The Index for global air freight prices has been upped more than 30 points in 2014, compared to its base year of 2010. But while the debate pro and con all-in prices heats up market analysts point out that administering fuel surcharges has long turned into a nightmare for shippers and forwarding agents.
Hong Kong-based AAA Advisory (“Triple A”) published in its recent monthly Fuel Surcharges Monitor that shippers paid in 2014 on average 41.7 points higher fuel surcharges globally than back in 2010. Different to the average freight rates that have been eroded since then by minus 4.2 points, the increasing fuel surcharges caused an overall “all-in price” increase in 2014 of 32.3 points for the shippers of global airfreight goods.
Tip of the iceberg
“And this is only the tip of the iceberg, because of the changing billing method from charging the actual shipment weight to now charging the dimensional weight as most recently introduced in Japan and in South Korea varies by country, market and carrier,” said Dirk Steiger, CEO of Triple A.
“Some of our clients, in particular shippers of light weight but large packaging hi-tech commodities or pharmaceutical goods that cannot be co-loaded in a consolidation, have been hit even harder than the above figures indicate,” Steiger stated. “While in the past forwarders have been able to move urgent shipments as direct loads at attractive prices, there’s now often no more real alternatives to consolidated shipments to retain pricing on a reasonable level, but bearing all the known risks such as longer time in transit, etc.” “There are still plenty of tons of air freight every single day where the value of the goods does not necessarily justify the high expenses of air freight shipping plus an extra from too high surcharges, but this volume is needed by the air carriers and capacity providers to keep their massive capacity filled up reasonably.”
Extra source of income
It shouldn’t be forgotten that the FSC was historically introduced to help air carriers to manage the crazy and almost overnight increasing costs for fuelling/re-fuelling their aircraft. “But we are noticing for quite a while that there’s no more real correlation between the price for crude oil or jet fuel and the surcharges.” Moreover, it looks that there are several carriers that are using these surcharges (FSC plus SSC) as an extra source of income, enabling them to offer more competitive spot freight rates, suspects the market analyst.
On top, the administration has become extremely difficult because surcharges are different in almost any market, by currency, by distance, by carrier and whether price per kilogram is charged on actual or dimensional weight. “For a large multinational shipper (as well as their freight forwarders), the administration has become a true nightmare, resulting in the fact that these shippers are looking more and more for alternatives”. Of course, forwarders have tried to be as creative as possible in continuing long-term fixed-price contracts but this will become increasingly difficult for them. Maybe the task of Emirates will now set a trend in going back to so-called “all-in prices”. However, so far it’s uncertain if most of the other cargo carriers are planning to follow suit, willing to change their current pricing models to become more transparent and consumer friendly.”
The Fuel Surcharges Monitor (FSC.M) is published since 2008, covering approx. 90 per cent of all global airfreight traffic conveniently in single currency and aggregated onto 27 key trade lanes. It helps to find suitable and easy-to-administer arrangements for frequent airfreight shippers and their service providers. The publication is updated monthly and widely supported by major forwarders. For further details contact firstname.lastname@example.org