Why payment up front will never happen in air cargo

THOMAS REUTER, managing director of air and sea logistics at German forwarder Dachser, is under siege from rate specials. The incessant rollercoaster of rate fluctuations makes it difficult to plan and distracts his staff from other things.
“It would be better for everybody if we had two rate changes per year,” he sighs.
“We get bombarded with rate specials. It’s hard to keep up, it’s almost a full-time position,” agrees Jeff Cullen, chief executive for the Americas at Bellville Rodair International.
As much as the frequency of new price specials, the opacity of rates, with a maze of surcharges that vary from carrier to carrier, is also a constant source of irritation for forwarders and, even more so, for shippers, notes Dirk Steiger, managing director of airfreight research and consulting firm Aviainform.
Ram Menen, who recently retired from his top post at Emirates SkyCargo, reckons that transparency is the key to a more enlightened pricing environment. “The best relationship is where everything is transparent, including the rates,” he reflects.
He thinks that cargo could take a leaf from the passenger side with its on-line booking mechanism, which gives passengers instant pricing with all elements clearly displayed. “Pay-as-you-use would be ideal – with proper on-line booking tools,” he says.
Adopting this model would shift the full financial transaction to the moment of booking – ahead of the actual transportation of the goods. So, instead of waiting for months to receive payments, airlines would actually have the money before the cargo arrives on their docks. This would mean that carriers no longer have to worry about no-shows.
From a forwarder’s perspective, the passenger booking model seems unappealing. Forwarders question the value of such a credit deflection to other parts of the supply chain. “I do not see it benefiting anyone except the airlines,” comments Bob Imbriani, vice-president of corporate development at Team Worldwide.
For the system to work, shippers would have to follow suit and pay the forwarders up front too, Steiger comments. “Many forwarders could not survive if they had to pay in advance and wait for payment from the shipper.” Ram Menen has a point, “but the forwarder will not get the shipper to pay at the time of booking,” Steiger says.
The main obstacle is the allure of 90 days’ credit, which is too tempting for shippers to forsake, but there are other aspects, he points out. “What happens if the goods get damaged in transit? You have a much different lever if you have not paid yet.”
Read Ian Putzger’s full piece on payments upfront in the latest Air Cargo News 1 July 2013 – Issue No. 755