Excessive Fuel Surcharges Stagnate Our Industry
A question we often hear at Active Air Freight: “If global oil prices remain low, will this keep fuel surcharges down and allow the air freight sector to grow?”
It is true that many experts believe global oil prices will remain low or subdued, perhaps for the next twenty years. At Active Air Freight, we think that world events will never allow for a twenty-year lull in oil pricing. Nevertheless, many air carriers are not passing along fuel surcharge reductions, despite the fact that many years separate us from oil at $100 per barrel. Although most air carriers are stating that fuel surcharges will not increase, only a few have reduced this fee and one carrier has unbelievably increased their fuel surcharge. A majority of Asian and European cargo carriers still charge over $1.00 per kilo on top of their usual security fee of $0.15 per kilo. So while their shipping charge itself may be comparable to other carriers, add fuel and security fees, the costs are considerably higher.
How Did We Get Here?
How did we get to this point, where the shipping charge itself no longer reflect the customer cost to move an item from point A to point B? An explanation is found in the air passenger charges used by most U.S. air carriers. They discovered a profitable revenue stream through passenger fees and “pay for perks.” These perks include baggage fees, seats with more leg room, fast-track TSA security — the list goes on. On an airfare website, it looks like one carrier charges the same as the other for a given flight. Once you see the additional fees and the cost for receiving a similar level of service, however, you realize that the reality can be completely different.
Air passenger fuel surcharges, security fees, were introduced as “world price increases and security measures”. Many even hid the charge by blaming it on “taxes,” until the U.S. Department of Transportation demanded they call it what it is — an airline imposed surcharge. Now, in the face of declining oil prices, they call these added fees “carrier-imposed charges” or “international/domestic surcharges.” Obviously, this is a revenue stream the airlines are not planning to lose anytime soon. It literally takes an act of Congress for these airlines to change essentially predatory practices that hide the true consumer cost of a ticket.
Likewise, airline cargo operations have discovered their own “revenue stream” of profits through non regulated fuel surcharges. Even worse, many carriers have colluded to keep fuel surcharges high. Over the last two decades, multiple airlines were caught engaging in this non-competitive practice that hurts industry, retailers and consumers. Many in the shipping business called these carriers the “Air Cargo Fuel Cartel.” 2011 finally saw 21 major air carriers fined for fuel surcharge price fixing, yet many of the others seem unfazed and may still be involved in similar practices.
How can we change this situation? Unless freight forwarders and integrators demand comprehensive fuel surcharge reductions, you can expect to pay nearly as much for fuel and security as you do for the air cargo costs. The 2015 holiday season could see historically low expectations as major retailers downsize inventory and operations. With less to ship, carriers will undoubtedly suffer losses. Logic dictates that they should offer incentives by reducing fuel and security charges to stimulate air cargo growth.
Unfortunately, with decades of shipping experience I seldom see major air carriers implementing common sense pricing and business practices. To stimulate industry, growth and change, forwarders and integrators must take action. Aggressively seek the best total costs for your clients and reward air cargo carriers employing reasonable pricing with your customers’ business.
Opening dialogue with your cargo sales representative only goes so far. Utilizing competing carriers, whose surcharges are more fair and reasonable, leaves a lasting impression. While it may be difficult to create change in airline policies, collectively being proactive is a step in the right direction.
Reducing our customer’s transportation costs continues to be a priority at Active Air Freight, LLC.