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   Vol. 14  No. 12
Saturday February 7, 2015

Oil Dip Fuels India Cargo

Oil Dip Fuels India Cargo

     The sharp fall in global crude oil prices by nearly 35 percent over the last year has awakened the freight forwarding industry in India. Other than the forwarders, it is the express industry that uses airlines. So, it was not surprising when the Express Industry Council of India (EICI), the apex body of express delivery service providers in India, demanded the immediate withdrawal of Fuel Surcharge (FSC) levied by domestic airlines.
     Presently, the domestic airlines in the country charge between Rs 13 to Rs 16.50 per kilogram (0.21-0.28 cents) as fuel surcharge.
     The EICI has also asked the Civil Aviation Ministry and the Director General of Civil Aviation (DGCA) to look into the matter and ensure that the domestic carriers set right the FSC and bring about a transparent and market-driven mechanism for the determination of the surcharge in the future.
     Fuel surcharge on shipments is levied on a per kilogram basis and was introduced in May 2008 to counter the volatility in fuel prices. Air Turbine Fuel (ATF) prices then were Rs 58387/kl (at Delhi Airport). The FSC were then fixed by airlines at Rs 5/kg for cargo shipments. “Currently, the ATF price is at Rs 52423/kl, which is 10 percent lower than the 2008 price, but the FSC charged is as high as Rs 16.50/kg for the cargo shipments. In the past as well when fuel prices fell, airlines continued to increase their FSC.
     “Airlines need to appreciate that FSC is purely a tool to mitigate volatility and cannot be part of cargo rates,” said an agitated Vijay Kumar, chief operating officer, Express Industry Council of India.
Globally, airlines benchmark FSCs to a reference like the Brent crude movement or an index like USGC (published by US Department of Energy). Even in India, Blue Dart Aviation, a cargo airline references their FSC to a Brent index. Doing that would be fair to the trade and bring down transaction costs of the Indian businesses using air cargo, including the large number of micro exporters and medium and small industries, a key component of the government’s thrust to industrialize the country, Vijay Kumar said.
     Kumar went on to give the example of IndiGo: The airline charged Rs 5/kg as FSC in May 2008, while in May 2014 it charged Rs 15/k when ATF was Rs 71034/kl, and Rs 16.50 in December 2014 when the fuel price was Rs 59943/kl. Other carriers were also levying FSC at around the same rates.      Hence, the subsequent demand by the industry to stop the fuel surcharge.
     Meanwhile, EICI, along with a large number of exporters, is hoping that India’s Foreign Trade Policy (FTP) does come through. It has been more talked about than seen. Once the FTP—valid for a five-year period with the latest one from 2014-19—is notified by the Central Board of Excise and Customs (CBEC), it will allow small exporters to send out shipments at cheaper rates.
     Exporters sending small shipments through the cargo option have to do a lot of paperwork. A Custom clearance charge has to be paid by these exporters per package, which is often more than the price of the contents in the package. These exporters are hoping that with the FTP, they would also be able to send goods abroad to consumers buying on the net.
     Courier operators believe that the FTP will help small and micro exporters reach their global consumers because the country’s exporters would not have to go through a number of cogs in the freight chain to deliver goods to the customer. These include transportation at the origin and the destination, air transport, clearing agent, etc. Once the way is clear for couriers, not only would tariffs for small export packages reduce substantially but these will basically be done by a single entity.
Tirthankar Ghosh

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