Air Cargo Pricing: No Simple Matter (page 3)

-- Logistics Management, 11/1/2005

Page 3 of 4
Even when airfreight forwarders are able to assure their customers that they will get space during peak seasons, their freight rates will still increase. "While we can lock up capacity for our customers, we cannot lock up price," Cutler observes. "Carriers are sophisticated and allow real, true market forces to dictate where the rates lie."

Because airlines generally charge more when demand for space is strong and reduce rates when they need to fill empty space, even the day of the week may impact pricing.

"In some cases, Mondays are very popular for cargo," says Mark Najarian, American Airlines vice president of cargo sales and marketing. "Interline carriers will bring aircraft from the Middle East to London to connect to our flights on Monday. They bring cargo in all weekend, so we have a high demand." In some other trade lanes, carriers may face low demand on Mondays because factories are closed for the weekend and most shipments were made on Saturday and Sunday.

In short, the economic and even the cultural conditions in a region often can affect pricing to a significant degree. "Our costs don't factor in as much as market conditions for a particular trade lane," observes Neel Shah, United Cargo vice president of sales and marketing.

Surcharges Add Up

In addition to base rates, surcharges are a fact of life for air cargo shippers. Surcharges, which can add a significant amount to a shipment's total cost, typically come into play in two circumstances: when the shipper requests services above and beyond those normally provided, or when variable costs have risen so much that service providers are compelled to pass some of those costs on to their customers.

Some surcharges are set by the airlines, usually in coordination with the International Air Transport Association (IATA), while others are established by the forwarders themselves. The most common surcharges include those for fuel, security, and dangerous goods.

The airline industry as a whole has been struggling to control costs as the price of jet fuel has risen dramatically in the past year. Like carriers in every other mode of transportation, airlines now assess a fuel surcharge to help cover some of that cost. Those surcharges rise or fall based on various jet-fuel price indices.

In early September, fuel surcharges for international shipments climbed to 50 cents per kilo for most airlines, and by mid-October, surcharges rose to 55 or 60 cents. At press time, fuel surcharges for domestic shipments hovered around 24 cents per pound. In addition, some freight forwarders are assessing a fuel surcharge based on diesel fuel prices for local pickup and delivery services.

After the terrorist attacks of Sept. 11, 2001, governments around the world imposed costly security requirements on the airfreight industry. That led carriers and forwarders to impose a security surcharge (sometimes referred to as "freight processing fees"). At press time, those charges were set at about 15 cents per kilo for international shipments and 6 cents per pound for domestic freight, with minimum charges per air waybill. Continued...

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