Introduction To Air Freight Cost Factors
Air freight is expensive. There is no second opinion to that statement. Expensive is not the only adjective that can be applied to this mode of transport, quick is another term that can be aptly used. Air freight cost factors are quite a few.
In a fast moving economy, helping the freight to reach the consignee is not the only point to be kept in view. It is equally important not to lose sight of the costs involved.
Transport, handling, documentation, customs formalities are all points that belong to the costing area.
Factors To Consider
Before starting to evaluate air freight cost, it is important to consider a few other important points. How urgent is the order? This is the first question to answer. Any delay in transit might result in your losing your client. Time and urgency are two inter-dependent factors. When it comes to air freight and speed, do not compromise on quality. Many think, losing one customer is not going to ruin a business. The truth is, every single customer is important. Before we go on to the air freight calculation process, let us consider a few points
- Time bound delivery stipulated?
- First order from the client?
- Size of the freight
Calculation: Air Freight Elements
Volume
Air freight rates are charged on the space occupied by the cargo. The volume is calculated in meters by multiplying the length, width and the height. The result is then multiplied by 166.6666 (do not round off this figure). After the multiplication, the result is either
- kept as it is (e.g. 125.00 is kept unchanged)
- or rounded up to the next 500 kg (125.6 will become 126.00 )
- decimal figure less than 500 g is rounded up to 500g (125.4 becomes 125.00)
Gross Weight
This is the total weight of your consignment in kg. It includes the packaging material, as well. Nett weight is not considered in air freight. In Germany, it is of importance only for the export declaration. The nett weight is posted to the national statistics office. Some of the surcharges in air freight billing used to be charged on gross weight. Many airlines have changed this practice and the charges are now levied on what is called chargeable weight.
Chargeable Weight
Chargeable weight is the weight on which air freight rate or even other rates may be applied. The gross weight and the volume weight are compared and the higher one is taken as the chargeable weight. Here are a few examples.
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Air Freight Rate
As mentioned earlier, air freight rate is levied on the chargeable weight of the cargo. If the consignment is flying on an IATA Air Way Bill (a way bill, not covered by a master way bill, the seller is the consignor/shipper and the importer is the consignee), the rate shown is a very high one. This rate is printed as per the IATA price table, which is included in the TACT book. It is a rate that is, usually, not used for billing.
If the consignee is paying for the air freight, it is better to fly the freight under consolidation or as what is called “back-to-back” (it means one House Bill covered by one Master Bill. The Master Bill is addressed to an air freight agent).
Standard Airline Surcharges
- The standard surcharges are as follows:
- Fuel Surcharge
- Security Surcharge (also called Risk Surcharge or War Risk Surcharge)
- AMS Surcharge (Automated Manifest Service)
- Screening Surcharge (or X-Ray Surcharge) applicable, usually, only if the shipper is classified as unknown shipper and only applicable if forwarder asks the airline to do the screening.
- Dangerous Goods Surcharge: differs from airline to airline. Applicable only if the cargo is classified as hazardous
Pre-Export Charges
It is difficult to list all the air freight extra charges here as forwarders have their own tariffs and tables. A few of the relevant ones are as below
Export Declaration: depends on country of export. In Germany the practice is to charge a fixed amount for a a declaration with one HS Code and an add on rate per each extra HS Code.
Pick up : the rate is usually applied to chargeable weight (see above). air freight volume calculations apply for lorry transport.
Haulage : freight is not flying from the airport, where the forwarder is located. Hence, it needs to be transferred by lorry to the airport of departure.
Screening charge or X-Ray charge : each forwarder has his own tariff. Security regulations for air freight are very strict
Handling : The freight has to be stored in the warehouse, checked, labelled and tendered to the airline. Usually a single price and not a per kilo price
Repackaging : if there is visible damage to the packaging, the warehouse staff have to “better” that to avoid rejection by the airline
Customs Inspection: Authorities have the right to inspect the contents. There is a customs receipt for the amount but it takes at least two weeks time for it to arrive at the forwarder’s desk.
Before Requesting A Quotation
Incoterms: Terms of Sale. Request only charges that you are going to pay! If you are paying all the charges up to the airport of destination, then ask for all the charges with breakdown. If you are paying for door delivery without customs clearance, please specify. The air freight agent has to request the charges from abroad.
Number of pieces in accordance with the Export Declaration
Dimensions and total gross weight : Dimensions are to be rounded off. mention ONLY the total gross weight
Location of the freight: pick up charges are calculated as per the distance
Deadline : if any. The forwarder has to know if a dedicated transport has to be organised
Date and Time : Please specify when the freight is available for pick up. Also specify the time frame. Regular pick up timings need to be requested
Is the freight stackable?! This is important. If the freight is not stackable, the charges are going to increase (using more room)
Advice
It is advisable to ask for a quotation, if the consignment is a large one.
Quotations for door delivery are tentative prices. Currency exchange factors will influence the final price. Please request prices in foreign currency!
Questions?
Ask and I shall try to answer