Most coffee contracts are FOB - the receivers pay
the freight. Receivers prefer this because they can negotiate rates of freight
which individual exporters or producing countries may be unable to obtain. For
this reason bills of lading do not always indicate the freight charge, or simply
state freight as per agreement.
As they are liable to pay the freight, receivers
consider that they should also negotiate the rates (and argue, indirectly, that
they are in fact better placed to do so). This may be so, but whenever the
freight from a particular port increases buyers adjust their cost calculation
for the origin in question as they calculate the cost of all coffee on the basis
landed port or roasting plant of destination.
If the freight rate from a particular country increases, the prices bid for
coffee from that origin (the differential) will eventually compensate for this
if freights from comparable origins have not also risen. This because the market
compares like with like, that is, the landed cost. Ultimately therefore it is
the producers who pay the freight charges. However, without the present
arrangements some freight rates would likely be higher. (See also 05,
Logistics.)
Terminal handling charges (THC) are an
important part of container transport costs and can vary considerably between
shipping lines, sometimes to the point where an apparently attractive rate of
freight is in fact not attractive at all. Shippers should keep themselves
informed of the THC raised directly or indirectly by individual shipping lines
at the ports they load from as they can face unexpected costs if buyers specify
a line whose freight is low (buyers' advantage) but whose THC are high
(shippers' disadvantage).