Ocean Freight Surcharges Explained: BAF, CAF, LSS, THC

An ocean freight quote rarely stops at one number. The base rate for moving the container comes first, and then the surcharges and local charges stack up underneath it: BAF, CAF, LSS, THC, ISPS and more. This guide explains what each of these ocean freight surcharges pays for and who normally ends up paying it.

Who pays is mostly set by the Incoterms rule in your sales contract. There are 11 rules in Incoterms® 2020, and each one splits costs and risk between seller and buyer stage by stage. The Incoterms chart shows that split for every rule. That said, the party a carrier or freight forwarder actually invoices doesn’t always match the contract, so check at the quote stage which charges will land at destination.

Ocean freight (O/F): the base rate#

Ocean freight is what the carrier charges to move your cargo from the port of loading to the port of discharge. For FCL it is quoted per container. For LCL it is quoted per cubic meter or per 1,000 kg, whichever is greater. Every surcharge in this guide is billed on top of the base rate, not included in it.

Ocean freight is part of the main carriage. The seller pays it under CFR, CIF, CPT, CIP, DAP, DPU and DDP. The buyer pays it under EXW, FCA, FAS and FOB. To see the difference, compare CFR or CIF, where the seller pays, with FOB, where the buyer pays.

Bunker adjustment factor (BAF)#

The bunker adjustment factor (BAF) recovers changes in the price of bunker fuel, the fuel that powers the ship. Rather than reissue the whole tariff every time fuel moves, carriers adjust this one line on a regular cycle. Maersk defines its BAF as reflecting changes in the cost of fuel with 0.5% sulfur content.

How often BAF changes depends on the carrier. Hapag-Lloyd, for example, sets its Marine Fuel Recovery (MFR) charge quarterly, and each rate is valid for three months. Its Q3 2024 MFR, applied from July 1 to September 30, 2024, was based on fuel prices from February 16 to May 15, 2024, using two fuels: LSFO 0.5% at $647 per metric ton and LSFO 0.1% at $821 per metric ton.

Not every carrier calls it BAF. You may see FAF (fuel adjustment factor), BC (bunker charge), MFR (Hapag-Lloyd’s Marine Fuel Recovery) or BSC on a quote. They are essentially the same kind of charge.

BAF is part of the freight, so whoever pays the ocean freight pays BAF too.

Currency adjustment factor (CAF)#

The currency adjustment factor (CAF) covers the carrier’s exposure to exchange rates. Ocean freight is mostly quoted in US dollars, while port call costs are paid in local currency. CAF absorbs the gap when the two move apart.

Like BAF, CAF is billed as part of the total freight and follows whoever pays the ocean freight.

Low sulfur surcharge (LSS)#

The low sulfur surcharge (LSS) recovers the extra cost of burning low sulfur fuel. What it covers depends on the carrier, so don’t assume one line means the same thing everywhere:

• Some carriers introduced an LSS in 2020 to cover the IMO 2020 global sulfur cap of 0.50% m/m.
• At Maersk, BAF already reflects 0.5% fuel, and LSS covers only the added cost of 0.1% fuel for cargo moving through an emission control area (ECA). Maersk’s FFF charge, however, combines both fuels in one line.
• Hapag-Lloyd’s MFR doesn’t separate BAF and LSS at all. Both fuels feed into a single charge.

When you compare quotes from different carriers, compare BAF and LSS together, not line by line. LSS follows whoever pays the ocean freight.

Emergency bunker surcharge / peak season surcharge (EBS / PSS)#

The emergency bunker surcharge (EBS) is added when fuel prices jump faster than the regular BAF can absorb. It comes on top of BAF, not in place of it.

The peak season surcharge (PSS) has nothing to do with fuel. It is a seasonal fee applied on certain trades when volumes peak, for example in the run-up to Chinese New Year or ahead of the year-end retail season.

How much notice you get depends on the trade. On US trades, 46 CFR 520.8 says a new or increased rate or charge that raises costs for shippers can take effect no earlier than 30 calendar days after it is published in the carrier’s tariff. Decreases can take effect as soon as they are published. Charges outside the carrier’s control, such as terminal services the carrier collects on someone else’s behalf, can also take effect on publication, as long as the carrier passes them on at cost. On other trades, notice follows each carrier’s practice.

Both EBS and PSS follow whoever pays the ocean freight.

War risk surcharge (WRS)#

The war risk surcharge (WRS) recovers the extra war risk insurance premiums a carrier pays when its vessels call at or pass through high-risk waters. Those waters are defined by lists such as the Listed Areas of the Joint War Committee (JWC), which represents the London insurance market.

Carriers may also add an emergency charge for a specific region. Maersk’s ERS, for example, covers fuel for rerouting and higher speeds, insurance and extra security, and applies to bookings to, from or via the affected region. WRS generally follows whoever pays the ocean freight and is often charged as a flat amount per container.

Congestion surcharge#

A congestion surcharge recovers the extra vessel costs a carrier runs up when ships wait for a berth at a port that stays congested. Maersk bills it as separate origin (CFO) and destination (CFD) lines, applied to bookings through the congested port. These surcharges come and go with each congestion episode. Like other freight surcharges, they generally follow whoever pays the ocean freight.

Origin terminal handling charge (OTHC)#

The origin terminal handling charge (OTHC) pays for handling your container at the terminal in the port of loading: gate processing, moving it through the yard and loading it onto the vessel. It is a separate line from the base rate. Maersk calls it Terminal Handling Service Origin (OHC), and in some markets it is called CHC.

Following the Incoterms cost split, the seller pays OTHC under every rule except EXW and FAS, where the buyer pays. Under FOB, for example, the seller pays OTHC and the buyer pays the ocean freight. The FCA result in the chart assumes the goods are handed over at the origin terminal or beyond. If the named place is the seller’s own premises, the split can change, so check both the sales contract and the freight contract.

Destination terminal handling charge (DTHC)#

The destination terminal handling charge (DTHC) covers handling at the terminal in the port of discharge: unloading from the vessel, moving through the yard and out the gate. It is incurred before the container is released and picked up. Maersk calls it Terminal Handling Service Destination (DHC).

The seller pays DTHC under DAP, DPU and DDP. Under the other eight rules, the buyer pays. If you import on CFR or CIF, check whether destination THC is covered by the sales terms and the freight contract, because practice varies.

Documentation fee#

A documentation fee pays for preparing and processing shipping documents. You may see one at each end. Maersk, for example, bills an origin fee (ODF) for documents such as the bill of lading and a destination fee (DDF) for documents such as the delivery order.

The origin documentation fee is usually billed to whoever made the booking at origin, which is typically the shipper.

Seal fee#

Once the container is loaded, a seal is fitted to the doors. It shows whether the container was opened in transit. The seal fee may appear as a small separate charge, or it may be bundled into an origin service. Maersk’s Export Service, for instance, includes the “First Seal.” Some container freight station (CFS) operators bill it too. The shipper normally pays it as part of the origin charges.

Wharfage#

Wharfage is a charge assessed on cargo for using the wharf and waterfront facilities when it is loaded or discharged. The port authority levies it, so it is separate from the carrier’s THC. It is often billed per ton or per cubic meter and is a familiar line on US tariffs, but it isn’t limited to the US. Maersk lists a separate wharf infrastructure fee for Oceania, for example. Wharfage is normally paid by whoever covers costs at that end, origin or destination.

Delivery order (D/O) fee#

A delivery order (D/O) is the document that authorizes the terminal to release the container to your trucker. Without it, the container can’t be picked up, even after it has arrived. The D/O fee is charged by whoever issues it: the freight forwarder’s agent at destination, the NVOCC (non-vessel operating common carrier) or the freight forwarder itself. The consignee, as the buyer taking delivery, normally pays it.

Customs clearance fee#

A customs clearance fee is what a customs broker charges to prepare and file the customs declaration. It is not the same as the duties and taxes you pay to the government, which are billed separately.

Under Incoterms, the seller handles export clearance under every rule except EXW, where the buyer does it. On the import side, the buyer handles import clearance and pays duties and taxes under every rule except DDP, where the seller takes that on. The party responsible for import clearance is the importer of record (IOR).

Demurrage#

Demurrage applies when a loaded container stays inside the terminal beyond its free time. The clock stops once the container is picked up. It is usually paid by whoever is responsible for taking delivery, which for imports is typically the consignee.

Detention#

Detention applies once the container has left the terminal. If the empty isn’t returned within the free time, detention is charged for the extra days you keep the equipment. It is usually paid by whoever holds the container after pickup, typically the consignee.

For US shipments, 46 CFR Part 541 sets what a demurrage or detention invoice from an ocean carrier, marine terminal operator or NVOCC must include and the deadlines for issuing it. These rules took effect on May 28, 2024, and they also cover a daily charge (per diem) for equipment. Our guide on demurrage vs. detention covers both charges in more detail.

Verified Gross Mass (VGM)#

Under the amendment to SOLAS regulation VI/2 that came into force on July 1, 2016, the shipper must submit the Verified Gross Mass (VGM) of every packed container before it is loaded. A container without a VGM can be refused for loading, because submitting it is a condition of loading.

There are two ways to get the VGM:

1. Weigh the whole packed container.
2. Weigh all the cargo, packaging, pallets, dunnage and securing material, then add the container’s tare weight, using a certified method approved by the authorities in the country where the container was packed.

The shipper pays for weighing, calculating and submitting the VGM. For weight limits and how to declare, see our guide on container weight limits and VGM.

ISPS surcharge#

The ISPS Code (International Ship and Port Facility Security Code) sits under SOLAS chapter XI-2 and came into force on July 1, 2004. The ISPS surcharge, sometimes shown as a security surcharge, recovers the cost of complying with it: access control, screening and surveillance at the port.

Carriers often split it by end. Maersk, for example, bills Port Security Service Export at origin and Port Security Service Import at destination. The origin line is paid at origin and the destination line at destination, usually as a small flat fee per container or per shipment.

Who pays under each Incoterms rule#

This table shows who pays each stage under the cost split in our Incoterms chart. BAF, CAF, LSS, EBS and PSS travel with the ocean freight.

Treat this as the principle, not a guarantee of what lands on your invoice. The FCA origin terminal result depends on where the goods are handed over, and destination THC under CFR and CIF depends on your contracts. Billing also follows its own path. Whether freight is billed freight prepaid (paid at origin) or freight collect (paid at destination) is agreed separately, and on some trades, Korea–China among them, BAF, CAF and similar charges are often collected from the consignee even on C terms. Ask for a full list of destination charges before you accept a quote.

Charges that don’t map to a stage in the chart, such as documentation fees, seal fees, D/O fees, demurrage, detention and ISPS, are usually paid by the party at the end where they arise. Use the Incoterms chart to check the cost and risk split for all 11 rules.