Air Cargo Pricing: No Simple Matter (page 2)

-- Logistics Management, 11/1/2005

Page 2 of 4
Whether direct service is called for depends on the nature of the goods and on their handling requirements. "Shippers don't often send cargo direct unless the shipment is an emergency, perishable, or something such as hazardous materials," explains Robert Imbriani, vice president for international development at Team Worldwide/Team Air Express. "Shippers have no other option but to send these shipments direct."

Many other commodities are eligible for consolidations, in which forwarders collect and unitize several customers' shipments before tendering them to carriers. Because the forwarders aggregate large volumes of cargo, they usually can negotiate lower freight rates—and pass on the savings to their customers.

"Consolidated allows us to take a number of shipments and bunch them together, which helps us drive down our buy rates and makes it possible for us to offer competitive rates and services to our clients," explains Cocci.

Although rates for consolidated shipments are considerably less than for the direct option, shippers need to keep in mind that there is a cost for deconsolidation as well. "The shipper does not always realize there's a $45 to $50 charge on the other side to take the shipment apart," Imbriani notes.

How frequently freight forwarders move their consolidations depends on the destination as well as on the forwarder's ability to receive enough volume at the right times. Consolidations may ship out daily for popular destinations like London, but may be only weekly (or even less frequent) for other locations.

If a forwarder is unable to complete a consolidation in time for a flight or if the cargo is bumped for some reason, the consolidation will have to wait for another flight. However, if the forwarder only ships cargo to a particular destination once a week, the delay could last several days.

Sometimes, though, consolidations may get out even faster than direct shipments, especially during heavy-volume seasons, Imbriani says. "In that case, there may be no space available for a direct shipment because a forwarder has blocked all of the space on the flight. Consolidated and pre-booked freight has less of a chance of being bumped than do individual shipments," he says.

The Importance of Timing

When it comes to air cargo pricing, timing can be just as important as size and weight. In fact, freight rates are affected by whether a shipment is made during the low, shoulder, or peak demand periods of a quarter.

"In any quarter, we can see an evolution of price, depending upon demand in a particular trade lane," says Hugh Cutler, president of the Air Transport Unit of BDP International, a Philadelphia-based international logistics company. "The price may jump because of a sudden spike in the market, or it might stay in any one of those three areas because of demand."

For example, prices traditionally peak after Labor Day, when shippers import more products by air to meet Christmas-season demand. On some high-volume trade lanes, such as China to North America, the peak season now begins as early as June or July. Long peak seasons for freight coming out of Asia create a shortage of capacity, while outbound flights from the United States and Europe to Asia may suffer from overcapacity.  Continued...

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