The Air Cargo Industry & its specialty – a personal experience

The Air Cargo Industry & its specialty – a personal experience                 by Archie D'Souza

The air cargo industry is quite obviously different from the passenger airline industry. Beyond both offering services that mostly focus on transportation via air the two industries share little else. Let's get into it.

The main focus for a passenger airline is to service passengers.  Cargo is only a bi-product though its revenue earning capacity is sizeable.  Services rendered to passengers are mainly confined to the time s/he is on board.  On the ground, it’s negligible and almost entirely contained within the airport.  Passenger airlines offer airport to airport services for passengers as well as cargo.  Any onward travel and accommodation at the destination is ultimately the passenger’s prerogative.

I started my career with the cargo division of Air India.  Like every passenger airline, it offered an airport-to-airport service.  This meant that an exporter had to get the cargo moved to the airport of departure, get the cargo customs cleared there and hand it over to the airline.  At the airport of destination, once the cargo arrived and was checked, the carrier would send a cargo arrival notice to the consignee, who in turn, either directly or with the help of a customs broker (CHA in India).  Cargo and traffic (dealing with passenger services) were two of the divisions of what is Air India’s Commercial Department.  Both these divisions had their similarities and differences.

Let me look at the similarities first.  Both are important revenue earners for an international airline.  A passenger needs a confirmed seat; cargo needs confirmed space in the cargo hold.  A passenger needs to carry a document called a ticket; cargo is carried by an airline after, among other things, the issuance of an air waybill.  A passenger cannot leave the country without a passport; the shipper requires to file a customs declaration, called a shipping bill in India.  Passengers need to pass through immigration; cargo needs to be customs cleared.  Passengers wait at a passenger terminal prior to boarding; cargo is stored in a cargo terminal.  On disembarkation passengers need to pass through immigration and customs; cargo shipments need to be customs cleared.

While these are the similarities, the differences are far more pronounced.  The facilities required to store and transport goods are far less than those required for waiting passengers on terminals and those travelling on board.  In an aircraft, the passenger needs aisle space, leg, head & elbow room and comfortable seating; cargo on the other hand can be stacked one on top of the other with no space in between.  Cargo doesn’t require refreshments and entertainment as passengers do.  Further, packages do not complain whereas passengers can be very vocal in their complaints.  The list could go on and on.

One of the biggest advantages or air transportation, compared with other modes, is the fact that there is hardly any limit to the number of places where airports – nodes for air transport – can be set up.  Due to this air routes are practically unlimited.  Thanks to greater movements of passengers and freight the density of air routes over the North Atlantic, inside North America and Europe and over the North Pacific is definitely greater.  Constraints with regard to air transportation are multidimensional.  Let’s take some examples.  A commercial plane needs about 3,300 meters of runway for landing and takeoff.  In addition, several other facilities need to be set up at airports.  Therefore, the site chosen must take these into consideration.  Also, airports cannot, for obvious reasons, be set up in densely populated places.  Climate, fog and aerial currents are other constraints that need to be taken into consideration with regard to air transportation. 

Air activities are linked to the tertiary and quaternary sectors.  What exactly does this mean?  The World economy and that of any nation is divided into various sectors – primary, secondary, tertiary, and quaternary.  These terms are used to define the proportion of the population engaged in particular activities.  Let us briefly look at each of these. 

Extracts and harvests - viz. what is mined or farmed is what the primary sector of the economy deals with; in other words, products from the earth.  It includes the production of raw material and basic foods.  Activities associated with it include agriculture (both subsistence and commercial), mining, forestry, farming, grazing, hunting and gathering, fishing, and quarrying.  The packaging and processing of the raw material associated with this sector is also considered to be part of this sector.  In developed and developing countries, a relatively low proportion of workers are involved in the primary sector; the figure in the US is 3%.  That is the percentage of the labour force engaged in primary sector activity today.  In the mid-nineteenth century, it was more than two-thirds. 

The secondary sector of the economy deals with, among other things, the manufacture of finished goods.  This includes all of manufacturing, processing, and construction.  Thus, activities associated with it include metal working & smelting, automobile production, textile production, chemical & engineering industries, aerospace manufacturing, energy utilities, engineering, breweries and bottlers, construction, and shipbuilding.  The tertiary sector of the economy is nothing but all the service industries, providing services to individuals and business & other organisations.  Retail & wholesale trade, transportation & distribution, entertainment (movies, television, radio, music, theatre, etc.), restaurants, clerical services, media, tourism, insurance, banking, healthcare, and law are some of the activities associated with this sector.  In most developed and developing countries, a sizeable proportion of workers are devoted to this sector – more than 80% in the USA.  Finally, the quaternary sector of the economy consists of intellectual activities. Activities associated with this sector include government, culture, libraries, scientific research, education, and information technology.

Principal among the tertiary and quaternary sector activities that the airline industry is dependent upon are finance and tourism.  However, if one looks at air cargo in particular, it is the secondary sector that it mainly services.  However, air cargo brings in a lot of ancillary and support services which are part of the tertiary and quaternary sectors.  Passenger services benefit from finance and tourism as they lean a great deal on the long distance mobility of people.  However, cargo services provide the distance mobility of goods.  Since the introduction of the Boeing 747 and other wide-bodied aircraft air transportation services have been accommodating growing quantities of freight.  Airlines are today playing a huge and fast-growing role in global logistics, most often with the help of global service providers.

Air cargo, in many ways, is a unique service.  There are many segments involved in it.  Among those we can list out are airport-to-airport, door-to-door, door-to-airport and airport-to-door.  Most of the World’s carriers (airlines) offer an airport-to-airport service.  The shipper (exporter) needs to hand cargo over to the carrier ready for carriage at the airport of origin.  This means, among other things, cargo has to be customs cleared.  The carrier, either on its own or using the services of other airlines, ensures that the cargo reaches the airport of destination.  The consignee is informed by the carrier about the arrival of the cargo.  Physical delivery of the cargo only will happen after customs clearance.  We have seen here that customs clearance takes at two points – the airports of origin and destination, the former prior to carriage and the latter prior to final delivery.  This service is not usually provided for by the carrier and the exporter/importer may not have the necessary expertise to carry it out.  So, they appoint customs brokers to do this job.  So, we see here an additional service provider.  I shall, in a future blog, talk about the role of intermediaries.

There exists a kind of carrier called an integrator who offers door-to-door, airport-to-door and door-to-airport services.  They also offer airport-to-airport services.  What distinguishes an integrator from the others is that they have their own fleet of aircraft and offer services which go beyond airport-to-airport.  Passenger airlines mainly focus on carrying people.  Air cargo is a bi-product albeit one that earns a huge amount of revenue.  They carry cargo in bellies of the aircraft.  They may also own a fleet of combi & freighter aircraft.  These terms will be defined in another blog.  Cargo airlines have fleets of only freighters, no passenger aircraft.  All integrators are cargo airlines.

Another type of service provider exists, the express-cargo or courier company.  These companies offer door-to-door plus the other services.  In other words, their representative will come to the exporter’s premises to pick the cargo up.  The cargo will be customs cleared by a customs broker called a custom-house agent (CHA) in India.  There are other service providers like IATA agents, freight forwarders, etc.  These service providers will be dealt with in a later blog.  Here, we have confined our focus on the role of carriers.  These will include passenger and cargo airlines, including integrators.

The Air Cargo Industry & its specialty – a personal experience II Archie D’Souza

The Air Cargo Industry & its specialty – a personal experience II Archie D’Souza [This is a second article as part of a series of articles on the same subject] I have already mentioned that the cargo industry offers various types of services that are diverse and unique. One such service is offered by integrators, viz. carriers offering door-to-door services. Examples of integrators are TNT, UPS, Fedex, DHL, Blue Dart, etc. Integrators and courier or express cargo companies compete with each other for the same market. In fact, the former are courier companies with a fleet of aircraft. The non-integrators use the services of scheduled passenger and cargo airlines to carry their loads. A company representative, could be a direct employee or one working for a franchisee/agent, will pick up package/s from the origin customers’ (shipper/exporter) premises (home/office/factory/warehouse, etc.). These packages then are moved through one or more hubs to an airport at the origin country. They are then carried in aircraft to destination airports. Once there, exactly the reverse of what happened at the origin takes place. The package/s is/are delivered to the destination customers’ (consignee/importer) premises. Users of this service needn’t drive to and from an airport or appoint customs brokers. This service is very popular for documents, samples and other very small consignments. The core business of courier companies, whether integrators or not, is handling small consignments (a consignment is a lot of packages moving under a single consignment note for one shipper and consignee). For larger consignments they are not cost-effective for the users. In such cases, depending on the type of service required and the contract between buyer and seller, other types of services may be used. The exporters and importers would use the services of passenger or cargo airlines who offer an airport to airport service. The carrier (airline) will only accept cargo after it is ready for carriage. This means that the following must be done: 1. Cargo should be properly packed, marked and labelled 2. Documentation needed by the airline, like the air waybill, completed 3. Cargo customs cleared These formalities have to be completed by the exporter or his agent prior to acceptance by the carrier. The exporter may do so himself or use the services of a customs broker. At times the buyer may decide to perform the services and ask the seller to hand over the cargo and documents to their nominated forwarder. The terms of trade or INCOTERMS (short for International Commercial Terms) decide who will be responsible for performing these services. Standard INCOTERMS are published periodically by the International Chamber of Commerce. The INCOTERM used for an individual consignment decides the following: • Which tasks will be performed by the exporter • Which tasks will be performed by the importer • Which activities will be paid for by the exporter • Which activities will be paid for by the importer The tasks/activities mentioned here are the following: • Packing for export • Pick-up and local transport at the origin • Customs clearance for export • International carriage • Insurance • Customs clearance for imports • Payment of customs import duties • Delivery and local transport at destination It’s very clear that some of these tasks are undertaken at the origin and some at the destination. Purchase of insurance can take place at either place. We shall be taking a detailed look at INCOTERMS and their usage in another article. Right now let us look at what is involved in making cargo ready for carriage. These functions are generally carried out by a freight forwarder or a cargo agent. They are intermediaries between shippers and consignees on the one hand and carriers on the other. Legally they act on behalf of both the shipper and carrier. An IATA cargo agent is a freight forwarder registered by IATA to act on behalf of IATA member airlines. The task of customs clearance is completed by a customs broker (CHA in India) – an individual or organisation licensed by customs to customs clear goods for imports or exports on behalf of consignees or shippers. In most instances freight forwarders also have a customs broking license, so the exporters/importers are dealing with the same party. We shall be looking here at when cargo becomes ready for carriage and the role of the freight forwarder/customs broker in doing so. From now on we shall only be using the term forwarder. Some of the services provided by forwarders to exporters are: • Providing facilities for acceptance or collection of export shipments • Arranging pick-up from exporters’ premises • Preparing documents pertaining to customs clearance and transportation • Arranging insurance • Booking space with carriers and liaising with them in connection with the movement of goods • Customs clearance and delivery at destination • Delivery status to the shipper Exports involve procedures which, more often than not, an exporter may not be conversant with or due to logistical problems may not be able to complete the formalities himself. The main role of the freight forwarder is to ensure that these are completed in a way that will benefit the exporter to the fullest extent. The forwarding agency staff must be in a position to understand and explain the complex legal and documentary requirements involved in international carriage. How does all this happen? This is exactly what we are going to see. An exporter will call on the agent telling that a consignment is to be dispatched. The agency staff receiving the call will require the following information: • Mode of transport to be used (as our discussion is on airfreight we assume that air is the mode) • Booking details (will be dealt with when we deal with Booking Procedures) The following steps are involved in the shipment of goods: 1. The agency must receive from the shipper such documents as invoice, packing-list, GR, etc. (Documentation is an altogether separate discussion). Based on the booking details the forwarder will reserve space with the carrier 2. The agency staff prepares the necessary customs documents and clears the cargo 3. The cargo is handed over to the carrier ready for carriage The agency staff should be able to suitably advise the exporter on the choice of carrier. We have seen earlier that the exporter calls the forwarder to give details of the consignment. The shipper needs to provide what is called instructions for carriage. These instructions may be either oral or in writing. In case of oral instructions, the agency staff should preferably ask the shipper’s representative to sign the air waybill. It is, as far as possible, advisable to get the shipper’s instructions in writing. This can be done on the shipper’s letterhead or preferably in a formatted Shipper’s Letter of Instructions (SLI). These forms are available with local or international forwarders’ associations. The main advantages of an SLI are that it is itemised in such a way that all possible aspects are given consideration. Further, legally by signing the SLI, the shipper does the following: • Authorises the forwarder to prepare and sign the air waybill (AWB) on his behalf. • Acknowledges the acceptance of the conditions of carriage • Certifies the correctness of the consignment containing dangerous goods is in proper condition for carriage by air according to the applicable Dangerous Goods Regulations. It is very important from an agent’s point of view to get the shipper into the habit of using this method of conveying instructions. However, in order to fulfil its purpose the SLI must be accurate and complete. Cargo ready for carriage means that the conditions in which a shipment must be delivered by an IATA Cargo Agent to an IATA carrier. The shipment and accompanying documents must be ready for immediate carriage. To do so, the following requirements must be met: 1. The Air Waybill The AWB must be complete and accurate in all respects. It must be issued in accordance to the IATA Air Waybill Handbook, a publication every IATA Agent must have. To be complete and accurate, the person authorised to sign the AWB must ensure correct filling up of all boxes and also ensure checking the weights, measurements and nature of goods The AWB is a contract between the shipper and carrier and hence must be signed twice – once on behalf of the shipper and once on behalf of the issuing carrier. One must remember that the agent is authorised to act on behalf of both the carrier as well as the shipper so may insert his signature twice on the AWB 2. Documentation All documents necessary for each consignment for: • determining the nature of the goods, where required; and • export, import or transit, which the carrier is required to present to customs or any government body must accompany the AWB 3. Marking of packages All packages of each consignment must be marked to help the airline identify them. Either all packages must show the name and address of the consignee as on the AWB, or this information is shown on one or more packages with an appropriate cross-reference on all other packages in the consignment. The exporter/manufacturer’s marks and numbers, as on the AWB, must be clearly visible on the packages in the consignment The International Cargo Handling Coordination Association has made certain recommendations in this regard. I can, on request, provide you with these. Those interested please email me at archiedsouza@samsacademyonline.com. 4. Packing The contents of each consignment must be properly packed to withstand the normal wear and tear of transportation. Goods must be packed in such a way that they will not deteriorate or damage other goods before delivery at destination. Exporters should never compromise on the quality of packing materials to reduce costs. 5. Labelling of packages The forwarder must ensure that adequate stock of airline stickers is available at every branch/location. If a house air waybill (HAWB) is used, then the HAWB sticker must be displayed next to the airline sticker showing the master air waybill (MAWB) number Certain special types of cargo, such as dangerous good, perishables, human remains, etc. have special packing, documentation, marking and labelling requirements. Every IATA agency location must have a copy of the IATA Agents’ Handbook, IATA Live Animal Regulations and IATA Dangerous Goods Regulations (all current editions only) [To be concluded]