Dead Freight In Shipping And Its Impact On Your Shipping Costs

An inch even matters in the world of logistics! The transportation process requires an accurate estimate of cargo that is to be shipped globally. Understanding dead freight is important; its causes and effects help businesses optimize logistics costs and avoid unnecessary fees.

Let’s say a company regularly ships 10 cupboards overseas. They book the space of these cupboards on a ship to transport their goods to a foreign market. However, due to some supply issues, this company was only able to send 7 cupboards when the shipping day arrived. Since they initially committed to filling 10 of these items, the shipping company was prepared for this amount and reserved space accordingly.

Now, because this company only used 7 of the 10 cupboard spaces, they still have to pay for the remaining 3 as well. This unused space fee is known as dead freight, which compensates the shipping company for the revenue they lose by not being able to use that space.

What is Dead Freight in Shipping?

The simple answer to the question of what dead freight is in shipping is that Dead freight is the charge imposed by a carrier that the shipper must pay if they fail to utilize the full space they reserved on a vessel. Dead Freight (DF) is a term used in shipping and logistics. This happens when the shipper’s commitment to transport a certain amount of cargo is not fulfilled due to any reason.

Shipping less than the agreed amount on last-minute or cancellations can lead to dead freight charges or late cancellation fees. In such cases, the shipper is required to pay for the unused space, which compensates the carrier for the potential loss of revenue that could have been earned by utilizing the space.

It’s like a penalty imposed on a consignee for failing the contract. This charge intends to offset the carrier’s forgone opportunities of not being able to fill up the manifest of the vessel.

Why Is it Called Dead Freight?

The term Dead freight represents its true meaning. The word “Dead” in this term means unused or wasted cargo space on a vessel that was initially reserved but ultimately went unfilled. Let’s explain this by using an example of dead freight, suppose Here’s a simple example:

Imagine you have a business in which you transport your goods internationally. You book a ship to transport 100 boxes to another destination. But on the moving day, you were unable to send the full 100 boxes of goods to be shipped for any reason. You have 70 boxes ready only out of 100 boxes. Since the shipping company reserved space for 100 boxes, which at your end couldn’t reach the contract. You will pay a fee which will be imposed by the shipping company as they could have used that space of 30 boxes to ship someone else’s cargo. This compensation fee will be called “dead freight.”

Modes of Dead freight

Dead freight applies to every shipping mode whether it’s sea freight, air freight, or land freight. The rules in each of them can be different from one another. For instance,

• In sea freight dead freight usually occurs when the cargo space is underutilized.
• In air freight, dead freight can occur if the weight of the cargo is more than what was booked.
• If the weight and space of the truck aren’t fully utilized then dead freight charges will be applied to land freight.

Causes of Dead Freight in Shipping

Dead freight is like a penalty, which someone has to pay because of certain reasons that the agreed terms were not fulfilled. The reasons for this penalty can be the following

1. Sometimes, consignee overestimate the amount of their goods that they have to ship, leaving part of the booked space of cargo unused.
2. When cargo is delayed or canceled at the last moment, and the booking was made beforehand, this also leads to dead freight charges.
3. Dead freight can also occur if the weight, size, and dimensions of the goods have not been correctly estimated and they fall short of the booked space.
4. Sometimes, when there is no proper communication between the shipper and carrier, it can result in discrepancies in the booking procedure, leading to dead freight.

Difference Between Dead Freight and Demurrage

Dead freight and Demurrage are not just two different terms but also have different meanings and purposes in the world of shipping. Dead freight is often mixed with demurrage, but they are two different concepts.

To understand the difference, let’s break down the difference like this: dead freight is a fee charged for unused booked space in a vessel. Whereas Demurrage is the fee charged when the shipper delays the shipment process beyond the time agreed, which can lead to the carrier’s waste of time.

How Dead Freight is Calculated?

Dead freight charges are generally calculated based on the difference between the reserved goods space and the actual cargo. This fee is usually the shipping rate for unused parts of the vessel. To calculate the dead freight fee, you can use this method or formula which is based on the difference in weight and the rate of agreed freight

• Dead freight = Difference x Agreed freight rate
• Dead freight = 2,000 MT x USD 25 per MT
• Dead freight = USD 50,000

Dead freight costs can be affected by several factors, including the type of merchandise, transportation distance, size of the cargo, weight of the vessel, and the terms outlined in the transportation contract. The exact amount may be agreed upon by negotiation or specified in the contract itself.

Impact of Dead Freight on Shippers

The economic burden of dead freight can be significant for shippers. This is mainly because they have to pay for the unused space. TEU Global gives efficient logistics planning and complete guidance to shippers to minimize dead freight costs.

This may result in increased transportation costs and increased profitability. Especially for small businesses, recurring events can strain the relationship between the shipper and the carrier. If these are not managed properly it may cause additional logistical problems in future shipments.

Legal and Contractual Aspects of Dead Freight

Dead freight is typically outlined in the contract or BOL (Bill of Lading) Number between the shipper and carrier. These documents detail the shipper’s obligations regarding the cargo quantity and outline the consequences of not meeting these obligations. A claim for dead freight can arise in cases where freight charges are earned based on the actual cargo being transported.

Enforcement of dead freight charges can vary by jurisdiction, but it is generally upheld as part of standard shipping practices. In case of disputes, both parties refer to the contract terms to resolve the issue. For a deeper understanding of related terms, check out our comparison of BOL vs PRO number.

How to avoid Dead Freight as a Shipper?

Every shipper tries to avoid dead freight as much as possible. For this, the best steps they can take are:

1. Measure the weight and size of the product before booking a place. This will prevent you from overbooking.
2. Meet with the carrier to customize your booking based on your shipping needs.
3. Contact the carrier and consignee. This will stop false bookings or surprise changes.
4. Keep an eye out for possible delays or cancellations. Make sure to inform the carrier as soon as possible to make adjustments.
5. Leverage logistics software to manage inventory and more accurately predict shipping needs.

Ensure Success Without Penalties

Loss in the logistics industry is common yet scary for many businesses. Penalties in freight forwarding might occur if complete knowledge of this industry is not there. Understanding the dead freight concept is key for shippers to control logistics costs.

To avoid unnecessary shipping costs shippers must be careful in evaluating their products. Not only this but maintaining open lines of communication with carriers and adopting good practices should also be focused on.