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How to Negotiate Better Air Freight With Airlines?

Updated on May 25, 2016

Air Cargo Freight Negoiation

A large number of importers are clueless when it comes to negotiating better airfreight. At best they leave the negotiating process in the hands of a buyer / purchasing agent or Accountant who may have little or no understanding of the components of air freight cost.

I have, in my present job as an international trade specialist of China Import Services, seen people spend $200 extra for $350 freight charges because of lack of understanding of international air freight pricing structure. Most of the small or medium size organization that imports for the first time routinely pay a higher air freight.

Air Freight Negotiation

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Components of freight cost

A typical freight cost is not only about freight charged by the airlines.  It also includes several charges such as DO and CC fees.
A typical freight cost is not only about freight charged by the airlines. It also includes several charges such as DO and CC fees. | Source

Have you shipped international?

Have you received or sent international shipment?

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If you answered the first question.

What was your preferred (incoterm) terms of the shipment?

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Check Incoterms

Before negotiating with air freight forwarder one must consider is how the sales contract is worded for delivery terms. Is it ex works (EXW) or FOB or C&F? If ex works then one needs to arrange for transport and custom clearance in suppliers country which will be charged extra. For this reason most importers prefer FOB terms which means supplier will custom clear and hand over goods to airline's agent of your choice (freight forwarder) We will focus our discussion with assumption that importer has negotiated FOB terms with supplier.


Incoterms

INCOTERMS
INCOTERMS | Source

How To Reduce Airfreight Charges

What to look for
What it means
How to use it to reduce cost?
MAWB or HAWB?
If it is MAWB which means shipment will be moved directly by airline in next available flight. HAWB means it will be consolidated with other shipment and may not leave immediately. It is cheaper but many forwarder will quote for direct flight and send by consol
Clarify with agent to ensure shipment moves on direct flight. If you can wait for couple of days get quote for indirect flight which is cheaper
Which airline?
Not all airline have same air freight rate.
When you take price quote ask your forwarder to specify airline.
CAF & CC Fee
Both Charges collect (CC) and Currency adjustment factory (CAF) are charged at by agent and can be negotiated.
Negotiate the percentage of CC and CAF. Both are charged on freight part only if agent has charged it on entire amount get a refund/charge back
Weight or Volume?
If cargo is density per CBM is over 175 Kilos it is considered dense cargo
Most airline give 5% to 10% discount for dense cargo.
DO fees
Delivery Order fees
Normally you should pay only actual delivery order fee charged by airline NOT agent's DO fee
Bulk pricing
Cargo qualifies for bulk price at different weight slabs of 100 /300 / 500 / 1000+ Kilos
If your cargo is over 300 or 500 Kilos you can qualify for bulk discount prices
Location of agent
Forwarder's quote for same airline will depend on location of head office
Normally agent having office in country of export can offer better price then agent who has no physical presence. If your home country forwader has no presence then ask your supplier to recommend an agent to you.
Most freight forwarders will charge you for services they do not render!

AWB - Air Way Bill

A typical Air Way Bill
A typical Air Way Bill | Source

IATA

IATA
IATA | Source

Common Terms Used in Air Cargo Industry by Air Freight Forwarders

CC Fees: Charges collect fees refers to charges entered in the AWB that will be collected at the destination by the airline’s agent. These charges are paid by the person (normally consignee) who receives the cargo. It is possible to negotiate these charges.

AWB: Air Way Bill is a transport contract document issued by a carrier or its agent which outlines the contract made by the shipper with a carrier for transport of goods by air. An AWB number is typically an eleven digit number that can be used for tracking a shipment. The first three digits are normally assigned (By IATA) to a carrier that issues the AWB. The airway bill is not a negotiable document, unlike Bill of Lading.

CAF: Currency Adjustment Factor. Common Carriers such as airlines charges a small fee as a percentage of their invoice to insulate themselves from currency fluctuation risks. One should not pay CAF if the final payment is made in the currency of the contract AWB. This could not be more over 2% of the invoice value.

In order to avoid CAF more customers are asking for all in prices that includes all charges such as THC, Fuel surcharge, airport charges and other charges by airline or its agent.

IATA: International Air Transport Association, a trade body for the worlds airlines representing over 240 airlines and 85% of the air cargo volume. It is responsible for developing AWB standards such as format and standard conditions of the contract through its cargo service conference resolutions.

DO: Delivery Order fee is charged by the airline to process delivery of the consignment. Sometimes their agent can also charge their own DO fee that can be negotiated to reduce or even eliminate all together.

Airline Rate Codes: In the AWB, airline normally puts a rate class code that tells about the criteria airline used for charging you the air freight. These rate class codes are represented by a single alphabet and their meaning is given below

  • B - Basic Charges CodeC
  • C - Specific Commodity Rate Code
  • E - Over Pivot Rate
  • K - Rate per Kilogram
  • M - Minimum charges Rate Code
  • N - 1st Kg General Cargo rate
  • Q - Quantity 45 kilograms and over
  • R - Reduced Rate
  • S - Surcharge Class Rate
  • U - ULD Basic Rate
  • W - Extra Weight Charges
  • X - Indicates Extra Information

Consolidation refers to an act of putting together smaller consignments and treat them as one big consignment in order to avail preferential prices from the airline. Normally smaller consignments are assigned a HWAB (House Air Way Bill) issued by the agent and the airline issues a consolidated MAWB (Master Air Way Bill)

Chargeable weight is the weight that an airline takes into the account, while calculating freight payable. Airlines will charge for actual weight or volumetric weight, whichever is higher.

ETA refers to the Estimated Time of Arrival, which is different from the actual time of the flight arrival. Airlines takes couple of hours to break bulk the consignment for release to a freight forwarding agent.

EDT refers to the Estimated Time of Departure. A cargo must be received by the airlines few hours before the ETD.

ULD: Unit Load Device is a pallet or a container used by the airlines to haul cargo or passenger bags.

ULD - Unit Load Device

Unit load Device is a type of container used by the airlines.
Unit load Device is a type of container used by the airlines. | Source
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Conclusion

Most forwarder will quote you basic air freight prices which may be very competitive. However many would never quote you other hidden charges as explained above where they make loads of money. Once you know their trade secrets you are better informed to negotiate better air freight.

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© 2012 Kamal Mohta

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