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Going all-in

Two airlines have made the jump and opted for all-in rates, relegating at least two surcharges to history. But there will be both benefits and challenges to come with the new pricing structure, discovers Alexandra Lennane

It has been a long time coming, but the thorny question of surcharges has finally been addressed by two carriers – at least at the time of writing.


In January, Emirates, followed closely by Qatar Airways, both announced that they are to move to all-in rates, ending separate surcharges for fuel and security. Market speculation is rife that Lufthansa will be the first European carrier to follow suit, although the airline has made no public indication of that.


Not surprisingly, the move has been broadly welcomed by the market – publicly at least – although smaller forwarders seem slightly more sceptical than the larger ones. The first group to back the news was the European Shippers’ Council, which said the change would make life easier for its members.


“We are really positive about this,” says Joost van Doesburg, head of air freight policy. “We think more airlines should follow this example. And we think there will be positive effects for freight forwarders. Their cut can still be higher, but it will be easier to compare rates when surcharges are zero.”


Both Panalpina and Kuehne + Nagel also support the plan. Lucas Kuehner, global head of air freight for Panalpina, says: “We welcome any simplification of the pricing structure and have long since asked airlines to rid themselves of surcharges. This is about going back to basics and what our customers want, since they look at all-in cost when making freight decisions. We appreciate Emirates’s [and Qatar’s] step and encourage other carriers to do the same.”


K+N’s Tim Scharwath, head of air logistics, says: “My personal view is that it’s right to get away from surcharges to an all-in rate. After all, I can’t apply a surcharge. My manpower and other costs are included in my rate to my customer,” (see Old dog, new tricks).


This chorus was joined by various freight forwarding associations, including Canada’s CIFFA, the UK’s BIFA, and European logistics lobbying group CLECAT. Airline groups, such as TIACA and IATA are unable to legally comment on individual commercial policies, especially one which involves the fearful word ‘surcharge’.


But Glyn Hughes, chief of IATA Cargo, does his best. “I regretfully cannot make specific comments regarding a carrier’s commercial policy, although the air cargo industry has been requested by the shippers to increase transparency and simplify how we do business. Carriers will each decide individually how to respond to these market demands.”


But despite this fairly wide-ranging backing, which some sources have claimed will give the two carriers a competitive advantage, especially in the dull first quarter, other parts of the industry have been more cautious. A particular concern is that the change has been introduced when fuel prices are very low – several forwarders suspect, not unrealistically, that the two carriers will have built in a price advantage which, instead of being more transparent, is actually less so.


“As you know, carriers are now increasingly applying surcharges on chargeable weight, so really this just simplifies that,” says one European air freight forwarder. “However, with all-in rates it becomes harder to identify any reductions due to falling fuel costs, and carriers seem less likely to pass this on as it becomes less visible. I will need to understand how they will deal with increases or reductions in fuel costs – and it may sound unfair but, to date, it seems less clear where I have seen all-in rates.


“If everyone follows suit it should be simpler to compare costs, rather than seeing lower freight rates but higher surcharges, or vice versa. That would be a benefit – although it isn’t too taxing to work it out under the current method.”


Of course the elephant in the room is the transparency that the new pricing structure will give. While it may be good for shippers to be able to compare easily, there are some, off the record, that fear it will be worse for forwarders.


Forwarders have long complained that they hate surcharges, that they do not want to act as a bank for airlines, and that shippers don’t take kindly to the extra, unbudgeted costs. But the industry also knows that cost transparency isn’t necessarily a friend to all parties in the supply chain.


“There is now no way for a forwarder to hide things, so the gross rate will have a commission or override on the top,” says one air cargo industry executive. “The old system is better for many forwarders who would use fuel surcharges to their advantage.”


Another executive says: “It’s going to be much harder to cook the books now.” >>

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