Surcharges Unlock Deeper Issues

     For a contributing opinion commentator, the measure of whether something resonates with the audience is entirely driven by feedback.
     In that respect thanks to the global Air Cargo News FlyingTypers reader community for their interest in the publication and input on our KL AF Surcharge Deal coverage during the past few days.
     Here are a few thoughts:
     We are an old industry, conservative to a fault and one that doesn’t easily change its ways.
     The rule of unintended consequences certainly applies to the fuel surcharge saga; had the industry and its officialdom tried harder and more effectively to explain the real problem – and I am going out on a limb here – perhaps the EU and U.S. antitrust authorities would have taken a different view and allowed constructive, open debate instead of a witch hunt.
     At issue is the method, not the amount. Maybe we are being naïve, but the many comments we received indicate there is a much deeper underlying structural business problem at the heart of the issue and the fuel surcharge machinations are a mere symptom.
     It should come as no surprise that freight forwarders and airlines vie for the business of the customer – what triggers my continuous amazement is how both lose sight of their respective insignificance – they are not centric, the customer is!
     They provide a service and without a customer their separate or combined services would be meaningless, and yet, the decades-old bickering goes on unabated, each blaming the other for the perceived inequities of the regime they invented and have lived with for years. How about some new ideas on what to do to satisfy the customer, not appease them?
     Anyone with background and experience in all cargo airlines can easily identify differentiation between combination and all-cargo airlines when it comes to the cargo business.
     It’s the difference between must have and nice to have, meat and potatoes versus coulis – something readers at KL/AF might appreciate!
     You can also say that difference in the survival threshold between an all-cargo airline and a belly carrier is always there, or so the thinking used to go.
     Matters have gotten more complicated with combination carriers which operate an all-cargo fleet, whether as a distinct legal entity or within the airline.
     The tenor of comments from some forwarders and GSA has been that they have been wronged forever, at the mercy of a one-sided, airline-controlled regime that makes unreasonable demands on them and exposes them to undue risks while the airlines get a free ride.
     The remarks ranged from “…the freight agents do not get commission any more” to “…The real losers are GSA’s - …It is they who suffer the most as airlines lower freight charges”.
     Another lament that many have heard for years is: “…I am a freight forwarder not a collection agent for airlines to collect many type of charges for them - …In this scenario since we are funding and collecting agents (merely freight forwarder name is there), why should we not ask for a proper percentage for collection on behalf of the airlines?”
     Clearly these are comments inspired by the principles of customer centric service mentality and attitudes.
     People – get it – you are all service providers, the world doesn’t orbit around you, whether airlines or forwarders and your petty and near sighted back biting has gone on for too long!
     If the agent model is as broken as you make it sound, why are people coming in throngs to the CNS Partnership Conference?
     Golf trumps economic survival?
     The argument has been made for more than 15 years that the combined airline/forwarder offering cannot only compete with the integrators, but can be more flexible and cost effective.
     Instead of using a little imagination and fewer egos to develop a better model, we are still mired in recriminations.
     When a forwarder cannot justify its value-added contribution to its customer, the shipper, and looks to the airline as its main revenue source, it may consider going into a different business.
     Get organized, develop and implement a house waybill standard first!
     Matter of fact, come to think of it I don’t recall e-freight mentioning this tidbit either.
     When an airline opts to share its fuel surcharge with its agents, while incurring catastrophic fuel costs in excess of 40% of total expenditures, I am at a loss for words.
     Surely they don’t need meddling outsiders to explain the 101 of business and profits to their management and shareholders.
     This is not a popularity contest.
     What loftier topic is the IATA/FIATA Consultative Council debating these days?
     The IATA web site states: “The Cargo Agency Conference (CAC) is the acknowledged leader in establishing standards and providing customer-driven distribution services to the cargo industry.
     The CAC deals with relationships between airlines and sales intermediaries involved with the selling and processing of international air cargo works.
     It works at strengthening industry capabilities, promoting industry reputation and enhancing the commercial success for both airline and agent participants.”
     So where is the beef?
     AF/KL isn’t waiting around and has evidently developed its own solution, as has NW with their IATA area-based fuel surcharge concept.
     Is this too hot a potato these days to be discussed rationally?
     Again, the method, not the amount!!!
     The AF/KL Press release and explanations regarding the surcharge mechanism announced this week state:
               •More stability (less changes in fuel surcharge level).
               •Partial integration of the fuel surcharge into the freight rate.
     To the first point, as long as fuel is bought on the open market and the airline doesn’t control its price, the implied “more stability” makes no sense.
     To the additional point of integration of the surcharge in the freight rate, taken together with the example illustrated that results in the same price under both the old and new mechanism, the question remains – how does this address and serves the issue of growing crisis level fuel prices?
     It’s up to each airline to implement whatever measures it sees fit in a free market, but I struggle with the implied benefits.
     Two days ago, on July 15, the date of the press release, the currency exchange rate shown in the examples was USD 1.30 equals EUR 0.84.
     Yesterday, July 17, the exchange rate makes this amount EUR 0.82.
     So the rate will change daily?
     It’s commendable that AF/KL is making an effort to document and explain their mechanism, which will be subject to further increases based on the fluctuations in the price of oil.
     But we can only continue to wonder, where is the gain, while hoping for the best all around here.
Ted Braun