Much Ado over Fuel Surcharge

If there is one ‘hot’ subject in the air cargo sector at present, it’s got to be fuel surcharge. But the fact that it is not being commented upon by IATA is what is causing even more discomfort to airline companies.

“We do not even talk about the fuel surcharge, says Aleks Popovich, IATA’s Global Head of Cargo.

Participants are cautioned not to use the world freight congress for backdoor agreements or other similar small deals. This is how IATA wishes to avoid looking like the congress is misused for price fixing after all three airline companies Korean Air, British Airways and Qantas received hefty fines from the USA for bilateral agreements on the fixing of fuel surcharges in airfreight. Other airlines, including Air France, KLM and Martin Air are presently being investigated by the European cartel bureau of Neelie Kroes and the authorities in the USA.

The air cargo congress in the legal jargon of IATA is therefore called an ‘educational event’ with the explicit goal ‘of broadening the know-how of the air cargo industry’. All discussions or conversations among organisers, speakers and attendees, including those that occur during breaks or around snack tables, must comply with the strict house rules that IATA has laid down for the participants. The question, of course, is when does an open discussion end?

With the edict ‘strictly prohibited’ the organisation takes no chances in any event. Any exchange of information, discussion or disclosure concerning individual tariffs, levies and costs, capacity or clients or other sensitive commercial information will fall under the ban.

A subject which thus fails is precisely the main problem among the air cargo companies and the transport users: fuel surcharges and other levies.

Popovich finds himself in all sorts of corners to give a plausible answer to the question as to why this bone of contention between the transport users and the air cargo companies has been scrapped. He looks for words but still avoids an answer and finally asks for an understanding for the position of the International air cargo organisation.

We recognise that fuel is a problem. This is true. It accounts for a good 30 per cent of the air cargo companies costs compared to a few years ago when it was only 10 per cent. But IATA chooses to focus on the remaining two thirds of the costs. According to them, the fuel surcharge is purely a commercial matter between the air cargo companies and the transport users and being such a large organisation for air travel they cannot comment as it is a matter in which they are not involved.

Prodding will not help much, either. “The only thing I am prepared to add is that it is a sensitive issue, not only for our members, the air cargo companies, but also for the shipping agents. I know that there is freedom of speech but this is an issue over which we are better off not talking about. I can only notice that this symposium has brought the problem again to the fore and one of the tasks of this congress is to listen and eventually to act. I cannot go any further.”

Scared stiff According to Archie Da Silva, Director of shipping agents Jet-Speed Air Cargo (Hong Kong), almost everyone inside IATA is scared stiff of the European cartel bureau and of Neelie Kroes. “They are frightened no end of being fined by the European and American anti-trust authorities. There is simply panic.” Da Silva thinks that IATA representing the air cargo industry is the only one to hold the key to a solution to the surcharge problem, which is eating into the good relations between the air cargo companies and their clients.

“They must take the lead and together with the shipping agents, transport users and their members come up with a transparent scheme to work out the surcharge, a sort of new fuel index in which everyone can find himself, and which is clear to all concerned open and fair,” he says.

“Why be fussy about this? You do not break any cartel laws?” Da Silva is, as a shipping agent, cross about the policy of the competition authorities in Europe and the USA. “Why are they making such a big fuss about the fuel surcharge? That really makes me mad.”

As a result, this subject is taboo at this congress and hardly any one dares to tackle the question. A solution must sooner or later be found and why not now? Soon there will be a situation whereby the transport users will be losing more money on surcharges than on real cargo tariffs. And in the end you will no longer be able to explain this to your clients.

Silly situation Des Vertannes, vice-president of Etihad Crystal Cargo, agrees for the most part with Da Silva. Vertannes says, “The fuel accounts are simply normal costs and belong to the cargo tariff. There is no need to create another separate index for this. The fuel costs must again form part of the tariff, as the transport users have been demanding for years. We now have a really stupid situation: shipping agents in many instances pay us only the surcharge and no basic tariff any more. I have no idea what they tell their clients but company transport users complain that we as an airline company charge them levies on top of the normal tariff. Also the shipping agents as intermediaries play a dubious role. It just goes to show that we should drop this allowance circus.” Vertannes confirms that the fear to tackle the problem is great amongst airline companies and IATA.

So are they scared? Vertannes says, “You should be saying scared as hell.” But why?

“I do not know but, someone should take the lead here else we will never get out of this. I have already proposed to IATA to create a ‘small committee’. The different interest organisations each send a party to represent them. So we have a transport user, a shipping agent and an airline who will sit around the table and work out a solution, as change must happen. The way it is now is sheer madness,” he adds.

Popovich emphasises that IATA and the airline companies, even without the controversial subject of the fuel surcharge, can reduce the costs of the logistics chain to the transport users. “The fuel costs represent some 30 per cent of the total costs. We can therefore at this air cargo congress discuss the remaining 70 per cent. We try through initiatives such as E-Freight and Cargo 2000 to reduce the paperwork for the air cargo flow and to increase quality. This is how one removes costs from the system for the shipping agents and the carriers.”

“The air cargo branch must,” according to Popovich, “get into the habit of providing more reliable delivery times. When you offer a delivery time of five to six days, this should not mean that only 20 per cent of the cargo arrives and that the rest will come within a period of three weeks. The airline sector still thinks too often of averages, but our clients want to know exactly when which party will deliver.”

He dares not say whether the imminent over capacity in the coming years will present a serious problem to the sector. From 2009, there will be an additional 200-300 new air cargo planes yearly. Demand and supply will balance if one assumes that 25 per cent of the new cargo will replace old air cargo, but there will be a problem should this be less than 25 per cent. “Let’s wait and see,” adds Popovich.

The sector already has a big problem even without the imminent overcapacity according to Vertannes. “The air cargo sector is without leadership and develops haphazardly. No innovation at all has been thought of for the past 10 years and this as a sector, is of our own doing.”

He calls it a small revolution that IATA, only now and for the first time takes the problems seriously, even if only partly so. “Cargo always receives the lowest priority on a plane and that is also the treatment it received from IATA. I detect in this a slight swing and that is positive.”

Principal question The most important question for Des Vertannes is how the sector can improve quality without increasing tariffs. “For this, I think we must look into the passenger market. Air cargo is some 15 years behind . IATA takes with Cargo 2000 and E-Freight commendable but cautious steps, even though they are purely of a technical nature and solely directed to save costs to the shipping agents. Whether these advantages will be passed on to clients is another question. I believe that we should take this a step further and make the capacity on planes available to the shipping agents through the internet. The freight space is even now still being meticulously warded off by the airlines while 30 to 40 per cent of that space is not even used. What is the purpose of this lock and key?”

This is no longer acceptable. The 200 to 300 new great freighters which will soon come on stream each year will have to be filled somehow or the other. To a great extent, this can only be achieved by making the capacity electronically available to everybody.

According to Da Silva of Jet-Speed many transport users do not see the purpose of IATA’s new initiatives such. “The transport user gets nothing back as Cargo 2000 and E-Freight measures more the performance of the airlines for the shipping agent. E-Freight is more important to the transport user, but they hardly know anything about it. It is still too much of a game for the airlines and shipping agent and a way of reducing costs through handling waybills and all traffic documents electronically, but the transport user does not see any of these cost reductions. IATA has promised me that the transport users will also play a role in the E-Freight discussion. The same will apply to the shipping companies.”

First published in Nieuwsblad Transport