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Managing air cargo costs

Although the fluctuation of jet fuel surcharges and the supply/demand balance of air cargo capacity are elements that air shippers can’t control, there are several steps they can take to better manage the related, volatile costs.
By Karen E. Thuermer, Contributing Editor
June 01, 2011

Think outside the corral
Whereas many carriers use spoke and wheel networks where their aircraft fly to a central hub location, some are finding that direct routings that use the appropriate aircraft for the service needed are more cost effective. For example, Clancy suggests flying Shanghai to Port Columbus International Airport via Louisville International Airport using UPS instead of using main carriers via Chicago O’Hare (ORD). “In this routing, a 10 percent to 15 percent savings can be realized airport-to-airport,” Clancy says.

The best source for determining the most cost effective routings is the air freight forwarder. Through his or her carrier relationships and knowledge of the market, the forwarder can also marry air cargo with ground services.

For the ground portion of the air shipment, Clancy recommends using private, dedicated contract carriers (DCC) capacity versus forwarder or airline controlled road feeder services (RFS). “This can save as much as 10 percent to 60 percent on RFS delivery costs, depending on the empty capacity available,” says Clancy.

If a shipment is not time critical, there’s also the option to switch to two-or three-day air-freight delivery versus next day. “While next-day serves as the cornerstone of the air freight shipping business, customers should continuously evaluate its needs versus more economical air transportation alternatives,” Fried suggests. “These options often save significant costs while delivering similar value.”

A more drastic alternative: Challenge the reason for being in a specific geography. Are you there to serve the local market, or are you there for what used to be cheap labor? “Pull out the total landed costs models and crunch through them again, with higher labor and soaring fuel costs,” Andrews recommends. “You might be surprised at the bottom line answer. Perhaps Mexico, Canada, or the U.S. makes better sense.”

By near scouring products, companies are also able to enable surface modal substation options such as intermodal. And if certain global markets are critical, then alternative transportation modes might be a solution.

“Get off the plane and onto a ship, truck, or train,” says Andrews. Sea/air services in specific lanes can often strike a balance between price and total transit time. In fact, according to Clancy, savings here can result in 50 percent to 60 percent over airport-to-airport shipments.

An example might be shipping by ocean from China to Seattle, then air freight to Chicago. Even better, Clancy suggests, is expedited less-than container load (LCL) sea freight options like APL/Conway ocean guaranteed for shipments that are less urgent, but still need time-definite delivery. “Expedited LCL sea freight offers 65 percent to 75 percent savings,” Clancy estimates.

Gain visibility
If the corporate business model dictates that shipments must move by air, it’s critical that all variables be removed within your network to save on air freight costs, Andrews insists. 

“Improve your forecast accuracy,” says Andrews, “and hold your planning department accountable. Schedule exactly what space you’ll need, when you will need it, and hit the target,” he says. “Your carrier and forwarder will reward you with stable rates; and, in some cases, may even lower rates.”

Additionally, says Andrews, pay that transport provider on time. “Get creative and pay ahead of time. Cash flow is equally important for the carrier and forwarder.”

Another important consideration might be benchmarking with your third party freight payment company. By finding out how your air cargo service rates stack up against others will provide a wealth of ammunition for negotiating rates.

“You can find a treasure chest of market intelligence buried in the reams of freight invoices these guys pay on behalf of their clients,” Andrews says. “Obviously, they do not give out confidential client rate information, but they are smart enough to offer this as a value add service—and the costs certainly are worth the investment.”

In doing so, shippers can at least determine if they are above or below their industry curve in vertical and specific lanes.

About the Author

Karen E. Thuermer
Contributing Editor

Karen E. Thuermer is a frequent contributor to Logistics Management who hails from Alexandria, Va. She has been covering air cargo, logistics, and economic development for more than 20 years. Her articles have appeared in a host of trade journals as well as Forbes and the Financial Times. She can be reached at .(JavaScript must be enabled to view this email address).

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