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Freight Knowledge Base 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

Frequently Asked Questions About Air Freight

How to calculate Chargeable Weight?

If weight in kg > Volumetric weight:

Step 1: Calculate the capacity of the air freight shipment

Step 2: Convert cubic inches into cubic meters

Step 3: Finalise the volumetric weight

Step 4: Convert weight into kilograms

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


If weight in kg < Volumetric weight:

Step 1: Calculate the capacity of the air freight shipment

Step 2: Convert the cubic inches into cubic meters

Step 3: Finalise the volumetric weight

Step 4: Convert weight into kilograms

Step 5: Compare the volumetric weight with the gross weight

How to calculate Volumetric weight?

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

Air Freight Shipments have an IATA / Airline Cubic Allowance Factor of 1 Kilo = 6,000 Cubic Centimetres.

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

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

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.

Here, the Air Freight charge will be calculated on 15 kilos volumetric, rather than the 14 kilos actual weight.

What is IATA?

The Indian airline trade association is an association of the world's airlines founded in 1945. IATA is the system that sets technical standards for airlines and also arranges tariff conferences that serve as a forum for fixing prices.

What are the pros & cons of Air Export-Import?

ProsCons
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 / differences due to the season in fuel costs. A fuel surcharge is most frequently seen in trucking, but an ocean or air carrier can also assess a fuel surcharge. This protects the carrier from the volatility of fuel prices.

Sensitive Cargo Contribution Surcharge or SSC:SSC Surcharge is especially utilized in pharmaceuticals and therefore, in the industry. This is applicable in cases where the cargo must be taken extra care of while shipping, eg. medical devices, vitamin supplements, plasma, medicines, vaccines, medical disposables, etc.

Shipping lines need to take additional care while handling such cargo to add the extra SCC surcharge for these types of cargo.

What are the taxes applicable on Air Freight?

Several taxes are levied on air freight services and understanding them is vital if the corporate wants to use air freight services regularly. A number of the taxes are listed below:

Fuel tax:Airfreight services come under non-commercial aviation services and therefore come under the purview of fuel tax. Airfreight services also got to consider a further 0.1% leaking basement storage reservoir fund.

Waybill tax:In a few countries, tax is imposed on all air freight shipments within the country. The rate is 6.25% for all domestic shipments. In air freight services, the shippers are responsible to deposit the tax imposed and failure to try to do so will end 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 area. Cargo planes have electric rollers that help to manoeuvre the freight into the aircraft clutch. This helps to handle larger quantities of freight when compared to commercial airlines.

Many air freight services usually add a surcharge on their quotations to hide up the lost revenue that they spend in paying taxes. it's always an honest thing to read the contract details completely if the corporate wishes to rent air freight services.

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

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

However, after a couple of 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 concentrate on this service and have registered staff.

How do FFAs work?

A Buyer and a Seller comply with trade an FFA contract and through their broker, they're going to agree on the route, period and negotiate a price. Trades aren't published and everyone deals are done on the idea of trust. When the contract expires (settlement date), if the agreed price is above the settlement price, the vendor will compensate the customer for the difference.

On the opposite hand, if the fixed price is less than the settlement price, the customer will compensate the vendor for the difference. The settlement price is typically the typical of the month for the T/C average routes of BCI, BPI, BSI and BHSI or the typical of the month for tanker routes, while in some cases/routes, the typical of the last seven days of the month could also be used. The difference between the contract price and therefore the settlement price is multiplied by the cargo size (in case of the voyage) or voyage duration (in case of T/C) to work out the payoff of the contract.

Since FFAs were initially traded Over-the-Counter, there was always a risk involved which was borne by each party. This was the most problem when trading FFAs during the first 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”) to raise it to the initial margin level.

Due to the huge losses which may be suffered just in case of a default the FFA market has been totally transformed within 10 years and while more than 90% of the trade 2004 wasn't cleared, we now see that quite 95% of the FFA transactions undergo a financial institution with the method analyzed above.

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