Everything you need to know about Ad Valorem
Ad Valorem is a fee charged by the carriers at the time they present the freight amounts.
This fee, also known as the Freight Rate, is intended to cover the value of the goods while they are under the carrier's responsibility.
Regardless of the mode chosen to transport goods, the fact is that thefts, robberies, accidents, and other incidents occur that can result in loss of products, such as
- breakage,
- scratches,
- abrasion,
- marks,
- color changes,
- stains, etc.
Given these hypotheses, it is very likely that the buyer of these products will not want to receive them and will return them to the supplier, generating losses.
According to the Brazilian law, the responsibility of the cargo during its displacement is the responsibility of the company contracted to carry out transportation, hence the application of the Ad Valorem, a way to mitigate the losses and guarantee the insurance of the goods.
Want to know the details? Keep reading our post and check it out!
What is Ad Valorem and how does it work?
Ad Valorem is a percentage charged on the value of the goods to be transported, with the purpose of paying the cargo insurance during the time that it is under the responsibility of the company responsible for transportation.
Therefore, it is one of the items that is part of the logistics costs and is charged to the company that orders the service.
To get an idea of the need for this fee, a study conducted by the National Association of Cargo Transport and Logistics (NTC&Logística) showed that in 2022, there were 13,089 records of cargo theft in Brazil.
According to the Association, the losses amounted to more than R$ 1.2 billion.
Faced with this reality, carriers minimize the situation by purchasing insurance and passing the cost on to customers who must provide these services.
How can Ad Valorem be calculated?
As already mentioned, Ad Valorem is an index calculated on the value of the goods to be shipped.
To perform its calculation, some variables that can increase or decrease this value are considered, such as:
- very heavy loads are less at risk of being stolen,
- fragility of goods,
- distance to be covered,
- characteristics of the collection and delivery region.
Furthermore, NTC&Logística presents a table that can be used as a parameter for the collection of the Ad Valorem, where a percentage between 0.30% and 1.20% must be applied to the value of the invoice.
These percentages are based on the distance between the collection and delivery of the goods.
Why is it important to have the CIF value of the cargo at the time of quotation?
Companies wishing to sell their products can opt for CIF or FOB freight.
CIF means that the shipper is responsible for the cost of transporting the goods until the goods are delivered to the buyer.
The FOB freight option is used when the responsibility for the cost of transportation rests with the party purchasing the products.
Offering the CIF option can make all the difference in a negotiation where the value of the goods includes all expenses (taxes, insurance, duties and freight) so there are no other costs to factor into the operation.
Typically, customers are more willing to pay the amount corresponding to the materials purchased and delivered to their facilities.
For CIF freight, it is important for the company to have the exact value in hand at the time of quotation, so that a more accurate estimate of transportation costs can be made, from pick-up (already considering ad valorem) to international transportation.
This allows freight forwarders and trucking companies to be more accurate and avoid additional Ad Valorem charges after the load is closed.
As a result, there is more predictability in processes and more profitability for the operation in general.
If you still have questions in this regard, please contact AMTRANS for details. We are ready to help you find the best logistics solutions for your business with the foreign market!
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