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Freight Knowledge Centre

Resources and FAQs on freight forwarding for logistics and supply chain professionals

Freight Knowledge Centre - Resources and FAQ's on freight forwarding for logistics and supply chain professionals

How to calculate Chargeable Weight?

If weight in kg > Volumetric weight:

Step 1: Calculate the volume of the air freight shipment

Step 2: Convert the imperial measurement (cubic inches) into cubic meters

Step 3: Finalise the volumetric weight

Step 4: Convert weight into kilograms

Step 5: Compare the gross weight with the volumetric weight.

If weight in kg < Volumetric weight:

Step 1: Calculate the volume of the air freight shipment

Step 2: Convert the imperial measurement into cubic meters

Step 3: Finalise the volumetric weight

Step 4: Convert weight into kilograms

Step 5: Compare the gross weight with the volumetric weight

How to calculate Volumetric weight?

All freight transportation modes are governed by weight and cubic measurement factors, where the carrier will charge on the basis of Actual Weight or Volumetric, whichever is deemed to be the greater.

The IATA / Airline Cubic Allowance Factor for Air Freight Shipments is 1 Kilo = 6,000 Cubic Centimetres.

The illustration below shows you how to calculate the Volumetric Chargeable Weight:

Let’s assume the actual gross weight of this carton is 14 Kilos.

The carton measures 30 × 45 × 65cms which is 87750 Cubic Centimetres.

Divide this figure by the IATA/Airline Cubic Allowance Factor of 6000 Cubic Centimetres = 14.625 Kilos.

In this instance the Air Freight charge will be calculated on 15 Kilos volumetric, rather than the 14 kilos actual weight.

What is IATA?

The International Air Transport Association is a trade association of the world's airlines founded in 1945. IATA is the cartel that sets technical standards for airlines and also organizes tariff conferences that serve as a forum for fixing prices.

What are the advantages & disadvantages of Air Export-Import?

High speedHigh cost
Allows Transport of Perishable GoodsHigh Risk
No Infrastructure Investment RequiredSmaller Carrying Capacity
Ease of AccessUnreliable
Reduced Damage Risk
Global flexibility for Shipping
Consistency Of Arrival & Departure
This is useful for Agriculture
End To End Services
Reduce Dependence On Warehousing
Low Premium

Air Freight charges explained (FSC & SSC)

Fuel Surcharge or FSC: Fee assessed by a carrier to account for regional / seasonal variations in fuel costs. A fuel surcharge is most often seen in trucking, but an ocean or air carrier may also assess a fuel surcharge. This helps protect the carrier from the volatility of fuel prices.

Sensitive Cargo Contribution Surcharge or SSC: SSC Surcharge is mainly used in pharmaceuticals and the chemical industry. This is applicable in cases where the cargo needs to be taken extra care of while shipping, eg. medicines, vaccines, blood plasma, medical devices, vitamin supplements, medical disposables, etc. Shipping lines have to take additional care while handling such cargo so they add the additional SCC surcharge for such types of cargo. This information is provided by the shipper in RFQ.

What are the taxes applicable on Air Freight?

Several taxes are levied on air freight services and understanding them is important if the company wants to use air freight services regularly. Some of the taxes are listed below:

Fuel tax: Air freight services come under non-commercial aviation services and hence are included under the purview of fuel tax. Airfreight services also need to consider an additional 0.1% leaking basement storage reservoir trust fund.

Waybill tax: In some countries, tax is levied on all air freight shipments within the country. The tax rate is 6.25% for all domestic shipments. In air freight services, the shippers are responsible to deposit the tax imposed and failure to do so will result in penalties to be paid by the transporters.

Storage of shipment: Shipments sent using air freight are stored in special containers so that they fit inside the cargo hold. Cargo planes have electric rollers that help to move the freight into the aircraft clutch. This helps to handle large quantities of freight compared to commercial aeroplanes.

Many air freight services will add an extra surcharge on their quotations and bills to cover up the lost revenue that they spend in paying taxes. It is always a good thing to read the contract details completely if the company wishes to hire air freight services.

What is the importance of FFA in the Air Cargo Movement?

Forward Freight Agreements initially appeared in shipping in 1991 (developed by H. Clarkson and Co. Ltd) but their use increased after 2000 and have gained popularity ever since. FFAs were initially negotiated Over the Counter (OTC) and not in an official exchange market and this made them more popular since these contracts were more specific and tailor-made as compared to setting a specific index only, as happened in BIFFEX.

However, after a few years of their use, organized exchanges and trading platforms also appeared which is why we now see both exchange-traded and OTC-traded FFAs. For buying or selling FFAs, there are broking companies who specialize in this service and have registered staff.

How do FFAs work?
A Buyer and a Seller agree to trade an FFA contract and through their broker, they will agree on the route, period and negotiate a price. Trades are not published and all deals are done on the basis of trust. When the contract expires (settlement date), if the agreed price is higher than the settlement price, the seller will compensate the buyer for the difference. On the other hand, if the fixed price is lower than the settlement price, the buyer will compensate the seller for the difference. The settlement price is usually the average of the month for the T/C average routes of BCI, BPI, BSI and BHSI or the average of the month for tanker routes, while in some cases/routes, the average of the last seven days of the month may be used. The difference between the contract price and the settlement price is multiplied by the cargo size (in case of voyage) or voyage duration (in case of T/C) to determine the payoff of the contract.

Since FFAs were initially traded Over-the-Counter, there was a counterparty risk which was borne by each party. This was the main problem when trading FFAs during the early years, since the losses from counterparty defaults were high. For this reason, a clearing system was developed by which the FFA contracts (either exchange traded or OTC traded) are guaranteed. With this clearing system, upon fixing an FFA contract, each counterparty deposits his account with a clearing member initial margin (deposit). This initial margin is in the form of cash or securities and it is usually about 5-10% of the open position. If the margin account falls below a predetermined point (“maintenance margin”) which is about 3-5% of the open position, a top-up is required (“variation margin”) in order to raise it to the Initial margin level. Due to the large losses which may be suffered in case of a default the FFA market has been totally transformed within a period of 10 years and while more than 90% of the trade in 2004 was not cleared, we now see that more than 95% of the FFA transactions pass through a clearing house with the process analyzed above.

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