Freight Parities

Freight parity refers to a pricing principle that equates the cost of a commodity at a specific location to the cost of the same commodity at another location, plus or minus transportation costs. Parities are standard for refined metal contracts.

When contracts are configured, it is not always possible to know where the material is going to or coming from. Transport is not always well defined and transport costs associated with contracts are often unknown. Parities are charges or deductions made to compensate for different conditions when the destination (or origin) of a shipment changes.

Freight parities can be configured in the contract terms for individual contracts, or set up as global values using the Parity Editor.

There are two types of parities:

  1. Freight parities are intended to compensate for the difference in freight costs when the destination of a shipment changes. For example, copper cathodes with traders that are normally CIF (that is, the price includes freight costs) often specify a conventional port of destination: for example, Rotterdam-Parity. A table of freight differentials between the actual delivery ports and Rotterdam is used to retrieve the charge or deduction to be made for the concept of freight parity. The differentials are meant to represent actual freight market conditions and are usually published quarterly by the mining company.
  2. Premium parities are intended to represent the different conditions between the markets where the product would be delivered.

Parities are charged or deducted when the contractual origin or destination matches the parity specified. The contractual origin or destination referred to in the parity needs to be set up as a port location in the supply chain. The tendency is to have parities set up for the majority of ports. If another port is required for the actual destination, parities need to be entered for it.

If a specific parity is defined in the contract for the particular conditions of a shipment, it is used to determine the parity calculation for the invoice. Otherwise, the corresponding parity is searched for from the general parities entered. Note that there cannot be two destination parities for the same location: only one applies. The actual destination location is based on the final route point in the shipment.

A parity can have different time periods because parity rates change over time. The parity period to use is determined by the bill of lading date. If the bill of lading date is not yet defined (for example, when calculating a proforma or prepayment invoice), the planned departure date is used to determine the date period in which the parity should be calculated.

Note: Freight parities are only included in invoices if Apply Freight Parity is checked for the contractual invoice types in the applicable set of contract terms.

Example: Freight parity on final invoices for destinations out of the usual zone:

  • Ho Chi Minh: 18.00/t
  • Bangkok: 3.00/t
  • Mumbai: 40.00/t