Air freight

Introduction

The first consignment of cargo carried by air was transported between London and Paris in 1924. Since this first cargo flight the carrying capacity and efficiency of aircraft has developed and increased dramatically. The movement of cargo by air is a highly specialised business, which is, in many respects, very different from moving cargo by sea or overland. It is subject to restrictions that arise from the nature of the aircraft itself.

Increasing importance of airfreight

Two major changes have taken place over recent years in many manufacturing industries and it is due to these changes that air freight is becoming a popular choice for transporting products internationally. The reason for this increase is:

• The growing volume of technology-based products, these products are becoming lighter and smaller while their value is becoming greater justifying the expense of air freight
• The second is the rapidly increasing trend in many industries towards "just-in-time" (JIT) inventories JIT is most effective where the goods in question can be moved by air. The benefits of JIT ordering are:
• A substantial reduction in capital requirements
• A substantial reduction in stockholding

Loading and stowing of cargo

Air cargo has to be specially prepared or modified to enable the cargo to fit into the aircraft. The upper and lower deck configuration, mass and dimension limitations, pressure and air temperature variations and the floor load factors must be taken into consideration by the shipper of the cargo. All aircraft have limited carrying capacity, and loading beyond the safety limit in terms of the mass and volume of the cargo is not permitted. The actual limitations vary from one type of aircraft to another.

To facilitate quicker and safer loading, airline personnel group all air cargo into larger units on pallets or containers. These are collectively known as Unit Load Devices or ULD's. ULD's play an important part in the loading and discharging of aircraft. The floor of an aircraft is equipped with roller beds for ease of movement of the ULD's. Since the introduction of Unit Load Devices into the air freight industry, cargo is discharged quicker and theft and damages have been greatly reduced.

Liner terms

Liner operators quote their freight rates on a liner term basis. A series of highly specialised operations are required in the process of loading cargoes efficiently into a ship, and securing those cargoes in the ship's hold for safe transportation to the port of destination. Another series of equally highly specialised operations must take place in order to extract the cargo from the ship's hold and place them safely on the quayside at the port of destination. All these costs are collectively known as terminal handling charges - THC.

Payment of freight

The word "freight" has two alternative meanings: it may be used to refer to the movement of the cargo; by road, rail sea or air, or it may be used to denote the charge raised by the carrier for the service of transportation.

Freight currency

In the context of international carriage by sea, the "tariff currency", is the United States Dollar. It is common practice in the shipping industry that freight is payable as the consignment/cargo is loaded on board the intended vessel.

Immediately the cargo has been placed on board, the shipping company is entitled to full payment, even though the ship may sink along the quayside at the loading berth. The amount of freight due is paid either at the port of loading in exchange for the issuance of the original bills of lading, or at the port of discharge in exchange for the release of the consignment from the shipping company's custody. When freight is paid in any currency other than the "tariff currency", the amount due in that "tariff currency", will be converted at the rate applicable on the date of shipment or such other date as agreed upon by the carrier.

The bill of lading

The bill of lading performs the following functions:

• A contract of carriage between the shipper of the cargo and the carrying shipping company.
• The name of the shipper and the receiver of the goods the consignee.
• The contents of the packages as declared by the shipper.
• Shipping details such as: port of loading and the port of discharge.
• The bill of lading is a freight invoice and indicates if the freight costs have been prepaid by the exporter or will be paid by the importer, "freight collect".
• The bill of lading states the number of packages, weight and dimension of the shipment.
• It is a document of title to the goods stated thereon.

Every original bill of lading signed by or on behalf of the shipping company is a document of title to the underlying goods. This special function of a bill of lading is achieved by a form of words which state: "In witness whereof the undersigned on behalf of the shipping company has signed three bills of lading all of this tenor and date, one of which being accomplished the others to stand void". "Accomplishing" the bill of lading requires the surrender to the shipping line or its agents in the port or place of destination one of the signed original bills of lading duly endorsed by the consignee/importer. Unless and until one of the original bills of lading as described above is surrendered, the shipping line will not release the cargo to the consignee/importer. Upon surrender of any one of the originals the other originals bills of lading become void.

Endorsed Bills of Lading

Bills of lading can only be issued with the words "shipped on board", if the cargo has actually been loaded onto the named vessel at the port of loading. By insisting that the exporter supplies the importer with a "shipped on board" bill of lading, the importer obtains conclusive evidence that the goods have been loaded on board the intended vessel.

Some importers insist that the exporter presents "shipped on board" bills as a condition for payment. "Received for shipment", bills of lading can be issued as soon as the goods have been delivered into the custody of the carrying shipping company or its agent either at the point of receipt or at the port of loading. Thus, a 'received for shipment", bill of lading will only indicate the ship in which the cargo is intended to be loaded on. The risk remains that the loading may, for many reasons delayed or the cargo may not be loaded at all.

Banks responsible for the payment of funds in payment for goods under letters of credit will not release the funds if the bill of lading has been endorsed "received for shipment".

Consolidation services

The consolidator or groupage operator hires a container from a shipping line and then sells that space to his clients/exporters. The benefit for the exporter is that small quantities which, would not fill a full container load, can be shipped by sea freight in a shipping container as an alternative to air freighting the goods. The consolidator would charge per metric ton or cubic metre, which ever yields the greatest. 

Example: US Dollar 89.00 Weight or Measure.

The shipping line would have a contract of carriage with the consolidator and in turn the consolidator would have a contract of carriage with the exporter. The consolidator would be issued with an combined through bill of lading from the shipping line and then present the exporter with a house bill of lading.

FCL calculations and surcharges

Freight rates for containers are based on the container as a unit of freight irrespective of the commodity or commodities loaded therein, (FAK) Freight All Kinds. The shipping lines quote per box (container) either a six or twelve metre container. From time to time, abnormal or exceptional costs arise in respect of which no provision has been made in the tariffs. For example a shipping line cannot predict the movement of the US Dollar or the sudden increase of the international oil price. These increases have to be taken into account by the shipping line in order to ensure that the shipping line continues to operate at a profit. These increases are called surcharges. All shipping lines accordingly retain the right to impose an adjustment factor upon their rates taking into account these fluctuations. All surcharges are expressed as a percentage of the basic freight rate. Surcharges are regularly reviewed in the light of unforeseen circumstances, which may arise and bring cause for a surcharge increase.

Bunker Adjustment Factor (BAF)

"Bunkers" is the generic name given to fuels and lubricants that provide energy to power ships. The cost of bunker oil fluctuates continually and with comparatively little warning.

Example:

Freight rate: Port Elizabeth to Singapore
Freight rate: US Dollar: 1 250.00 per 6-M container
+ BAF 5.2%
US Dollar 1 250.00 X 5.2% = US Dollar 65.00
Add the two amounts together
Freight rate: U S Dollar 1 315.00

Currency Adjustment Factor (CAF)

The currency adjustment factor is a mechanism for taking into account fluctuations in exchange rates, these fluctuations occur when expenses are paid in one currency and monies earned in another by a shipping company. The currency adjustment factor is a mechanism for taking into account these exchange rate fluctuations. It is always expressed as a percentage of the basic freight and is subject to regular review.

Example:
Freight rate: Port Elizabeth to Singapore
Freight rate: US Dollar: 1 250.00 per 6-M container
+ CAF 6.3%
US Dollar 1 250.00 X 6.3% = US Dollar 78.75
Add the two amounts together
Freight rate: U S Dollar 1 328.75

War Surcharge

The outbreak of hostilities between nations can have a serious effect upon carriers servicing international trade even though they may sail under a neutral flag. Carriers sailing within the vicinity of a war zone may impose a war surcharge on freight to compensate for the higher risks involved and the higher levels of insurance premium, which they may be obliged to pay.

Example:

Freight rate: Port Elizabeth to Singapore
Freight rate: US Dollar: 1 250.00 per 6-M container
+ WAR 5%
US Dollar 1 250.00 X 5% = US Dollar 62.50
Add the two amounts together
Freight rate: U S Dollar 1 35.50

All of the above surcharges may be applied to a single freight rate.

Example:
Freight rate: Port Elizabeth to Singapore
Freight rate: US Dollar: 1 250.00 per 6-M container
+ BAF 5.2%
+ CAF 6.3%
+ WAR 5%
Total amount of surcharge 16.5%
US Dollar 1 250.00 X 16.5% = US Dollar 206.25
(add to freight rate)
US Dollar 1 456.25

Port Congestion Surcharge

Congestion in a port for a period of time can involve considerable idle time for vessels serving that port. When a ship lies idle, this creates a huge amount of loss for the ship's owner. Shipping lines therefore have the right to impose a surcharge on the freight to recover revenue lost. Another factor which influences port congestion surcharge would be labour disputes. Port congestion surcharges are calculated as a percentage of the freight rate as expressed in the previous examples.

Break bulk cargo calculations

Break bulk cargo, is cargo that is unitised, palletised or strapped. This cargo is measured along the greatest length, width and height of the entire shipment. The cargo is also weighed. Shipping lines quote break bulk cargo per "freight ton", which is either 1 metric ton or 1 cubic metre, which ever yields the greatest revenue.

Example:

A case has a gross mass of 2 Mt.
The dimensions of the cargo are:
2.5 X 1 X 2 metres

The tariff rate quoted by the shipping line is: USD 110.00 weight or measure (freight ton)

Step 1

Multiply the metres 2.5 X 1 X 2 = 5 metres Compare to the mass = 2 Mt.

Step 2

Calculate the freight with the greater amount either the mass or the dimension. 5 X USD 110.00 = USD 550.00

Freight would be paid on the measurement and not the weight. All shipping lines carrying cargo in a break-bulk form insist on payment based on a minimum freight charge which is equivalent to one freight ton, one cubic metre or one metric ton.

How to calculate CBM & Freight Ton

One of the most common questions we get asked is how to calculate CBM, specially by those clients who get charged per Freight Ton (weight or volume whichever is higher)..

Firstly CBM stands for CuBic Meter.. This is the most common unit used for the measurement of volumetric cargo..

When you have the dimensions of the package, first of all convert the measurement into meters.. Normally dimensions are in Length x Width x Height..

If for example the dimensions are 3.2 x 1.2 x 2.2 meters then the CBM is simply 3.2 x 1.2 x 2.2 = 8.448 cbm..

As mentioned above if the rate is quoted as for example Usd.12/per freight ton and the weight of the package is 1200 kgs = 1.2 tons, then the freight rate for this will be

8.448 cbm x Usd.12 = Usd.101.376 or

1.2 tons x Usd.12 = Usd.14.4

Since the cbm rate is higher, the freight rate of Usd.101.376 will apply..

For easy conversion of anything to anything – pls refer tohttp://www.onlineconversion.com/