International Air Freight Sourcing: Analysis Best Practices

Air Freight is a highly complex category with fee models that differ by airline, by region and by service level. This makes evaluating an air freight program on a global scale an extremely difficult venture from an administration standpoint, but also from an analysis standpoint. A lot of times air freight customers will refer to brokers and to 3PL providers to manage and administer their air freight program; however, if self-managing your air-freight program it is possible to effectively manage and evaluate the competitive market via RFP.

When undertaking an evaluation of your carriers, wheather you are a freight forwarder and trying to firm up existing agreements or you otherwise have significant air freight volumes that would warrant an evaluation, you must be able to present your data in a way that makes it easy for carriers to quote. This starts at the most simplistic level by looking at your past 12 months of shipments, barring any large operational shifts that would impact last year’s profile, and summarizing that information for carriers to evaluate. This sourcing template should include the top 80% chargeable weight lanes and the associated origin and destination pairings. Each unique lane should be differentiated by not only origin and destination, but service level as well (expedited, general cargo, temp controlled, etc.). Each unique lane should also include your total chargeable weight and total number of individual pieces. This information, once aggregated, will provide airlines with enough information to give you a quote for the lanes they would like to bid on. Organizing the information by region and by service level also will help the airlines navigate your bid package information with ease. The columns (if using excel) are summarized below that should be shared with carriers:

·         Origin Region

·         Origin APC Code

·         Destination APC Code

·         Destination Region

·         Service Level (Express, Temp Controlled, etc.)

·         Total Annual Chargeable weight (in KGs)

·         Total Annual Shipment Frequency

With the bidding information squared away, you’ll now need a template for airlines to respond with their pricing and corresponding information. The most important information to collect is the minimum base rate, prices per KG (using applicable weight breaks based on your shipment profile), and surcharges. The most impactful surcharge is Fuel which varies with the applicable fuel index. Additional surcharges include security and handling surcharges. More granular/non-traditional information to collect includes flight schedules in order to gauge availability of flights in parallel with raw pricing. Close out time, recovery time and weather flights are direct or indirect also will help to evaluate if an airlines solution will work for time and temperature sensitive shipments. A summary of quantitative and qualitative information to collect from airlines is summarized below:

·         Bid Currency

·         Minimum Charge

·         Weight break charges, per KG (price for 0-50kgs, 50-100kgs, etc.)

·         Surcharges

o   Fuel

o   Security

o   Handling

§  Prices will vary based on handling being performed in house versus third party carrier

o   Leave space for carriers to include additional surcharges as needed

As previously mentioned airlines have varying pricing structures based on service levels, regions, and overall based on internal pricing strategies. This makes it of the upmost importance to evaluate carriers per each region and services level based on the total cost of shipment. For example it will be inaccurate to compare one airlines 0-50KG price per Kilogram to another’s since one airline could impose heavy surcharges and have more competitive weight break pricing, or they could not have surcharges altogether and blend all fees/surcharges into their per KG pricing per each weight break. Therefore when performing your quantitative analysis and comparing airline to airline a full calculation will need to be made and then the total costs compared against each other. This will yield the ever-allusive “apples-to-apples” pricing comparison.