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Surcharges: Fair or foul?

By Hpanchal on October 31, 2011

Joost van Doesburg, airfreight policy manager at the Dutch Shippers’ Council (EVO), is on a mission to squash surcharges. Well, he doesn’t really want to do away with them altogether; his quest is to simply have carriers add these extra fees into their base rates.

Surcharges are a relatively new trend. Tariffs on goods historically made commodity pricing the easiest and most fair solution for slapping a fee on shipped goods, but once tariffs were abolished, the industry went to a weight-based system. As fuel prices skyrocketed and extra security processes were tacked on in the early part of this century, carriers set about looking for a way to recoup these expenses.

The solution: add a sliding fee to the base rate that adapted to shifts in the market, but that was not negotiable. Negotiations were left for the base rate, not the surcharges.

Last summer, van Doesburg sent out a survey to his members, along with a few freight forwarders based in the Netherlands, to measure the current climate toward surcharges. Though he knew in a general sense what shippers would say — he’d been hearing their complaints for a while — the survey would form the basis of a colleague’s masters degree, so he sent it out anyway.

Joost van Doesburg

Joost van Doesburg

“When you let shippers talk about their biggest problems with airfreight, they would always say surcharges,” he says. “Some would say fuel, others would say security, but it is definitely surcharges that are the biggest problem. There is no transparency.”

The survey results form a comprehensive rejection of those fuel and security charges, which carriers have justified as an additional cost of doing business. Van Doesburg says that in regard to the security surcharge — usually a blanket fee of €0.15 per kilo — more than 50 percent of the respondents “did not believe that the amount of this security surcharge was invested in improving the security.”

He calculated out the surcharge fees for one airport, Amsterdam Schiphol, and found that around €108 million a year is collected by carriers in the name of security.

“One really big freight forwarder — and I cannot give his name — said, ‘OK, if they would invest €108 million each year in improving the security, there would be three golden gates surrounding Schiphol Airport,’” van Doesburg says. “If shippers don’t believe it, and freight forwarders don’t believe it, it’s probably not true that they use this kind of money for the reason why they are collecting it.”

Dutch shippers think the security charge is a bit dubious, but carriers take the stance that fuel and security charges create transparency, not take it away, says Bob Imbriani, vice president of corporate development at Team Worldwide. “I think they use them to present to the public that, ‘Well, we’re really not charging any of this. Look at our airfreight rates — they haven’t changed; they’ve really gone down, and all [surcharges] are just reflecting other conditions we have no control over.’”

The one positive aspect of surcharges is that they don’t usually vary across trade lanes. Imbriani says that a carrier’s fuel surcharge rates may be a little different in some regions, “but by country of origin where they set the rates, they’re usually consistent for the whole country, regardless of the destination.”

A number of airlines contacted for this story didn’t wish to discuss their surcharge strategy. The driving forces behind deriving surcharges all seem to vary a bit, though.

United Cargo bases its fuel surcharge on an average fuel cost tabulated using “representative jet fuel spot price markets from around the world,” according to a company brochure. The carrier also reserves the right to apply new surcharge amounts based on market conditions and local governments.

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Comments

Submitted by Mike on

Another option is for shippers to hedge their exposure to the fuel surcharge, something several shippers are already doing today.

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