The past year has seen more and more air freight carriers attempting to address concern over surcharges in varying ways. Weight-based fuel and security surcharges are a headache to track and shrouded with just enough mystery to leave the nagging doubt that adjustments only ever reflect the market in an upward direction, with none of the savings shared when conditions are favorable (such as a sustained decrease in oil prices, for instance). Transparency and simplicity are the longed-for goals of all who deal with surcharges.
Lufthansa Cargo and SWISS Air proposed a new solution last fall, with October marking the start of a change to their previous price structure – A combining of the fuel and security surcharges into one lower weight-based fee called the airfreight surcharge. The lower cost may sound exciting at first, but the carrier went on to clarify in their announcement to customers that even though “ the surcharge level will be decreased, the change in the pricing structure will subsequently lead to a re-aligned and increased net rate that will reflect the value of our service in an adequate way.” Ultimately the total cost would remain the same and the change represented more of a redefinition of what those funds were for. Lufthansa highlighted one of the main benefits of the restructuring as reduced complexity that will lead to faster processing on their end.
This seems to be Lufthansa’s answer to the clamoring for a switch to all-inclusive freight rates. Per a statement by SWISS Cargo’s Chief Cargo Officer, Oliver Evans, the new surcharge is where we should see the influence of those uncontrollable external factors that sometimes require adjustments to pricing “in a more transparent way”. He asserted that this “would not have been the case with an all-in rate, which both airlines reviewed in detail.” Earlier in 2015, carriers like Emirates and Qatar Airways made the decision to adopt such pricing models that would roll the surcharges and the regular freight rate up into a single rate. The general hope has been that eliminating the separate surcharges entirely will lead to more stable pricing overall and, if adopted by more carriers, easier comparisons between companies.
Lufthansa’s decision was a bit of a wrench in those spokes as they now present a third option and it remains to be seen if any other carriers will follow their lead or perhaps even try to come up with their own solutions. Alaska Air Cargo, at least, has since come down on the side of all-in rates, implementing their own single rate program at the start of March. Will any of these models increase customer satisfaction, though? None of the new options truly guarantee the transparency so desired by shippers and freight forwarders alike so it is undeniably a good thing if carriers continue trying to respond to customer concerns. In the meantime, however, increased diversity amongst available pricing structures will likely only contribute to the headaches of those trying to validate pricing across multiple carriers.
Is one method better than the other? Hopefully time will tell. How should these changes factor in to your air freight decisions? All-in rates and combined surcharges may give you fewer numbers to look at, but in either case it is essential to know where the numbers came from, particularly while this growing trend of restructuring continues. Rather than waiting for the carriers to implement glacial reform across the board, be sure to do your own thorough cost analysis to determine what will truly work best for your company. Negotiation is still your best route to savings. Prepare yourself with an understanding of all costs involved so that you will be able to recognize the charges that are not going to budge and focus on making up the difference elsewhere.