Module 08 | Part 11 Freight Consolidation

Summary

This section explains the core concepts of air freight consolidation, where freight forwarders negotiate discounted rates with airlines by aggregating shipments from multiple shippers. The forwarders then resell this space to importers at competitive prices. Key points include understanding who controls the freight based on Incoterms, advantages such as cost savings through volume aggregation, and the potential pitfalls like delayed or partial shipments. The video emphasizes the role of the forwarder as an intermediary and the complexities of managing freight, offering insights into the operational dynamics of air freight consolidation services.

Takeaways

• 😀 Freight consolidation is the core service of an air freight forwarder, where cargo is gathered from multiple shippers and resold at discounted rates to importers.
• 😀 Air freight forwarders negotiate space and rates with airlines for specific city pairs, such as London to JFK or Hong Kong to Cincinnati, based on the volume of cargo.
• 😀 The forwarder marks up the per-kilo rate from the airline and resells this space to importers, offering air freight consolidation services.
• 😀 A critical question for a freight forwarder is determining who controls the cargo (the seller or buyer), which affects who designates the freight forwarder and who pays for shipping.
• 😀 Incoterms rules determine who controls the freight and is responsible for organizing and paying for transportation and customs-related costs.
• 😀 For most air freight shipments, the U.S. importer controls the cargo and designates the forwarder, with freight being collected from the importer.
• 😀 Air freight consolidation is typically the most economical option for companies shipping via air, as it allows for better volume leverage to negotiate lower rates.
• 😀 Air freight consolidation services may offer more services than what an importer could secure directly with the airline, including customs and other logistical support.
• 😀 Rates for air freight consolidation are market-driven, influenced by factors like cargo density, city pairs, time of year, and specific flight schedules.
• 😀 There are many options for working with air freight forwarders worldwide, offering flexibility for importers to choose the best option for their needs.
• 😀 Potential pitfalls in air freight consolidation include no guarantee of lift (cargo space availability), partial shipments, and delays caused by issues with other importers' cargo in a consolidation.

Q & A

What is the main feature of the air freight forwarder's service portfolio?

The main feature of the air freight forwarder's service portfolio is freight consolidation, where the forwarder aggregates cargo from multiple shippers and resells it at discounted rates to importers.

How do air freight forwarders negotiate rates with airlines?

Air freight forwarders negotiate rates with airlines based on specific city pairs and flights, such as London to JFK or Hong Kong to Cincinnati. The more cargo the forwarder can provide for specific flights, the better the rates they can negotiate.

What does the term 'consolidation' mean in air freight forwarding?

'Consolidation' refers to the process of aggregating cargo from multiple shippers and consignees to fill available space on an aircraft, which allows the freight forwarder to offer discounted rates to the importers.

What is the significance of the question 'Who controls the cargo?'

The question 'Who controls the cargo?' is crucial as it determines who is responsible for paying the freight charges and who has the right to designate the freight forwarder. This is typically influenced by the Incoterms agreed upon between the seller and the buyer.

How do Incoterms affect air freight shipping?

Incoterms determine who is responsible for organizing and paying for transportation and customs-related charges. For example, terms like 'Ex-Works' and 'Free Carrier' indicate that the U.S. importer controls the freight, while terms like 'Carriage Paid To' or 'Delivered Duty Paid' put the responsibility on the supplier.

What are the advantages of using air freight consolidation services?

The main advantages include cost savings through bulk volume negotiation with airlines, the availability of more favorable rates than individual importers could secure, and access to the additional services offered by the freight forwarder.

Why is air freight consolidation often more economical than direct airline shipments?

Air freight consolidation is more economical because the freight forwarder aggregates cargo from multiple shippers, giving them greater leverage to negotiate discounted rates with airlines. This allows the forwarder to resell the space to importers at a lower cost than the individual importer could secure directly with the airline.

What are some potential pitfalls of using air freight consolidation services?

Some potential pitfalls include no guaranteed lift (cargo not moving as booked), cargo getting bumped (delayed or not loaded), partial shipments (cargo split across multiple flights), and delays due to issues with other shippers' cargo in the same consolidation.

What is meant by 'cargo getting bumped' in air freight consolidation?

'Cargo getting bumped' refers to a situation where booked cargo is not loaded onto the aircraft due to space constraints or other issues. This is similar to when an ocean freight container is rolled, meaning it is delayed or not shipped as originally planned.

How does the volume of cargo affect the negotiation process between air freight forwarders and airlines?

The volume of cargo directly affects the negotiation process, as larger volumes of cargo give the forwarder more leverage to secure discounted rates. Airlines are more willing to offer lower rates to forwarders who bring a significant amount of cargo for specific city pairs and flights.