds which will take up 35.3 cubic feet of space.
• Let’s take the example of a commodity that is quoted at $30.00 W/M. The measurements are 240 cubic feet (found by multiplying length X width X height of the cargo) and the weight is 6,720 pounds.

Weight basis = weight X rate

2,204

or in this example: 6,720 X $30 = $90.00

2,204

Measurement basis = cubic feet X rate

35.3

or in this example: 240 X $30 = $203.97

35.3

The shipping company charges $203.97, which is the greater revenue.

Work out the following exercises and come up with an answer. Then, go to Quiz Module 11 Ocean Freight Rates where you will see the same questions and submit your answers. Compare the immediate feedback to how you worked out the answer. You have one hour to do this quiz but you only have one chance to do it – so be sure to have your answers ready when you begin the quiz.

Think about the relationship of cargo size to weight, and how this would affect a transport vehicle that sits on the water. What do you think is the purpose behind using W/M? (hint: if W/M was not used, what would happen if a ship was loaded as tight as possible with cargo without regard to weight?)

1. What would be the charge for this shipment?

Shipment is quoted at $17 W/M

weight is 2,428 pounds

dimensions are 8′ long, 10′ wide, 4′ high

1. What would be the charge for this shipment?

Shipment is quoted at $42 W/M

weight is 9,618 pounds

dimensions are 8′ feet long, 7′ wide, 7′ high

1. What would be the charge for this shipment?

Shipment is quoted at $30 W/M

weight is 4,213 kilos (Note: 1 kilo = 2.2 pounds)

dimensions are 10′ long, 4′ wide, 7′ high

1. You have received quotes from two different companies for a shipment that weighs 6,981 pounds and with dimensions of 6′ long, 5′ wide, 4′ high. As a shipper, what would you pay for this shipment?

QUOTE A: $46 W/M, pickup and delivery included

QUOTE B: $40 W/M, with additional charges of:

• Pickup – $35
• Delivery – $30

1. A shipment consists of three crates as follows:

• crate 1) weight -5,602 pounds; dimensions – 6′ X 5.5′ X 4.5′
• crate 2) weight – 6,011 pounds; dimensions – 10′ X 3′ X 3′
• crate 3) weight – 9,214 pounds; dimensions – 12′ X 4.5′ X 3′

You have received the two rate quotes below. All three crates must be charged by the same method – either by dimensions or by actual weight. What is the charge for this shipment?

QUOTE A: ship crates individually as less-than-container (LCL) which also means that each piece could conceivably be shipped in separate containers, at a rate of $62 W/M, with additional charges of $52 for pickup, and $86 for delivery for all three crates.

QUOTE B: ship all of them as one full container load (FCL) in a

container that is 20′ long, 8′ high and 8′ wide with a maximum allowable weight of 20,000 pounds. The cost is $804, with pickup and delivery included.