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PSS And FAF: Financial Considerations When Outsourcing Manufacturing To China

The sheer volume of products manufactured in China dictate only one feasible means of transportation: by sea. Large cargo vessels regularly sail across international waters to deliver goods from one country to another. Most of them dock along the ports of the Far East where they are loaded to capacity with every type of product imaginable. In an ideal scenario, they will be able to reach their destination on time, unload quickly, and carry on with their next assignment. Yet in reality, delays and other issues complicate matters leading shipping companies to impose additional fees to protect their interests.

The Peak Season Surcharge

The peak season for maritime freight typically starts in June and ends in November. During this period, there is a noticeable rise in shipments as businesses across the globe gear up for the holidays. The increase in the number of shipping containers arriving at the ports can cause major congestion. Sometimes the containers get stuck on the port or even the ships. This creates a lot of problems for everyone including the customs bureau, the port officials, and the businessmen waiting anxiously for their deliveries.

In order to reduce the annual congestion, a Peak Season Surcharge or PSS is imposed on all of the cargo coming in within the established timeframe. The higher cost of shipping is meant to encourage businesses to move some of their deliveries outside of the peak window. This surcharge evens out the schedule of ocean freights throughout the year to a certain extent, especially when it comes to products that are shipped as time-sensitive. The months leading up to the holidays are still incredibly busy, but the situation would be far worse without the PSS.

The Bunker Adjustment Factor

Modern cargo ships have a huge burden, both literally and figuratively. They have to carry tons of freight over oftentimes rough seas, keep every single one of the containers intact, and dock on their destination port at the appointed time. This job can only be accomplished if the ships are in excellent shape and have enough fuel to power their voyage. As everyone knows, fuel prices can be quite sensitive to a number of factors including supply, demand, politics and regional developments in the Gulf.

The Bunker Adjustment Factor or BAF is a variable that adjusts the freight rates of shipping companies in reaction to the volatility in global oil prices. If the supply of oil is limited due to high demand or trouble in the Middle East, then shipping rates will increase accordingly. On the other hand, an abundance of oil during peacetime and relative economic stability will result in lower rates. Using BAF is crucial in maintaining the profitability of the shipping industry. Sometimes the same thing is referred to as Fuel Adjustment Factor or FAF.

Outsourcing manufacturing to China affords companies substantial savings over the long run. However, the practice is not without its complexities. Interested parties should study these possible additions to the operational costs and plan accordingly to reduce their impact. ITI knows these shipping charges well and can help optimize your shipments from China to avoid them. Contact us today for more information on what these charges mean for your business.

By | 2017-03-09T14:25:24+00:00 November 25th, 2014|ITI News|

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