Shippers hit with higher fuel-cost surcharges
Cargo airlines are slapping an additional 40 HK cents a kilogram fuel surcharge on long-haul air freight with the likelihood of another increase next month because the price of jet fuel has rocketed in the past several months.
The increased surcharge, effective today, means shippers will be charged a HK$1.20 per kilo surcharge on long-haul shipments to deal with the rising cost of jet fuel. Short-haul air freight will face a 60 HK cents per kilo premium on top of the normal shipping cost.
The increased charge is being implemented after an index for calculating fuel surcharges hit its highest level since being adopted last summer by the Civil Aviation Department and the Board of Airline Representatives (BAR).
The fuel index, published each week by Lufthansa Cargo, looks at the average of price of jet fuel in the five most important international spot markets - Rotterdam, the Mediterranean, Singapore, United States-Gulf and the US west coast. The index uses a base rate of 53.35 US cents per gallon of jet fuel.
Last Friday, the index peaked at 192, up from 174 a week earlier. By comparison, the index stood at 129 on July 19 when it was first adopted.
Cathay Pacific Cargo manager for sales development and chairman of BAR's cargo sub-committee Leung Kwong-kuen did not foresee the additional charges to have an impact on demand for air freight.
'The industry is used to fuel-driven costs. It's not something that we airlines can control,' Mr Leung said.
'The biggest factor this year has been fuel prices. Everything else in the market has been normal up to now.'
The new surcharge regime has four trigger points at 115, 135, 165 and 190. If the price of fuel exceeds each level for two consecutive weeks, the airlines have the option of implementing an additional charge.
Industry sources said it was likely the surcharge would rise again on March 1 if jet fuel prices stayed at present levels.
'Most of the BAR airlines will choose to follow [the surcharge] if fuel prices go up. But remember, the surcharge can also fall if fuel prices go back down,' Mr Leung said.
So far, no freight forwarders had opposed the surcharge: 'We have already had consultations with the shippers and freight forwarders.'
The surcharge system is complicated by the widely varying contracts and complicated shipping rates set between the airlines and freight forwarders.
Most large shippers have some form of 'surcharge protection' built into their contracts, meaning smaller shippers could be disproportionately hit.
Philips Electronics China Group director of transport and storage Steve Au-Yeung said 'small and medium-sized shippers will probably be hit the hardest by the surcharge' since their contracts were usually negotiated on a floating basis.
'They are not likely to have any fuel price protection,' he said.
Still, the surcharges are likely to have a small overall impact as the market is in the midst of its slowest period.
Some airlines are believed to have lowered their shipping rates by as much as 5 per cent to 10 per cent from the pre-Lunar New Year peak season.
Dragonair cargo manager Alan Lai said: 'I think all the airlines have lowered their rates in February and won't raise them again until later in March.'
Graphic: fuelxgbz
