Frequently Asked Questions about Air Cargo
We have provided the following section because
the chartering and leasing business can be a bit of a minefield, and these
are common questions we get asked. Skyline hopes that these guidelines may
be of help to you. Please mail us if you need any more
information.
Contents
What is 'ACMI'?
ACMI stands for 'Aircraft, Crew, Maintenance, Insurance'.
It is a type of lease, normally (but not exclusively) between two airlines.
The Lessor provides the Aircraft, one or more complete
Crews (including engineers if necessary) including their salaries and allowances
(usually), all Maintenance for the aircraft, and Insurance
for the aircraft itself and, usually, third-party liability
cover. He will charge for the aircraft by the hour, but will want a minimum
number of hours per month guaranteed. For example, he may charge US$ 1000
per hour, but will want a minimum of 100 hours per month paid, whether you
actually reach 100 in that month or not.
The Lessee then has to provide all
fuel, landing/handling/parking fees, crew accommodation, food and transport,
and pay the overflight charges. This latter point is complicated. When flights
operate they use a flight number which is issued to airlines by the International
Civil Aviation Organisation. In order to cover the costs of air traffic control
services, states overflown will send a bill to the owner of the flight number,
which can be readily identified by its code. The owner of the aircraft will
probably have a code, but will not want to use it because he will end up
with all the bills. So, an ACMI lease requires that the
Lessee provides his own flight numbers, so that the
bills can be directed to him. In order to get a code, you have to show the
I.C.A.O. that you are a registered airline, so you really need to be an airline
to take on an ACMI lease.
What are 'Wet Lease' and 'Dry Lease'?
'Wet Lease' means a lease of an aircraft
including its crew. So it is really an 'ACMI' lease (see
details above).
'Dry Lease' is the lease of the aircraft
only, without crew. In this case the Lessee is responsible
for everything as for an ACMI lease but, in addition, he has to supply his
own crew (with all the associated costs), provide all his own maintenance,
and set up his own insurances.
Owners of aircraft who 'Dry Lease' them out are understandably
wary of who leases them. They need to make sure that the aircraft will be
well cared for, as poor maintenance by the Lessee can
lower the value of the aircraft, cost the owner a lot of money when the aircraft
is returned, or even cause an accident. So the Lessee
will have to provide very detailed evidence that he is in good shape to look
after the aircraft and operate it properly. The qualifications and training
procedures for his crews will also be an important factor.
Dry Leases are normally charged at a fixed rate per month,
plus an hourly charge which the owner accrues for engine overhauls or
replacements, and major checks. A typical dry lease might be between a major
leasing company or a bank (who own the aircraft) and an airline, and they
would normally be for two years or more.
Backhauls or Backloads
Backhauls and Backloads are the same thing. The expression
refers to a load picked up by an aircraft on the way back from a
charter.
Normally a
charter price covers the cost of collecting cargo from the airport of origin,
delivering it to its destination, and returning the aircraft to its base.
However there are times when an airline might find an opportunity to utilize
the empty return sector for another cargo. To find cargo that pays well on
these return flights is very rare - often there is no load available on the
day and, even if there is, it is usually of a perishable nature (fruit,
vegetables, flowers, fish etc.) which pays very little
indeed.
However there are certain parts of the world where
such perishable loads can regularly be found for flights into Europe (such
as some parts of the Mediterranean, and certain areas of Africa) although
some products can be seasonal. As a rough rule of thumb, these loads do not
pay more than about one third of the cost of the whole round trip. So these
loads do not stand up on their own commercially, but need major support from
another, higher-paying load before they become viable.
It is common for potential exporters of regular
"backhaul-type" loads to feel that their regularly available cargo is enough
to start a regular operation. This never works. For example, there are often
large quantities of leather goods and textiles available in India, Pakistan
and Bangladesh for shipment to Europe or the USA. The exporter may feel that
he only has to find a bit of cargo going the other way and he can 'start
an airline' ! The problem is that the cargo going the other way has
to generate TWICE as much as the original loads will pay. Since there
is far less cargo going east from Europe, the rates are much lower. So the
necessary quantity is not there, and the rate is far too low to make a success
of the operation.
Having said that, the Backhaul can provide a benefit,
even if it just pays for the fuel cost to come home. Of course, whose benefit
it is depends on how well it is managed. Some airlines might charge you for
the whole round trip, then pick up a return load (unknown to you) and keep
the revenue it generates. But there are three ways that you can use a potential
backhaul to your advantage;
1. Obtain a charter price based on the assumption
that a backhaul will be available (assuming that one can be found). This
can reduce the cost of your charter by perhaps 20%.
2. Obtain your own Backhaul and charter the aircraft
for the whole round trip, loaded both ways. If properly organised this can
be more profitable than a one-way load.
3. Ask for a rebate subsequently if the airline finds
its own Backhaul. Build it into your contract with them and you may get a
pleasant surprise afterwards !
Skyline Aviation can manage any or all of these options
on your behalf and ensure that, if there is a Backhaul available for your
flight, you get the best possible deal.
Thus, 'Backhauls' are sometimes useful, but their
value should not be over-estimated.
Cancellation
Charges
In the charter business, cancellation is a serious
matter. If a charter has been arranged and a contract signed, the airline
will block off that slot in its program and start the process of setting
up the flight. This process may be complicated and lengthy, and the airline
will not want to engage in the work unless they are confident that the charterer
is serious.
That is a significant reason why a contract has
to be signed. The airline will know that its client is genuine, and everyone
is then locked into the terms of the agreement.
If the charter is then cancelled, the airline has
done a lot of work for nothing, and may be left with a gap in its schedule
with insufficient time to find alternative work. Indeed, it may have actually
turned work away as a result of the original charter, and now be unable to
retrieve it. Either way, a genuine loss of revenue has resulted.
If the charter is cancelled well in advance of its
scheduled departure date, the airline stands a reasonable chance of finding
something else to do but, the later the cancellation, the more acute the
'program gap' problem becomes for them.
Accordingly most airlines set out a sliding scale
of cancellation charges, increasing in severity as the proposed date of departure
approaches. The rate of cancellation charge is normally a percentage of the
full charter price, and may typically range from 25% or 50% on fixture (if
sufficiently ahead of the flight date), to 90% or even 100% if the flight
is cancelled after the aircraft has actually turned up to do the
job.
It may seem plausible to avoid signing the contract
until the last minute, thus avoiding any penalty should the operation cancel
for any reason. This is fine in theory, but may well result in the airline
selling the availability elsewhere, leaving the charterer with no aircraft,
and no time to find an alternative. It should also be remembered that the
process of applying for traffic rights and landing permits will not commence
until the contract is signed, so some countries with lengthy application
procedures may not have adequate time to grant the permits for the required
departure date.
Unlike Demurrage, which is a bit vague in its application
and often flexible in its execution, cancellation charges are for real. Rest
assured that, if a charter is cancelled, the airline will surely apply the
charges as stated in the contract, which is a binding document that obliges
the charterer to pay up.
What is Demurrage
?
Demurrage is an old maritime term that dates back
to the days of sailing ships. Essentially it is a fee for keeping the vessel
waiting. In the aviation world, this is normally found as a clause in a charter
contract which specifies a rate per hour (or part of an hour) for keeping
the aircraft on the ground awaiting the late arrival of cargo, or perhaps
the late preparation of documents by the shipper.
Sometimes, particularly when the aircraft is operating
the charter in the middle of an intense and time-sensitive program, the operator
may specify in the contract that "Demurrage is not permitted without the
prior agreement of the carrier". This means that he cannot really accept
any delay, and may have to abandon your charter if you are not ready on
time.
This all sounds a bit tough, but in fact it is common
for charter airlines to offer clients a degree of flexibility, perhaps stating
in the contract that the first 3 hours of a delay are free, for example;
and it is very rare, even in cases where "Demurrage is not permitted" for
the airline not to accept a certain amount of last minute delay without penalty,
provided that everyone is kept informed and they know that "the truck is
just coming up the airport road".
In practice, the actual charging of demurrage fees
is fairly rare, occurring normally only in extreme cases, and it is more
often used as a threat by an airline trying to get things moving ! Of course,
none of this applies if you are leasing the aircraft full-time, because you
are free to do what you like with it, and delays are of no consequence to
the owner of the aircraft.
Insurance Facts
and Options
There are basically four types of insurance involved
with most common aviation matters. These are their functions, and an explanation
of which elements may affect you;
(1) Aircraft Hull
Insurance.
This is taken out by the owner of the aircraft in
order to protect his investment against damage to, or loss of the aircraft
itself. A charterer or lessee may not have to be involved
with this, as it is usually the responsibility of the owner, and its premiums
should be already included in any charter or lease price
charged.
(2) Third Party
Liability
This is to protect the owner or operator against claims
that may be made by other people, for example if the undercarriage damaged
the roof of a house when the aircraft was landing, or if the wingtip hit
another aircraft while manoeuvering on the ground. Once again, it is the
owner's responsibility to provide this cover all the time his crews are flying
the aircraft. However, on dry leases (where YOU use YOUR crews), the owner
may not want to be responsible for events that take place while the aircraft
is under your control, so in that case you may be required to provide this
cover.
You can imagine that the potential devastation that
could be wrought by an aircraft accident is considerable, and the amount
of liability that third party insurance covers can be quite high. It varies
according to the requirements of the country or countries where the aircraft
will operate and the type of aircraft, and can range from US$ 10 million
to US$ 100 million or more per single incident/accident.
(3) War Risk
Insurance
This is applied by insurance companies and underwriters
if the aircraft intends to operate into countries or areas considered by
them to be dangerous. If the aircraft operates to these areas without the
additional war-risk cover, then the hull and third-party cover may become
invalid, and thus the whole operation become illegal.
Most of us know where the dangerous parts of the world
are, and it is easy to guess where this requirement would apply, although
it changes regularly depending upon the whims of the underwriters ! The cover
can be taken out for a specific period, or on a 'per flight' basis. If war-risk
insurance becomes necessary for your requirement, Skyline Aviation can make
the appropriate arrangements.
(4) Cargo
Insurance
International regulations demand that an airline will
provide insurance cover for all passengers, baggage and cargo carried on
their aircraft, up to a specified limit. This limit is set by an agreement
known as The Warsaw Convention, and the cargo liability currently stands
at 20 US Dollars per kilogram of cargo carried; it applies throughout the
entire period during which the cargo is in the care of that airline and covers
theft, damage, loss or total destruction in the event of an accident. If
you feel that your cargo deserves a higher rate of cover than US$ 20 per
kilo, then it is your responsibility to take out that additional insurance.
Skyline can assist if required.
If the aircraft is being wet leased or dry leased
by you, then ALL cargo insurance is your responsibility, and you are obliged
to provide it, at least up to Warsaw Convention limits, if you are carrying
cargo belonging to other persons.
The Lessor and
the Lessee
The Lessor is the owner of the aircraft, or an airline operating
it on his behalf, or an agent acting for him. If he leases it out he becomes
the Lessor.
The Lessee is the person or organisation that takes the aircraft
on lease from the owner (the Lessor). If you lease an aircraft from me you
become the Lessee, and I become the Lessor.
Royalties and No-Objection
fees
Royalties (or "no-objection fees") were originally to compensate
the national airline for profits they would have made, but did not, because
a foreign airline took the flight away from them. In theory, the local government
agrees to grant a landing permit to a foreign airline, in return for a
compensation payment to the national airline who, they claim, would otherwise
have operated the flight themselves. On receipt of their money, the local
airline will announce that they have "No objection" to the flight taking
place, and the landing permit will be granted to the foreign
airline.
In fact there were (and still are) many occasions when the
national carrier had neither the required type of aircraft or the availability
to operate the flight, but they still claimed the compensation anyway. This
right to claim a payment for granting a permit then became common throughout
Africa, the Middle East and Asia as a way for local officials to make large
amounts of money for doing nothing at all, and the national airline was often
not involved in any way - indeed sometimes there was no national airline
! In some countries it is quite normal for ten of thousand of dollars to
be charged, even when the flight is for emergency or humanitarian relief
purposes, or on local government business.
This can lead to sad inequalities. For example, a British
airline operating a flight with cargo from England to the Central African
Republic will be charged a heavy royalty there, whereas an African aircraft
operating a flight to Britain will be charged nothing. The British government
has made little progress in trying to convince foreign countries to stop
this practice, but it refuses to levy the same terms in return, saying that
it wishes to "set a good example". In fact, in recent years, the number of
states charging royalties has reduced somewhat, and it is now confined mainly
to a handful of countries in central Africa, some in the Middle East (notably
including Saudi Arabia), and one or two Far Eastern nations. Industry has
become accustomed to the fact that some African countries will routinely
use corruption to bolster poverty-stricken local economies, but that does
not explain why it is still prevalent in Saudi Arabia.
The method of levying the charge varies. Sometimes it is
related to the maximum weight of the aircraft, sometimes to the weight of
the cargo carried, and sometimes related to nothing at all. On some occasions
a country will say that they do not charge royalties but, for example, will
then add US$ 10000 to the aircraft handling charge in order to disguise it.
Saudi Arabia will demand that the money is paid in advance to the General
Authority of Civil Aviation (usually by the importer in Saudi), before they
will grant the landing permit. In other countries the aircraft is allowed
to land, but is then prevented from leaving until the locals have extracted
enough money, usually in cash from the crew or anyone else who will
pay.
Whatever the system for the particular flight, the attitude
of the operating airline will always be the same, i.e. that they do not want
to get involved. The charge for royalties or no-objection fees will always
be excluded from the charter price, and it is up to the charterer to organise
payment himself. Normally if he doesn't pay, there will be no permit, and
therefore no flight. But on occasions the problem does not arise until the
aircraft has already landed, so the airline will want to be 100% sure that
the charterer or shipper has made the appropriate payment arrangements. This
is unfamiliar territory for many in Europe, and the airline will hand the
problem over to you, so it is best to pass the issue on to the importer or
receiver in the country of destination. He will have come across this before
and will know how to sort it out, so give him the headache and keep well
away from it.
When Might a Charter
be a Good Option ?
If a shipper has 1 tonne of computers to fly from
London to New York, the best option is to contact a freight forwarder. He
will get a good deal to put it on the next passenger flight to New York as
underfloor (or 'bellyhold') cargo. The golden rule is that charters normally
do not make economic sense on a route that is well served by scheduled air
services.
The charter comes into its own when (1) the cargo
is particularly large, heavy or has unusual characteristics, (2) when the
route is not served well by regular flights or with suitably-sized aircraft,
or (3) when timing is critical and the scheduled flights cannot meet the
requirements. Let's look at these three in detail;
(1) The
Cargo
Most international flights are performed with passenger
aircraft and, although they may have considerable cargo-carrying capacity,
the loading doors and cargo-hold weight and size restrictions may limit the
potential. For example, an average sized truck will not go into any passenger
aircraft in the world. A 12 metre drill pipe, or a 10 tonne generator will
similarly be beyond the capability of a passenger
airline.
Some airlines operate scheduled cargo flights with
purpose-built freighter aircraft, but these tend to fly on major trunk routes,
some of which can fill up very quickly. Sometimes, for example, it can be
impossible to get space into Japan for weeks on end because all flights are
full, despite the use of several large freighter aircraft every
week.
So this is when
a charter may become the best - or indeed the only - option. Large items
(particularly with reference to height), heavy pieces (any one piece over
2000 kgs may become a problem on scheduled aircraft), vehicles, or livestock
such as racehorses or large zoo animals, can all end up going by charter.
Livestock, in particular, can receive more careful and sensitive treatment
on a charter, because the specialised staff and equipment are more readily
available, and the constraints and rush of timekeeping are not as critical
as on scheduled airlines.
Similarly, valuable goods such as artworks, bullion
or banknotes often fly by charter because it gives the owner extra control
and security over his load (but don't forget to consider additional
insurance cover if you are carrying this kind of cargo
!).
Some commodities
like radioactive materials or explosives are forbidden from being carried
on passenger aircraft, so a cargo charter is often the only solution. Skyline
Aviation can guide you through the many requirements for the carriage of
dangerous goods, and provide a qualified operator with experience in these
matters.
(2) The Route
London to New York may be an easy shipping problem
to solve, but Lima to Murmansk is another matter altogether. Cargo often
has the unfortunate habit of needing to travel to odd places, frequently
with inadequate air services and limited airport facilities.
When an uprising, natural disaster or famine leads
to a major relief program, the goods may have to be flown into a country
with no functioning airline, no regular passenger flights, and a damaged
airport. The first aircraft that arrive with international aid will then
usually be charters, with aircraft specially capable of easy offloading and
self-sufficiency.
Ships spares, oil equipment and a host of other
commodities can require unusual routings, and no regular service may be able
to assist. In the same way, the vast areas covered by the former Soviet Union
are increasingly becoming destinations for cargo loads, and many are not
served adequately by air. All these cases lend themselves to the use of an
air charter. It can be the cheapest, and certainly will be the quickest
solution.
(3) The Timing
The growth in popularity of the overnight parcels
services like TNT, Federal Express and DHL led to a great increase in the
number of cargo aircraft operating at night. By its very nature, an overnight
delivery requires movement of the item during the hours of darkness, and
passenger aircraft fly very little at night. This, then, required the use
of cargo aircraft on routes that may be very well served, but not at the
times the customer required. These 'integrators' therefore had no choice
but to charter aircraft specifically for the job or, in some instances, even
buy their own aircraft.
Similar problems occur in smaller ways all the time.
A top pop band may be playing in Paris tonight and Athens tomorrow night.
There are plenty of flights between the two cities, but they need to get
their equipment moving as soon as the first concert is finished. A charter
at 2 in the morning will allow the engineers all day in Athens to set everything
up again, but the scheduled flights would not give them the times they
need.
A tanker has run aground off the African coast and
the only way to stop a major oil-spill is to rush special equipment from
Holland. There is a regular freighter flight in five days time, but it will
be too late by then. The only solution is a special charter which can deliver
the goods in 24 hours.
It can be seen from the above examples that air charter
can fill a particular need in many cases, but it is important to find the
right
aircraft in the
right
place at the
right
time at the
right
price. This can only be done
by an organisation that keeps in close touch with the industry, has experience
in handling the many different requirements that crop up, and can react quickly
when the need arises. Skyline Aviation exists for this very purpose, and
can save a great deal of time and money when a problem occurs and the shipper
has a lot of other things to worry about.
It's a fact of life that charters often result from
problems. We hope you don't get any problems but, if you do, make sure your
affairs are in good hands -
call
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