March 29, 2018
The Cost of Air: Your Guide to Air Freight Rates & How to Reduce Them
There are many line items in a typical air freight quote, but what do they all mean?
Air freight is trending up and not showing any signs of falling back to earth soon. For companies that rely on plane capacity to transport their cargo, understanding the associated costs, and making informed buying decisions, have never been more important.
We dove deep with our experts to help you know what to look out for when reviewing air freight rates, and help you find ways to keep air freight costs within budget.
But first: Why air freight?
Simply put, air freight is fast, reliable, and flexible. While ocean freight can involve a month or more of transit time, air only takes a few days. Transporting cargo by air enables shippers to respond to customers and market demands quickly, making it a crucial component to maintaining efficient and responsive supply chains.
This reduction in travel time means air freight is the perfect solution for moving electronics, pharmaceuticals, and seasonal clothing, among other goods. Air freight transit time also decreases potential losses by extending the shelf life of temperature- and time-sensitive products.
Learn more about: Types of Air Service
Flexport Answers: What’s ahead for air freight in 2018?
“So far in 2018, the air freight demand exit Asia has been a bit volatile with a slower-than-expected recovery following Chinese New Year. However, demand is beginning to firm and air freight rates are following suit as quarter-end demand, as well as robust bookings for Q2, begin to take shape. Overall, the sentiment continues to point towards a strong year for air freight with demand continuing to outstrip capacity and yields following a similar trajectory to 2017, which was the strongest air freight market in recent memory.”
-Neel Jones Shah, SVP and Global Head of Air Freight
Why should I look into my air freight invoice?
Rates don’t tell the whole story. Effective long-term supply chain planning requires visibility into all ongoing costs, one-off fees, and potential penalty charges. Failure to maintain this awareness could negatively affect your relationship with customers, not to mention hurting your bottom line.
“Demand for air freight has been boosted since mid-2016 by the stronger economic and trade backdrop, by bottlenecks in manufacturing supply chains, and a broader inventory restocking cycle. Although this is good for airline margins, the strong demand has been a nightmare for shippers with record-high freight rates and severe shortages of space at peak periods.”
-Greg Knowler for JOC
Needless to say, air rates add up. But with a little additional effort, you can reduce any potential surprises. One of the first steps in this process is understanding how base rates are determined.
How are base rates determined?
Each freight forwarder operates differently, and likely has a different approach to displaying carrier base rates. As a general starting point, carriers use a shipment’s weight and volume when calculating cost. From here, they will determine rates by choosing among the higher of two options, selecting what is known as chargeable weight.
Actual Weight vs. Volumetric Weight
To determine chargeable weight, carriers look at two options:
- Actual weight is just that: how much the item actually weighs, otherwise known as gross weight.
- Volumetric weight (also known as dimensional weight) is an estimated weight calculated by using the item’s length, width, and height. For freight forwarding purposes, volumetric weight is the weight of the package at the minimum density accepted by the carrier.
Calculating this is relatively simple:
Volumetric Weight = Length x Width x Height/Dimensional Factor
Measurements can be made in inches or centimeters, as long as the appropriate dimensional factor is also used.
This approach to determining base air freight rates protects carriers from losing money on moving cargo that has a low density-to-weight ratio.
Aside from my base rate, what additional charges can I expect?
Many different parties handle your cargo throughout its journey from origin to destination. At any point where cargo changes hands, carriers may require additional preparation, paperwork, time, and fees.
Fuel surcharge (FSC) fees account for fluctuating regional and seasonal fuel costs, one of the top expenses for carriers. In essence, this fee protects air, ocean, and trucking carriers from the volatility of fuel prices.
Fuel surcharges are dependent on the average fuel price, and are typically calculated as a percentage of a shipment’s chargeable weight.
Carriers can use their own formulas for assessing, calculating, and charging related fees. Most commonly, FSC is calculated using the base fuel or threshold price, the base fuel mileage, and price fluctuation.
Container freight station (CFS) fees are for cargo that is temporarily stored in facilities when leaving or entering a country. Once proper customs documentation is provided, the cargo is released from the airport CFS warehouse.
Security surcharges cover any additional fees for security measures required at airports. The cost associated with security surcharges applies to the screening and handling processes certain goods must undergo in accordance with Part 108 of the Airline Security Regulations.
Security-related fees are charged at both the origin and destination, and only apply to air freight rates.
Airline terminal handling fees apply to all air shipments, and cover costs associated with handling cargo at both the origin and destination. Terminal handling charges may be included in the cumulative air freight fee or listed as a separate line item, depending on the airline.
Door-to-door costs include the above, and:
Customs clearance fees are the routine charges paid to customs brokers for the entry of goods into a country. If customs examines your cargo, there may be additional fees.
Aside from the charges incurred at customs, shippers should note that any extensive delays could result in additional fees at a later point in the cargo’s journey. You should also prepare to have official shipping documents checked at any point in your cargo’s journey.
Associated trucking fees occur when cargo is picked up from an airport or warehouse and transported to the next point in the cargo’s journey. These are standard fees paid to a trucking company to cover factors such as fuel and the driver’s wages.
Cargo insurance is typically arranged through a shipper’s freight forwarder, and it covers the cargo included in a given shipment. Because liability falls on the shipper, and not on the carrier or forwarder, cargo insurance is a must-have.
The above charges represent some of the fees often included in standard air freight rates. If you don’t see these broken out as individual line items in your quote, find out whether they’re included in the rate or applied at the time of invoice. This will help you forecast your spend.
If something goes wrong in a shipment’s journey, you could also face fees such as d****emurrage (storage fee when freight isn’t picked up from its destination by the end of the Last Free Day) and trucking wait fee (incurred when a driver has to wait at least two hours to receive or deliver freight).
How can I reduce my air freight rates?
Time is of the essence when planning any type of freight service, but this is especially true when it comes to transporting by air. Here are some quick tips to maximize your time and value:
- Aim for long-term value. While the lowest rate may seem appealing at first, prioritizing reliability over cost when choosing carriers will pay off in the long run. The biggest costs in your supply chain will come from surprises, delays, and other exceptions. Investing in a reliable forwarder will pay off by saving you the downstream cost of last-minute rush shipments.
- Get the full story. Sometimes, low rates come with hidden costs. When comparing options, make sure you’re looking at complete quotes. Ask your forwarder for a complete list of applicable fees, and find out which are included in the base rate, which are quoted up-front, and which won’t appear until time of invoice. Compare your quotes against your invoices to see which fees get added, so you know to factor them in when making a buying decision.
- Plan ahead. To avoid paying a premium for next flight out or expedited shipping, reserve space on a freighter as soon as possible.
- Defer your shipment. Allowing your lower priority cargo to be shipped “deferred” (adding a few days of transit time) can lower your cost. This option is still faster than ocean freight, and is typically the cheapest air freight solution.
“My advice: prioritize space over price. Those are two sides of the same coin, but shippers often overlook space. Locking in space well in advance is a good strategy, but expect to pay a small reliability premium for that.”
Understanding the anatomy of air freight rates will not only help you in gaining clarity — it’s a key to reducing supply chain costs. While this list is a great starting point, there’s no substitute for building a strong relationship with a reliable freight forwarder. Finding or switching to the right forwarder will be the key to seeing your cargo take flight.
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