The days of the much-vilified fuel surcharge in the airfreight industry may be numbered. Less than two weeks after Emirates’ freight division said it will return to a simplified “all-in” rate structure and was dropping various surcharges, Qatar Airways Cargo announced last month that it will take a “phased approach” to transition its pricing structure to a “one-rate basis.”
According to a Qatar Airways statement from Jan. 12, the carrier said it “recognizes that current surcharge conventions expose the supply chain to significant price volatility.” As a result, the airline will replace its existing rate structure, beginning in April, and will “abolish” its current fuel and security surcharges, while keeping other ancillary charges in place.
Qatar’s decision was preceded by a Dec. 31, 2014, announcement by Emirates SkyCargo that it would eliminate surcharges for fuel, security and other variables – a move that was praised as long-overdue by many forwarders and shippers. SkyCargo said the single-charge structure would begin Feb. 1 for airfreight shipments to and from Europe, and March 1 for all other Emirates flights.
SkyCargo’s single rate will be based on weight and will include fuel and security fees folded into one price. Along with added fuel and security fees, the new policy will also eliminate surcharges for various other criteria.
Forwarders and shippers have called for the end of surcharges for years, partly because their complex structure makes it hard to quote a definite price for customers, and partly because forwarders’ do not receive commissions on the added surcharges.
With crude oil trading for under US$47 per barrel as of mid-January – a six-year low – there is no longer a justifiable need for a fuel surcharge, forwarders have argued. However, neither Emirates nor Qatar Airways made mention about the reduction of its base rates or changes to the mechanism of the all-in price structure in case oil prices spike or an international event raises security concerns.
Despite this uncertainty, the reaction by shippers and forwarders to SkyCargo’s announcement has been positive.
“We welcome any simplification of the pricing structure and have long since asked airlines to rid themselves of surcharges,” said Lucas Kuehner, global head of air freight for Panalpina. “This is about going back to basics and what our customers want, since they look at all-in cost when making freight decisions. So we encourage other carriers to do the same.”
By removing surcharges, all-in pricing, “takes complexity out of sourcing on the one end and invoicing to the customer on the other,” Keuhner explained. “The more carriers that switch to this model, the more this holds true, of course.”
Robert Keen, director general of the British International Freight Association (BIFA), was a bit more muted in his reaction. The Emirates SkyCargo decision, he said, is “a step in the right direction, provided it leads to the transparency that freight forwarders require.” He also applauded SkyCargo for providing “simpler and more transparent cost structures,” adding that SkyCargo’s decisions could be a response to “previous comments that freight forwarders stop accepting at face value opaque and unjustified surcharges.”
Panalpina’s Kuehner said he expects the SkyCargo decision to lead to more transparency across the industry. “It is the fuel surcharge mechanisms that are not transparent today. Different airlines factor in different elements for fuel surcharges. With all-in rates you are left with only one figure to compare: overall costs. That’s what matters in the end, and it just makes it so much easier. The key is rate validity going forward and how airlines intend to manage the risk of fuel price fluctuations.”
Shippers appear equally pleased about the pricing changes. Joost van Doesburg, freight policy manager of the European Shippers’ Council, said the switch to all-in pricing is “definitely a positive step in the right direction that other carriers must follow.” Shippers, he said, consider surcharges the “number one topic the air freight industry should change,” stemming mainly from the distrust of certain carriers that developed during the surcharge price-fixing scandal.
The all-in pricing, “will improve stability in the airfreight market,” van Doesburg added. “The current surcharges system is everything except transparent. In a future without surcharges, shippers and freight forwarders would know the costs of shipments in advance instead of when the invoice arrives.”
TLF Overseas, a French freight forwarders organization, issued a statement after the Emirates announcement urging other carriers “to follow suit.” Fuel surcharges, the group said, were originally intended to be temporary, but ended up becoming “permanent and uncorrelated to the variation of the oil prices … Air carriers were indeed more likely over the past 13 years to increase their fuel surcharge as soon as the oil price rose rather than granting cuts when it decreased.”