Dead Space Charges: How to Avoid Them When Packing Your Cargo
March 31, 2023 Uncategorized
Shipping goods from one location to another is a crucial aspect of international trade. However, cargo space on a vessel or aircraft can be limited, and shippers may not be able to fill the space completely.
As a result, shippers or charterers may have to pay a dead space charge, also known as dead freight, to compensate the carrier or shipowner for the unused space. This is one of the many costs of shipment that businesses must take into account when formulating a shipping strategy.
In this article, we will discuss what dead freight is, how it occurs, how it is charged, and strategies you can implement in your organisation to avoid these charges (or minimise them as much as possible).
What is dead freight (in logistics)?
Dead freight is a concept in shipping and logistics that refers to a payment a shipper or charterer makes to the carrier or shipowner for not completely using up agreed cargo space.
Simply put, dead freight charges arise when a shipper or charterer books cargo space on a vessel or aircraft but fails to use it, resulting in unused cargo space that could have been filled by other cargo. The unused cargo space is referred to as dead space, and the charge levied to compensate for it is called dead freight.
Dead freight charges are a significant concern for shippers and charterers because they can significantly increase the cost of shipping.
How dead space arises
Dead space occurs when the volume or weight of cargo shipped is less than the space or weight capacity of the vessel or aircraft. This is made possible due to a number of key reasons.
Cargo cannot be stacked
One of the primary reasons for dead space in shipping is shipping cargo that, unfortunately, cannot be stacked in the first place due to its size, shape, or weight. For example, machinery or equipment that cannot be disassembled may take up a large amount of space on a vessel or aircraft, leaving unused cargo space.
Similarly, oversized or irregularly shaped cargo may be difficult to stack, leading to dead space.
Incorrectly packaged cargo
Another reason for dead space in shipping is incorrectly packaged cargo. If cargo is not packaged in a way that allows for efficient use of space, dead space may result. For example, if cargo is not properly palletised, it may be difficult to stack, resulting in dead space.
Further, if cargo is packaged in a way that leaves empty spaces or gaps between items, this can lead to dead space.
Poor cargo planning
A third reason for dead space in shipping is poor cargo planning. If shippers or charterers do not accurately estimate the amount of cargo they need to transport or do not plan shipments efficiently, this can result in dead space.
For example, if a shipper books cargo space on a vessel or aircraft but fails to fill it, this may result in unused cargo space and dead freight charges. Similarly, if a charterer overestimates the amount of cargo they need to transport, they may book more cargo space than they need, resulting in dead space.
A lot of the time, something might happen that a shipper does not expect, resulting in the creation of dead space. For example:
- A shipper might face production issues and cannot ship the amount of cargo they agreed to ship,
- A business needs more loading time due to delays, but loading time extensions cannot be granted,
- Cargo gets damaged, and so cannot be shipped, or
- A container terminal may have insufficient or improper loading equipment.
How dead freight is charged
There are a number of different ways that dead freight is charged. It will often depend on the type of cargo that is being shipped.
For containerised cargo, carriers will usually calculate the cost of dead freight as:
Minimum quantity commitment – actual consumption (also known as total shipping volume)
For break bulk and charter cargo, shippers will add terms and conditions to a specific charter party stating that dead freight costs arise when there is a difference between agreed volume or weight of the unused space.
For example, if a ship has a capacity of 10,000 cubic meters and a shipper only fills 8,000 cubic meters, the shipper may have to pay a dead freight charge for the unused 2,000 cubic meters. The dead freight rate will be based on how many containers cannot be placed beside or above.
If the freight is breakbulk, the space that cannot be utilised on the deck or in the hull due to an oversized or heavy shipment may result in dead freight. This dead freight can be measured by pallets spaces, or otherwise bays that cannot be utilised.
There are two surcharges often levied as a result of dead freight – known as overlength surcharges and density surcharges.
In addition to the standard dead freight charge, shippers may also be subject to an overlength surcharge for pieces of freight over 3 meters in length. This charge is typically applied to less-than-container-load (LCL) shipments and may vary depending on the country of origin and destination.
For example, some carriers in Australia may charge an overlength surcharge for imports and exports, especially for transshipment from Europe.
Shippers may also be subject to a density surcharge for shipments with a high density, typically over 1,000 kilograms per cubic meter.
This charge is also typically applied to LCL shipments and may vary depending on the carrier. For example, some carriers may charge a density surcharge for both imports and exports.
Example: Dead freight charge calculation
Suppose a shipper agrees to transport 100 cubic meters of goods on a vessel with a capacity of 200 cubic meters. However, due to space restrictions and cargo limitations, the shipper only uses 80 cubic meters of space.
The dead freight charge would be calculated as follows:
Unused space = 200 cubic meters – 80 cubic meters = 120 cubic meters
Dead freight charge = unused space x freight rate per cubic metre
If the freight rate per cubic meter is $100, the dead freight charge would be:
Dead freight charge = 120 cubic meters x $100/cubic meter = $12,000
How to avoid dead space charges
Dead space charges can be a significant expense for shippers and charterers when they are not able to fully utilise the cargo space on a vessel or aircraft. However, there are several strategies that shippers can use to avoid dead space charges.
1. Consolidate shipments
One of the most effective ways to avoid dead space charges is to consolidate shipments with other shippers.
By combining shipments with other persons also transporting cargo, shippers can maximise the use of cargo space and reduce the likelihood of dead space. This can be achieved by partnering with other shippers or by working with a freight forwarder who specialises in consolidation.
2. Convert your consignment to a stackable pallet
Converting your consignment to a stackable pallet is another effective strategy to avoid dead space charges. Stackable pallets are designed to be easily and efficiently stacked (hence their name), allowing for maximum use of cargo space.
To convert your consignment to a stackable pallet, you will need to properly package your cargo and secure it to the pallet. This may require:
- Stacking your cargo in even columns,
- Ensuring the items don’t hang over the pallet’s edge,
- Making sure that you have a flat and level surface at the top (to support further stacking),
- Using shrink wrap, stretch film, or straps to hold your cargo in place on the pallet, and
- Using pallet collars or dividers to separate your cargo and prevent shifting during transport.
3. Upgrade to a Full Container Load Shipment
Upgrading to a full container load (FCL) shipment can help shippers avoid dead space charges. FCL shipments are typically more cost-effective than less-than-container-load (LCL) shipments, and they allow shippers to use the entire cargo space of a container.
By using an entire container, shippers are much more likely to avoid the risk of dead space and reduce their shipping costs.
4. Optimise cargo packaging
Cargo packaging is another important factor that can affect the amount of dead space on a vessel or aircraft. Shippers should ensure that their cargo is packaged efficiently to maximise the use of their space. This can include:
- using lightweight and durable packaging materials,
- avoiding overpacking, and
- properly securing cargo to prevent damage during transit.
5. Engage a freight forwarder to help reduce costs
Shippers can also engage a freight forwarder to help them reduce costs and avoid dead space charges. A freight forwarder is a specialist in logistics and shipping, and can pack cargo for the shipper or provide tailored advice on correct methods of packaging, helping a business ensure that it is packaged efficiently and securely.
Freight forwarders can also provide advice on the most cost-effective shipping options, including information about consolidation and FCL shipments.
Looking for a freight forwarder to help you minimise dead space?
At International Cargo Express, we can help clients reduce costs and avoid dead space charges by providing expert advice on how to pack cargo correctly. ICE has a team of trained professionals who can assist clients in packing their cargo in a way that maximises the use of cargo space and minimises the risk of dead space.
With our help, clients can ensure that their cargo is packaged and secured correctly, reducing the risk of damage during transit and avoiding dead space charges.
Get in touch with our team at ICE right here, or by giving us a call. We have offices all around Australia and are ready to help in any way we can.REQUEST A QUOTE
or call us on 1300 227 461
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