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Fuel. It’s up 45% on one year ago, as you are no doubt acutely aware. And that’s a terrible thing. But, say air freight users, it’s the surcharge system that is doing the real damage.
The air cargo industry is in real danger of alienating itself from its customers as surcharges continue to rise. And customers, in this case, means both forwarders and shippers.
As surcharges go up every couple of weeks, and have now begun to break over the $1 per kilo mark, shippers are complaining that enough is enough. When the freight rate itself is 25 to 30 cents, a $1 surcharge “just makes a nonsense of it”.
“Our customers are beginning to say “stop, it’s not sustainable”,” says one forwarder. “They are now putting one shipment on air freight to get things started, and the rest on ocean.”
The growing trend in ocean freight towards LCLs (less-than-container loads) is helping shippers leave the air freight market. For shippers who want a ‘little and often’ service, the weekly sea freight offering from consolidators is allowing them to bypass the airlines altogether.
And it’s not just the shippers that are baulking at the surcharges. Another forwarder added: “The whole surcharge nonsense has got out of hand. We’re just bankers for the airline industry, collecting their money. If the rate is 20 cents, we make a small margin on that, but we are also having to collect $1 on top, which we don’t make a margin on. It’s a real frustration. The carriers should draw a line under the surcharge, reset the clock and go back to a baseline tariff which includes fuel. And why aren’t surcharges mileage driven? Why is it the same from JFK to LHR as from LAX to LHR?”
Sea carriers have a bunker adjustment, but the rates more accurately reflect costs, and they tend to have a more disciplined approach to general rate increases, which, say their customers, is a lot less annoying than surcharges.  
Forwarders, as they are very keen to point out at the moment, make up 80% of the airlines’ customer base. They feel, understandably, that should give them a voice. Instead, relations are starting to deteriorate again (see the latest spat between IATA and FIATA). One forwarder says that IATA has never had a cargo interest or function and has never added value to the industry. “It’s poor. The problem is the airlines are happy to let that happen. They don’t want to see forwarders get a voice in the industry.”

FIATA is now trying to be diplomatic. It told The Loadstar: “All we can say at the moment is that the dialogue with IATA is ongoing and we are optimistic that progress will be made. We’ll provide our members with an update at our World Congress.”
But on the ground, at an individual level, forwarders and airlines need to work it out. And it seems as if surcharges might be the catalyst.

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  • Ted

    April 10, 2011 at 11:57 pm

    Where do I start? Talking about a perennial topic, as predictable as day after night! I am trying to be truly fair here – gas station prices fluctuate all the time, driven by supply and demand, speculation, world events and so forth. Everybody grumbles and the effect on the economy is well known, but the tank gets filled or else we can't drive. What's different when it comes to aviation fuel? If we were to follow the suggestion made by the one forwarder that "…go back to a baseline tariff which includes fuel", it would seem the problem is the concept of a fuel surcharge when the market price goes up. Instead of fuel surcharges we'd have constantly fluctuating and far less manageable rates; how's that a good thing? Or is the implication the airlines should keep rates high year round to provision for when fuel costs escalate? I doubt the intellectual integrity of this approach. Then there is the statement that "..the freight rate itself is 25 to 30 cents, a $1 surcharge “just makes a nonsense of it”. No idea what is meant by that – fuel prices as a correlation of cargo rates? Since when or better, why? And then – and this for me takes the cake – is the disingenuous "..rate is 20 cents, we make a small margin on that, but we are also having to collect $1 on top, which we don’t make a margin on. It’s a real frustration." Well folks, if and when a forwarder elects to sign up to become an IATA Agent, the agreement spells out what it entails; if you don't like it, don't enter into this agreement, period, but please – stop whining afterwards. Whether a forwarder/agent collects $1 – $10 -$100, the effort is the same. Oh, but I get it, the real objection is not with the fuel surcharge; it appears forwarders could live with it if they only got a piece of the action. Get real! This is fundamental business issue between forwarders and airlines which could be addressed. The brouhaha between FIATA and IATA is between the Air Freight Institute and the IATA secretariat; it seems the airlines have no bone in that dog fight, strangely enough.