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1 Jan 2013

Introduction


The Air Cargo Market


The Air Transport Mode

For someone who wants to send a shipment door-to-door and over a medium to long distance fast, the air transport mode will best fit this purpose.

With air transport, cargo can be transported in different types of aircraft:
  • Passenger aircraft 
    • in the cargo area below the passengers, the so-called "belly" 
      • look here for an example: the Airbus A320 (ANA) 
      • look here for an example: the Boeing 737 NG (Boeing) 
      • look here for another example: the Airbus A380 (Emirates on Airliners.net) 
      • look here for another example: cross-section of the Airbus A330 fuselage (Wapedia) 
    • in the passenger cabin as hand-carry by a so-called "on-board courier" (OBC) flying as passenger, sometimes also called "hand-carry services" 
      • the OBC is mostly an employee working for a forwarder or courier service (see below) and can also take care of the total door-to-door transport, all eventual customs formalities for export or import, as well as the hand-over at destination 
      • this type of service is mainly used for very urgent or valuable documents and small goods ; as with all cargo services, also here the entry requirements and customs regulations of the country of import, as well as the regulations for restricted articles on board of the aircraft must be known and adhered to 
  • Cargo aircraft, or: Freighters 
    • on the main-deck or in the belly ; by means of nose-loading, where the whole nose is opened, or side loading, through a large cargo door 
  • Combi aircraft 
    • on the main-deck behind the passengers’ area with side loading through a large cargo door, and in the belly 

As you can see in the examples above, the dimensions of the aircraft can vary, which of course also influences the amount of passengers and/or cargo that can be taken. The amount and weight of cargo that can be carried depends a.o. on the fuselage dimensions (esp. the diameter) of the aircraft. For the bigger aircraft or airliners a difference is made between narrow body and wide body aircraft.

See also the "Cargo Aircraft Specifications" item in the right-hand column of this website --->



Volga-Dnepr Ilyushin Il-76 freighter



Air Cargo Facts

According to different sources, air cargo represents less than 0.5 percent of the weight of all international cargo, while at the same time this segment represents around 30 percent of the total worldwide shipment value.

According to plane maker Boeing in 2012, cargo-only aircraft or freighters handle about 60 percent of global airfreight shipments, while passenger planes fly the other 40 percent in their bellies.



Shipping By Air: Parties In The Market



Someone wants to ship a parcel from Los Angeles (LAX) to Hong Kong (HKG)



From a potential shipper’s or customer’s viewpoint, the international (door-to-door) air cargo market can be divided in four major supplier categories according to their core business:


The real air transport (or: airport-to-airport) part is actually outsourced by these companies to an air operator or airline (except in case of the Integrators, that operate an in-house aircraft fleet for the main part of their air transport needs and outsource only partially).

The combined airlines have the biggest share of this world wide air transport market for cargo.

So the above mentioned Postal companies, Couriers, Integrators and Forwarders, are the cargo customers of the airlines ; and thus the airlines are their suppliers or partners.

The air cargo forwarders are the ‘traditional’ and still most important customers for the airlines. According to FIATA, forwarders contract, book and process over 80 per cent of international air cargo consignments. They compile the complete and (where necessary) customized door-to-door (D2D) air cargo supply chains for their customers, which are often called end-customers by the airlines. The airlines deliver the airport-to-airport (A2A) transport in this chain.



The Air Cargo Supply Chain

When a demand on one place is supplied from another place with air transport as the main transport mode, an air cargo supply chain must be compiled.

Air transport is relatively expensive, but often the fastest mode of transport available to cover medium to long distances.
Therefore typical air cargo consists of goods with a high value and/or an operationally or commercially critical delivery time (high financial breakdown risk):
  • Airmail, diplomatic mail 
  • Live animals, hatching eggs, human organs, human remains, medical supplies 
  • Express parcels 
  • Perishables (food, flowers, dry-ice shipments) 
  • Pharmaceuticals 
  • Valuables (money, gold bars, diamonds) 
  • Technical supplies (high tech, oil & gas, aerospace, automotive, ship spares) 
  • Luxury consumer goods (electronics, fashion goods, accessories) 

A typical air cargo supply chain consists of the following steps:





(yes I know you'd better get to HKG the other way round but I have no other map, and besides we need this set-up further on in the process... :)



A good (2009-2010) presentation on the air cargo market can be found here on slideshare.net: Air Cargo 101.

Read about the most important differences between the passenger airline industry and the cargo airline industry here on Air Transparency: The unique air cargo industry.






Cargolux Boeing 747-400F takeoff




I invite all of you in the industry to contact me for corrections or additions, 
and who are new in the business to question me 
in order to improve the information on this site! 



go back to: Start Page >>>
move on to the first process step: Shipping >>> 













16 Mar 2011

Shipping

The shipping process further explained





The door-to-door air cargo process starts with the shipper. -  A shipper is the person or company that is physically and administratively responsible for shipping the goods ; nothing more and nothing less.

Although in a lot of cases the shipper is also the customer of the forwarder, this is not necessarily so.  The customer can just as well be the consignee, or a third party that has ordered the goods stored at the shipper’s location to be shipped from A to B.  For this same reason, the shipper also does not need to be the owner of the goods.  This all depends on the delivery terms (or: Incoterms) that are agreed between the parties involved, e.g. a buyer, owner of the goods, a seller, a maintenance company, a distributor, a transport company, a forwarder, etc.  (For more information on Incoterms look here on The Cargo Channel.)

For security reasons these days the shipper must be a known shipper for the forwarder and thus also for the next steps in the process.

Often there is a steady relationship and a financial / credit arrangement between a shipper / customer and one or more forwarders that take care of the worldwide transport of the shipped goods.  The shipper / customer will generally request a freight quote at one or more forwarders, and then select the forwarder that will become responsible for the shipment(s).  (Look here at KG SID for the elements of a freight quote.  The service a shipper / customer can expect from a forwarder may partly depend on how his own strategy is set up, see: Strategic Shippers vs. Transactional Shippers ; also see: The 7 Habits of Highly Effective Shippers.)

The shipper is responsible for efficient assembly of the shipment in terms of volume, weight and packaging in order to …
... get the best price / volume utilization of the aircraft pallet or container
... avoid damage to goods, people and aircraft.


Photo source: Kuehne + Nagel


(Look here for FedEx' packing tips, tools and guides for packages and here for FedEx tips for packing LTL freight.)

When the goods are ready for transport (RFT = correctly packed, labelled and with the right documents for forwarding as well as road transport as the next steps), the shipper orders transport of the goods.  
  • Depending on the transport agreement with the forwarder, this road transport can be organised by either the forwarder or the shipper.

The goods are picked up at the shipper’s warehouse for delivery by road transport at the warehouse of the forwarder who organizes the further air cargo process.  
  • Depending on the internal organisation of the forwarder’s or shipper’s processes, the road transport can be executed either with in-house operated trucks, vans or personnel or by a third party-.  
  • The transport company (or the forwarder) will give the shipper a proof of acceptance (POA).


CEVA US trucking


Process overview:




How To Pack A Box! (Propper item packing techniques for air, ground and sea freight).


USPS Packing Tips - Packing the Box




Important advise and considerations for the air cargo Shipper:


Your national of international shipping process should be part of your Logistics Plan (checklist).  You want to control your logistics flow and shipping terms (incoterms).  Because your shipments will probably be part of your own or your customer's supply chain (being costs or a profit tool), you want to assure timely arrival of the shipment and consider your logistic timeline.

Forwarding out


The outgoing or export forwarding process further explained 

The goods are delivered at the forwarder’s warehouse. 




The forwarder, sometimes also called expeditor is the ‘architect’ of the air cargo supply chain.  A forwarder or expeditor can be IATA certified ; in that case he is referred to as agent.  An agent is an IATA certified expeditor or forwarder that … 
... has been thoroughly checked for financial status
... has enough air cargo potential
... has the right facilities for handling air cargo
... has trained personnel for handling air cargo and dangerous goods
... receives commission from the IATA associated airlines
... may use the airline’s Air Waybills 


Depending on the agreement with the forwarder’s customer, the forwarder organises:
  • Outgoing handling or export handling & customs clearance of the customer’s shipment,
  • Air transport from a nearby airport to an airport near destination
  • (optional) Further incoming handling or import handling & customs clearance near destination
  • (optional) Delivery at final destination (consignee)


The forwarder will buy space at the airline's sales or customer service department, or in case of a foreign airline sometimes through the airline's General Sales Agent, a GSA(A short note about the GSA: An airline can decide to appoint a GSA when it proves beneficial to have the lower and more flexible costs of a hired local sales team instead of setting up an own sales-team, which is often more expensive and has fixed costs.  Some sources claim the performance of a good airline sales-team will in the end always be better than the performance of a GSA ; I guess this can probably be managed upfront in a good tender, contract and performance review process though.  Probably a good tip in selecting a GSA is for the airline to check with their potential local customers, the forwarders, in advance, because they know the market best.)


(Airline) Pricing


Air cargo is generally sold for a fixed price or a fixed rate per kilogram, often with a minimum charge to cover basic expenses of shipment handling.  Customers (forwarders) with a continuous demand of space on one or more specific routes, or with a continuous turnover with the airline overall, will negotiate and contract their own space and pricing details with the airline.  Sometimes also so-called 'spot rates' can be requested for ad-hoc shipments.  And it is also possible the airline offers special rates to assure the aircraft's capacity will be filled.  Take a look here on ezinearticles if you want to know a bit more about by whom and how air freight rates are calculated.  Basic air cargo rules and rates are laid down in IATA's TACT (The Air Cargo Tariff) ; rates are negotiable based on your shipped volumes and on capacity vs demand on the requested routes.

An important factor in air cargo pricing (with the airlines, but also with the large integrators DHL, FedEx, UPS and TNT) is the dimensional weight conversionAs stated here on Wikipedia: by charging only by weight, lightweight, low density packages become unprofitable for freight carriers due to the amount of space they take up in the (often very expensive) truck/aircraft/ship capacity in proportion to their actual weight. The concept of Dimensional Weight has therefore been adopted by the transportation industry worldwide as a uniform means of establishing a minimum charge for the cubic space a package occupies.  Therefore the volume is converted into a (higher) weight / price class.  Take a look here on Export911 to see the weight or measure factors for different transport modes.

Another factor in air cargo pricing are the surcharges that can be added by the airline (and therefore also the forwarder).  A fuel surcharge can be added to cover the additional costs of increasing fuel-prices ; these will generally follow a certain index.  A security surcharge can be added to cover the additional costs of the increasing number of security checks and related administration that are legally required by the authorities. 
There is a lot of discussion these days whether or not these costs should actually be a part of the overall air cargo rate, as these surcharges tend to be even higher than the actual air cargo rate sometimes.

Of course the airline will try to optimize their expensive cargo capacity on board of the aircraft, and try to sell this capacity at the highest revenues.  This is called airline cargo revenue management ; look at some of the principles and challenges for this here in Sabre Airline Solutions' Whitepaper.





Booking


First step after the pricing is obtained, is to make an airline booking for the shipment and get the airline’s confirmation in order to assure space on board of an aircraft:
  • Airline (Master) Air Waybill number assigned 
  • Origin and (final) destination
  • Type of goods / commodity (especially important for dangerous goods, perishables and valuables)
  • Flight date
  • Flight number
  • Weight, volume and dimensions of shipment
  • Number of colli
  • Issuing agent / contact details
  • Eventual assignment to customer (agent's) allotment


The reservation will be validated against the airline's capacity, commodity and revenue management criteria, and will be officially confirmed as soon as the booking is accepted.  Now the booking process is complete.



In case of a so-called blocked-space agreement in which the forwarding agent has a continuous reservation (allotment) for space at one or more flight / date combinations with an airline the booking process may sometimes go slightly different, but the basics are the same.

There are a few recommendations in order to assure a smooth process for the airline and the customer:
  • Make the booking at the earliest possible stage, and ask for (and meet) the latest possible delivery time of your goods (esp. in case of dangerous goods, live animals, perishables, valuables, etc.) at the airline's handling agent
  • Check for specific commodity restrictions with the airline or the country of destination.
  • Do not make bookings for the same shipment at several agents or airlines ; if you have to cancel do this timely, also in case you are not going to use (part of) your allocation.  Aircraft space is very expensive!
  • Do not exceed allotments and/or shipment weights without consulting the airline first.  If noticed your shipment will certainly be stopped, and if unexpectedly unnoticed this is a potential air safety threat!
  • Make sure the information on your shipment documents are exactly in line with the actual shipment details, dimensions and weight. 
  • Make sure you have made all the necessary security arrangements.  Cargo from 'unknown shippers' or with otherwise suspicious characteristics will certainly be stopped.


Preparing the shipment



In order to keep track of the different customer’s shipments from one exact address to another, the forwarder makes a House Air Waybill (HWB) for each such shipment. The House Airwaybill is the shipment contract between the end-customer and the forwarder, so basically the forwarder acts a a carrier towards the shipper. (This is also called a Non-Vessel Operating Common Carrier or NVOCC, which is a shipment consolidator or freight forwarder who does not own any vessel, but functions as a carrier by issuing its own bills of lading or air waybills and assuming responsibility for the shipments.)


Next step is to make the goods ready for carriage (RFC)
  • Correctly packed, labelled and
  • Customs cleared for Export (if applicable), and
  • With the right documents and security checks for air transport as the next step, as well as for incoming or import handling and clearance (if applicable) at destination


Often the forwarder combines shipments of different shippers travelling the same airport-to-airport stretch into a consolidation, because … 

Air Transport

The air transport process further explained

The goods (or consolidations) are received at the airline’s handling agent warehouse.

Air France Cargo handling (Boeing 747)


The handling agent will often be a separate company contracted by the airline, but cargo handling can also be an in-house function of the airline, especially at a major hub
Also the airlines often offer their in-house cargo handling as a commercial service to other airlines.   The handling agent takes care of the air cargo handling at the airport, to and from the aircraft. 
Depending on the kind of goods, destination (flight number) and urgency, delivery at the handling agent has to be done within a certain norm-time before departure (TBD) of the aircraft, also called a slot or a slot-time.

The whole physical air transport process can be pictured by the following steps:


A variant in the air cargo process can be to get to the destination in two or more steps instead of one, then the shipment goes into a transit:



Whether a direct or a transit process should be used is up to the forwarder (where necessary in communication with the shipper) and depends on required price, throughputtime (also in relation to flight schedules of different airlines) or special cargo requirements (security, live animals, etc.) 

In case of a transit shipment the process in between the flights will look like this:




Or in some special cases or high priority cargo services, if the connection time allows,  the transit process can even look like this:



Besides the physical handling, other important functions of the handling agent are:    
  • To control the overall weight & balance of the airline’s aircraft on the cargo side, make a load sheet and assure flight safety (view a video explaining weight & balance here on CargoHub.nl or find another weight & balance explanation here on the Free Online Private Pilot Ground School),  
  • To make a cargo manifest for all the goods on board, for the airline’s import and export declaration to customs
    • This is a high level customs declaration as opposed to detailed customs declaration by the forwarder or customs agent    
  • To make a notification to the captain of the aircraft (NOTOC) to inform the crew about potential risks of the cargo on board in case of emergencies (dangerous goods, live animals, valuables, etc.), as well as for the right conditioning (temperature) of the cargo holds 
  • To plan & control bookings, slot-times, goods flows in the warehouse, and ULD and flight bag flows from and to the aircraft in order to prevent delays and assure correct execution of the airline’s time-table    
  • To plan & control worldwide ULD stock 
 


The incoming checks before loading and departure of the aircraft are of vital importance for the airline as well as rest of the process :

Air Transport 2

The air transport process further explained - one step deeper into the process

The export / outgoing shipments are received from the customer / forwarder at landside and prepared and consolidated for flight:




Menzies cargo handling




Then the consolidated cargo is moved in ULD’s or bulk to airside and loaded in the aircraft for transport to the airport of destination:


See a Civil Aviation Authority (CAA) and UK aviation industry aircraft loading instruction video on safety in the balance here on CargoHub.nl.




 Menzies ground handling




The incoming / import cargo is broken down again at landside and first the documents and then the shipments are handed over to the customer / forwarder:





I invite all of you in the industry to contact me for corrections or additions, 
and who are new in the business to question me 
in order to improve the information on this site! 


 
go back to: Air Transport       >>>
move on to the next process step: Forwarding in     >>>









19 Feb 2011

Forwarding in

The incoming or import forwarding process further explained

The receiving forwarder picks up the shipment documents at the handling agent.
This pick-up can be done by the forwarder himself, or can be outsourced to a local courier.

The forwarder prepares import documents (if necessary), performs customs clearance for import (electronically or manually) and awaits approval from customs.
  • If the forwarder is also a certified customs agent, he will perform the clearance himself (forwarding agent) ; if not he can outsource these activities to a certified customs agent.
  • A certified customs agent will always have a financial / credit arrangement with customs to cover eventual import duties and/or VAT due, often by means of a deposit at customs.
  • A  customs agent knows how to exactly classify the goods for import according to regulations ; this is done based on the packing list and (pro-forma) invoice, so the packages remain unopened.
  • Also a customs agent is trained and experienced in acquiring and applying special customs arrangements, licences and exemptions in order to lower or avoid import duties or to speed up the customs process where possible.
  •  Customs clearance is never the end-responsibility of the customs agent though, this responsibility remains at the principal and depends on the agreed delivery terms.

K+N office ; photo source: Kuehne + Nagel



At this stage customs can decide to release or hold the shipment for inspection, whereby the packages are opened, and can demand payment of import duties or even fines depending on the customs regulations and judging the type of information given by the customs agent against these regulations and the actual commodity of the goods to be imported



Drug detector dog ; photo source New Zealand Customs



After approval by customs (which must be proven to the handling agent, because the goods are stored under supervision of customs), the pick-up of the goods at the handling agent is ordered, and the goods are delivered at the forwarder’s warehouse
  • Again, depending on the internal organisation of the forwarder’s processes, this road transport can be executed either with in-house operated trucks, vans or personnel or by a third party






Panalpina warehouse barcode scanning ; photo source: Panalpina




The forwarder splits the shipments, makes them ready for transport again, and orders

Consignment


The consignment process further explained

The door-to-door air cargo process ends with the consignee.
  • A consignee is the person or company that is physically and administratively responsible for accepting the goods at final delivery ; nothing more and nothing less
  • Although in a lot of cases the consignee is also the customer of the forwarder, just as with the shipper, this is not necessarily so.  Also here, the customer can just as well be the shipper, or a third party that has ordered the goods stored at the shipper’s location to be shipped from A to B.  For this same reason, the consignee also does not need to be the owner of the goods.  This all depends on the delivery terms that are agreed between the parties involved, e.g. a buyer, owner of the goods, a seller, a maintenance company, a distributor, a transport company, a forwarder, etc.

K+N delivery in Hong Kong ; photo source: Kuehne + Nagel



The consignee will give a proof of delivery (POD) to the forwarder’s transporter.
After receipt, the packages are opened and the contents are checked against the packing list and invoice.
  • In case of payment at receipt, and if the goods are received in good order and the right quantities, the goods will be released for payment by the consignee.
  • If the quantity received is not correct, the financial as well as the customs administration should be corrected afterward, which is the responsibility of the consignee.



Process overview:




I invite all of you in the industry to contact me for corrections or additions, 
and who are new in the business to question me 
in order to improve the information on this site! 



 


Cargo 2000

Cargo 2000 (C2K)
Cargo 2000 (C2K) is a self-funded, IATA sponsored interest group of major airlines and freight forwarders.  Cargo 2000 is an industry initiative aiming at implementing a new quality management system for the worldwide air cargo industry.  The objective is simple: to implement processes, backed by quality standards, which are measurable to improve the efficiency of air cargo.

Cargo 2000 re-engineers the air cargo transportation scheme from shipper to consignee. Individual processes in the door-to-door air cargo supply chain are reduced from 40 to just 19, cutting down on operational costs and enhancing customer service: export forwarding is divided in 7 steps, air transport and handling also in 7 steps, and import forwarding in 5 steps.  By means of electronic data interchange (EDI) between the parties, each step is kept track of.  These steps are called milestones.  A milestone is reached if a number of conditions (depending per step) is fulfilled.

For example, for air transport the seven milestones are:

  • FWB =  the shipment is booked at the airline, next an electronic air waybill is generated by agent (forwarder) ; this creates the so-called route map in C2K in which all the steps are followed
  • RCS =  cargo and documents are received 'Ready For Carriage' and accepted by airline (handler)
  • DEP = cargo and documents departed at airport of origin
  • ARR = cargo and documents arrived at airport of destination
  • RCF =  cargo has arrived in the cargo bay at final destination ; cargo and air waybill are administratively received in the system
  • NFD = cargo and documents ready for pick-up at airline (handler), the customer (forwarder) is notified
  • DLV = cargo and documents delivered to customer (forwarder)

In each of these steps something may go wrong, which has it's consequences for the following steps and / or the planned throughput time of the shipment ; these occurrences are logged.

Here C2K uses two key performance indicators (KPI's) to determine whether the air transport process is going as planned:
  • FAP = Flown As Planned (the complete shipment has flown at or before the last planned flight with a maximum 12 hour delay)
  • DAP = Delivered As Promised (NFD in full and on time statuses are achieved)


Kerry Logistics data centre



Measuring all these steps make it possible to track & trace shipments, and provide quality performance reports to all parties involved.  Evaluation of the performance will then lead to process improvements where necessary.

Look for a detailed explanation about Cargo 2000 in this presentation on IATA's site and here in SkyTeam's introduction on e-freight.  Read about the Cargo 2000 Master Operating Plan in this presentation on IATA's site.  Read more about the background and read the latest Cargo 2000 newsletters here on IATA's site.

More and more customers now choose Cargo 2000 companies among their preferred suppliers as it provides quality performance backed by reliable data.

Read more about Cargo 2000 and the value for airfreight shippers here on The Shipper's Voice.
Read more about the Cargo 2000 process here in Kuehne + Nagel's "Cargo 2000 in Practice" brochure.

Cargo 2000 is rapidly becoming more relevant and accessible for all parties involved - read about it here in Air Cargo News.




The official Cargo 2000 logo




I invite all of you in the industry to contact me for corrections or additions, 
and who are new in the business to question me 
in order to improve the information on this site! 


 

 

18 Feb 2011

e-Freight

e-Freight





e-Freight aims to take the paper out of the air cargo supply chain and -processes and replace it with cheaper, more accurate and more reliable electronic messaging. Facilitated by IATA, the project is an industry-wide initiative involving carriers, freight forwarders, ground handlers, shippers and customs authorities.

According to IATA, each air cargo shipment carries with it as many as 30 paper documents – enough to fill 80 Boeing 747 freighters every year!  These air cargo shipment documents consist of the following categories:


  • Trade documents
    • Invoice
    • Packing-list
    • Certificate of Origin
  • Transport Documents
    • Flight Manifest
    • Air Waybill
    • House Manifest
    • House Waybill
  • Customs Documents
    • Import & Export Cargo Declaration & Release
    • Import & Export Goodss Declaration & Release

    A good presentation on how the paperless e-freight process works, step by step with all the related EDI (Electronic Data Interchange) / FSU (Freight Status Update) message flows, can be found here on IATA's website, here in a powerpoint presentation of CCS Hungary or here on the site of CCS Hungary ( > downloads > AWB presentation)

    Find out more about e-freight and how to get started here on IATA's e-freight site,  IATA created a self-assessment tool and provides a capability matrix of air cargo IT providers, an e-freight savings calculator and  several matchmaker tools.

    Further information here on Air Cargo News or here on Air Cargo Netherlands site. 



     The official IATA e-freight logo






    Photo source: SDV



    I invite all of you in the industry to contact me for corrections or additions, 
    and who are new in the business to question me 
    in order to improve the information on this site! 


     

    The Air Mail Chain

    The Air Mail Chain

    How does Air Mail work? What does the Air Mail chain look like?

    Airmail is probably the oldest air cargo service. Generally there is one postal organisation per country. In the old days tariffs with the airlines were negotiated by the government as owner. The home carriers were and are often best positioned for the local postal organisation airmail flows. They transport the airmail to other countries, where the mail is exchanged against internationally established protocols and tariffs (see the site of UPU also).


    A typical airmail chain consists of the following steps:






    And in some more detail:




    There are five basic differences between the airmail chain and the normal air cargo chain: