Marketing Studies & Consultancy Division (MSCD) Export Consultancy Unit (ECU) Export Study. (Part B) Air Transportation (Up-Date)

Transcription

1 Marketing Studies & Consultancy Division (MSCD) Export Consultancy Unit (ECU) Export Study (Part B) Air Transportation (Up-Date) Rabi-I, 1425H (April, 2004G)

2 Table of Contents 1 Introduction The KSA International Air ports King Khalid International Airport KKIA (Riyadh) King Abdul Aziz International Airport KAIA (Jeddah) King Fahad International Airport KFIA (Dammam) Types of cargo Types of containers Cost of Air Transportation Saudi Arabia Airlines cargo rates: Security and Fuel charges Required Forwarding Documents Insurance Competiton environment Major shipping agencies Conclusion... 12

3 1 Introduction Export is one of the influenced factors that can increase the economic growth rate. Clearly, exporting play a major role in the economic of the country. This is because:- Exports increase the hard currency reserves of the country. It optimizes the unutilized production capacities in the country. It activates services sector in the country such as transportation, banking or professional consultations. It develops local industry by motivating local producers to update their production, management and marketing system. Similarly, KSA is trying to diversify revenue resources by encouraging local manufactures to enter overseas markets and increase Saudi Non-Oil exports. Moreover, Saudi Non-Oil exports should establish a foothold in new markets for specific reasons, which include the following:- To construct marketing facilities. To contact directly with customers and start adaptation process. To deliberate the nature of competition and determine the kind of competition in which if it depends on price, access, or promotion efforts. Exporting process has a number of critical parts that should be planned well to avoid unpredictable events, however, the transportation aspect is the corner stone of exporting process and can be considered by some potential exporters as one of the complicated part on the export s procedures and cost. Clearly, the transportation cost has a great impact on the profitability of the export transaction if the exporter doesn t deliberate the impact of added cost, transportation fees, and the competitor s prices in such targeted market. This report aims to give an up-date of our previous study in Air Transportation which includes estimating of the cargo rate and illustrating of procedures that have to be done by exporters when they want to transport their shipments by Air. Additionally, this up-date study has also focused in other important elements which include the following:- Insurance Cargo rates of all destinations for

4 It should be noted that although there are some information that do not change, however, an effort have been paid to reflect the updated information in each topic in the study.to accomplish the objectives of this report, we obtained information from various sources, which include the following sources:- Direct contacts with Government organizations e.g. Ministry of transportation. Direct interviews with selected transportation companies. Searches of information over various Internet websites on Air transportation. 2 The KSA International Airports KSA has 26 airports that spread over the country. Three are mainly three International Airports i.e. Riyadh, Jeddah and Dammam.In this report we will provide information about the cargo departments at the international airports. The cargo traffic of export volume through by KSA international airports, is illustrated below (quantities in tons between the years ). Table1 Cargo Traffic Departure from Kingdom's International Airports for (metric tons) Year Metric Tons Growth Rate % % % % % % % % % Source: GCC statistics According to the table above, there is a dramatic plummeted in 2001 which probably indicates the shifting to other transportation means. However, 2002 was witnessed a sharp increase by around 114%. It should be noted that the statistics above are the latest information published. Moreover, we tried to obtain information related to destinations (by country) of the quantities being exported through cargo; however, no information was available even through the Saudi Aviation and Saudi Airlines. 2

5 2.2 King Khalid International Airport (KKIA)- Riyadh KKIA air cargo is handled by the largest and most modern facility of its kind in the Middle East. It has a storage capacity of 56,500 square meters on two levels in the main building and more than 3,500 square meters on the loading docks. It can handle more than 140,000 metric tons of airfreight every year and is equipped to offer quick front loading for Boeing 747s. 2.3 King Abdul Aziz International Airport (KAIA)- Jeddah KAIA air cargo facility occupies an area of 37,458 square meters which accommodates 200,000 metric tons of cargo per year and can store 7,500 tons at one time. The Saudi Airlines supervises the air cargo facility which contains modern material-handling systems and inventory-control methods to expedite movement of air cargo. Recently, a supreme order, calling for the development of KAIA according to state-of-the-art standards, has been issued. The main objective of this development is to achieve certain goals that exceed current needs. 2.4 King Fahad International Airport (KFIA)-Dammam The two-story air cargo building is constructed on an area of 39,500 sq. m. and has a capacity of 94,000 metric tons of incoming and outgoing cargo. The terminal s design allows for transforming the terminal operation system in future to a fully automatic one equipped with multi-level racks and container stacker system. When the air cargo facility becomes fully automatic, its capacity will rise to 176,000 metric tons per year. 3 Types of cargo The nature of this means of transportation is to ship the goods by airplane to particular airport. Exporters need this means to ship their urgent shipments, samples, catalogues and small items. This is because of the high cost of shipping by air. The only advantage of shipping by air is its fast delivery in comparison with other shipping methods. The calculation of the cost does not depending only on the weight of the cargo, but also depends on the weight and dimensions of the goods 3

6 shipped. Furthermore, there are several types of cargo and they are classified on the basis of nature of shipment. Animals cargo e.g. pets and livestock Liquid & Dray Cargo e.g. commodities, equipments and cars. Refrigerant and Frozen Cargo (perishable cargo) e.g. meat, vegetable and flowers. Dangerous Cargo e.g. petrochemical and dangerous materials. 4 Types of containers Transporting goods can be consigned into two types i.e. Pallets and Containers. Pallets comprise several types and each one is designed to fit particular goods. Basically, each pallet type varies on the basis of sizes and dimensions. In the other hand, there are several types of containers and each type serve specific kind of goods. For more illustration, the following are major used containers and pallets. LD-9 All 747's &767 &AB3, Lower Deck Length: 3020 mm 119 in Width: 2080 mm 82 in Height: 1520 mm 60 in Volume: 10.6 m3 374 cu ft Max Gross Weight: 4626 kg lb Rate Class: 5 LD-29 All 747's, Lower Deck Length: 302 cm 119 in Width: 208 cm 82 in Height: 152 cm 60 in Volume: 14.5 m3 511 cu ft Max Gross Weight: 4626 kg lb Rate Class: 5W - M1 747 Freighter, Main Deck Length: 305 cm 120 in Width: 229 cm 90 in Height: 229 cm 90 in Volume: 17.5 m3 619 cu ft Max Gross Weight: 6800 kg lb Rate Class: 2 4

7 LD3 All 747's & 767 &AB3, Lower Deck Length: 147 cm 58 in Width: 140 cm 55 in Height: 152 cm 60 in Volume: 4.3 m3 153 cu ft Max Gross Weight: 1587 kg 3500 lb Rate Class: 8 - LD1 All 747's & 767 &AB3, Lower Deck Length: 147 cm 58 in Width: 140 cm 55 in Height: 152 cm 60 in Volume: 4.84 m3 171 cu ft Max Gross Weight: 1587 kg 3500 lb Rate Class: 8 - LD8 767, Lower Deck Length: 233 cm 55 in Width: 140 cm 92 in Height: 152 cm 60 in Volume: 7.2 m3 253 cu ft Max Gross Weight: 2449 kg 5400 lb Rate Class: 6A - LD7 All 747's &767 &AB3, Lower Deck Max Gross Weight: 4626 kg lb Rate Class: 2C - M Freighter, Main Deck Max Gross Weight: 6800 kg lb Rate Class: 2C - 5

8 M Freighter, Main Deck Max Gross Weight: 4626 kg lb Rate Class: 2H - All 747's &767 &AB3, Lower Deck Length: 305 cm 119 in Width: 208 cm 82 in Height: 147 cm 60 in Volume: 9.6 m3 339 cu ft Max Gross Weight: 4626 kg lb Rate Class: 5 - All 747's & 767 &AB3, Lower Deck Length: 147 cm 58 in Width: 140 cm 55 in Height: 152 cm 60 in Volume: 3.6 m3 127 cu ft Max Gross Weight: 1587 kg 3500 lb Tare Weight: 210 kg 462 lb Rate Class: 8-5 Cost of Air Transportation The rates of air transportation are considered more costly than other means of transportation.however, air transportation is used for specific products. For example it is used to transport some perishable goods and seasonal fruits such as flowers, Mangoes, etc. The cost structure for cargo consists of the following items : Transport fee. War risk fee. Fuel fee. Internationally, the Cargo rates are determined by International Air Transport Association (IATA) and update its rates annually. However, Air lines companies often offer discounted rates for General cargo which are less than IATA s rates by a maximum of 15%. Regarding the calculation of cargo rate, the computing of cargo rate depends on the volume or weight which ever is greater. For Example, a 6

9 carton weight is 25 KG with height of 60 cm., width of 80 cm. and length of 50 cm. The carton Air destination is from Riyadh (RUH) to Seoul (SEL). By computing the formula of volume and then multiplying the result by shipping rate, one could obtain the transportation cost as illustrated below. High Width Length 60 CM 80 CM 50 CM 60*80* KG The applied weight is 40 KG because it is greater than the original weight 25 KG. Therefore, the transportation cost of that shipment will be computed as follows: Direct rate: 40 KG* 8 = SR 320 Promotional rate (through agent): 40 KG* 7 = SR 280 It should be noted that 6000 is constant figure that formulating by IATA to compute the total dimensions of shipment. There are other fees that should be paid by exporters and they vary from one country to another. The common known fees are shown below:- Terminal and Handling Charges. Fees of Customs Declaration. Fees of delivery order in the importer s port. 6 Saudi Arabia Airlines cargo rates: Before Joining WTO, Saudi Arabia Airlines contributed on encouragement of Saudi exports by offering special discount for Saudi exports and giving special rate to the national agriculture and industrial products. However, after joining WTO, Saudi Airlines could no longer provide any special rate/treatment to Saudi products. As explained earlier, there are two cargo rates offered by any Airlines companies. The first one is direct rates which are given to regular customer, and the second one is the promotional rates which are given to company s agents. Examples for such rates are provided by Saudi Airlines through link ( This link will provide cargo rate from Saudi airports 7

10 to all destinations. The table below illustrates a sample of cargo rate from KSA to 5 top KSA export partners in Table 2 Sample of cargo rates from KSA to some countries in 2006 TO Weight KG* Direct Rate SR/KG Agent Rate SR/KG JFK (USA) TYO (Japan) SEL (South Korea) DEL(India) SHA (China) *For 100 KG and more 6.2 Security and Fuel charges Due to fluctuation in fuel prices and terrorism risks fees, all airlines companies have added additional charges to cover those factors. In the case of Saudi Airlines, the table below shows these additional charges. Table 3 Security/Fuel surcharges in 2006 From KSA /To Security surcharge SR/KG Fuel surcharge SR/KG KRT (Sudan) GCC Other Destinations Required Forwarding Documents The required documents for Air Freight are shown below. Certificate of Origin: that proves the origin of goods. Airway Bill, that is issued by Airlines company.it serves three basic purpose: o To acknowledge receipt by the carrier of the exporter's goods. o To indicate the carrier's contractual obligation to transport the goods to their destination in exchange for payment. o To record transfer of title (or ownership) from the seller to the buyer when payment for the goods takes place. Commercial Invoice: it shows the value of shipments for custom estimation purposes. Some companies as a good service issue this document instead of exporter. Authorization Letter: authorize customs clearance office to deal with all custom clearance procedures. Customs Declaration: it is a form that contains information about the exporter, goods description, quantities and value. 8

11 Declaration for dangerous goods: it is a form that should be filled up by the shipper. Healthy Certificate: this certificate proves the free from radiation and fit for human consumption for agricultural goods. 8 Insurance Insurance of the Cargo is optional and depends on the exporter himself. However, all Airlines companies carry insurances on their cargo and compensation charges are estimated by U.S $ 20/KG. Therefore, exporter can use that charges to evaluate the need of insurance. Moreover, exporters could make an extra insurance if the value of their exports & goods is more expensive than U.S $20/KG. In the case of issuing an insurance policy, the most popular clauses in use ; covering All risks of physical loss or damage including general average and salvage charges, subject to certain exclusion: Willful misconduct by the insured or his agent, insufficient packaging, ordinary loss in volume or weight, ordinary leakage, delay and inherent problems. Regarding the insurance fees, the range of insurance fees are percentage of the total value of the shipment, as illustrated below. Air Cargo Minimum Maximum All Risks 0.16% 0.20% The required documents to issue an insurance policy are as follows:- Cargo insurance proposal Invoice (Value of the goods) Way bill Packaging list The name, location and contact number of insurance companies currently working in KSA are listed below: Company-Head Office Telephone Number A- Central Region National Company for Cooperative Insurance (NCCI) Al Al-Ahlia Insurance Assurance Saudi Fransi Saudi Indian Insurance Gulf Union Cooperative Insurance Company Malath Insurance Company Al Rajhi Company for Cooperative Insurance

12 Arabian Shield Insurance SABB Takaful The Mediterranean & Gulf Insurance & Reinsurance (MedGulf) Sanad for Cooperative Insurance Saudi Arabian Insurance Company (SAICO) B- Western Region Allied Cooperative Insurance Group Al Alamiya Insurance Tokio Marine & Nichido BUPA Arabia Al Ahli Takaful AXA Cooperative Insurance United Cooperative Assurance (UCA) Arabian Malaysian Takaful Company Arabia Insurance Cooperative Company Saudi IAIC for Insurance C- Eastern Region Saudi United Cooperation Insurance (AMITY) Trade Union Insurance Company Al Sagr Company for Cooperative Insurance It is worth to mention that, there are two types of insurance policies, namely certificate of marine insurance and policy of marine insurance. The first one is for regular clients who have an annual contract with an insurance company, while the other one is for irregular clients who insures rarely. 9 Competition environment In 2005, there are around 44 airlines companies working in Saudi Arabia ( table No.5). Most of them offer cargo services especially if destinations are their countries. Nonetheless, it seems that Saudi Airline captures the largest proportion of total cargo at Saudi international airports. According to The General Authority of Civil Aviation, Saudi Airlines captures around 73% of cargo market in Saudi Arabia in The table below illustrates the market share of Saudi Airlines in cargo at Saudi international airports. Table 4 Saudi Airlines' Share of the Total Cargo Traffic at International Airports Year Saudi Airlines' Market Share % % % % % % % % 10

13 % % Source: General Authority of Civil Aviation By looking at the table above, it appears that the market share during the last 10 years is relatively static. This is expected to be changed in the coming years due to liberalization of civil aviation sector after joining WTO. Table 5 Foreign Airlines serving Kingdom's International Airports as of December 2005 # AIRLINES JED RUH DMM # AIRLINES JED RUH DMM 1 Air Algerie Y* 23 KLM Royal Dutch Y 2 Air Arabia Y Y Y 24 Kuwait Airways Y Y Y 3 Air France Y Y Y 25 Libyan Y 4 Air India Y Y Y 26 Lufthansa Y Y Y 5 Air Lanka Y Y 27 Mahan Air Y 6 Ariana Afghan Y Y 28 Malaysian Airlines Y 7 Bangladesh Biman Y Y Y 29 Middle East Airlines Y Y Y 8 British Midland Y 30 Nigerian Airways Y 9 Cameroon Airlines Y 31 Pakistan Int'l Airlines Y Y Y 10 Cathay Pacific Y 32 Philippine Airlines Y 11 Cyprus Airways Y Y 33 Qatar Airways Y Y Y 12 Dallo Air Y 34 Royal Air Maroc Y Y 13 Egypt Air Y Y Y 35 Royal Brunei Airlines Y 14 Emirates Y Y Y 36 Royal Jordanian Y Y Y 15 Eritrean Airlines Y 37 Singapore Airlines Y 16 Etihad Airlines Y Y 38 Sudan Airways Y Y Y 17 Ethiopian Airlines Y 39 Swiss Air Y Y 18 Garuda Indonesia Y Y Y 40 Syrian Arab Airlines Y Y Y 19 Gulf Air Y Y Y 41 Tunis Air Y 20 Iran Natn'l Airlines Y Y 42 Turkish Airlines Y Y 21 Jubba Airways Y 43 Uzbekistan Airlines Y 22 Kabo Air Y 44 Yemenia Y Y Source: General Authority of Civil Aviation. * Y= Yes, Airlines operate from these cities. 10 Major shipping agencies For an exporter, it is recommended to transport his shipment through a shipping agent. This would provide him with lower rate and better services than shipping directly through airlines companies. All shipping agents have agreements with number of airlines companies, which allow them for the promotional rates i.e. around 15% lower than IATA rate. Moreover, a shipping agent usually offers additional services such as packing, documentation, and transporting shipment from factory to Airport. The table below presents major shipping agents in the Kingdom. Name of Co. Location Phone NO. Website Manawla Cargo Services Co. Riyadh Namma Cargo Riyadh Al-Tayyar Cargo Services Riyadh Continental Express Systems Riyadh Four Winds co. Riyadh

14 11 Conclusion In conclusion, the transportation issue is one of the most critical parts in the exporting process. The objective of this report is to provide information about Air shipping market and analyze the market prices in order to help and guide KSA potential exporters to understand the current procedures & cost structures of various available transportation facilities exist in the kingdom. Moreover, this primary report would form a good base to assess and measure the impact of transportation cost on the prices of Saudi products in overseas markets. However, it should be noted that all cargo rates provided in this study might be changed in the future. Hence, it is strongly recommended for an exporter to build a relationship with one of the shipping agents in order to up-date him by latest frigate rates for his targeted market. From observation of transportation market, the potential exporters are advised to:- Look for a broker companies (forwarding company which has a contact with all shipping companies) were they are capable to look for lowest prices in the market for exporter s shipment and guarantee delivering of shipment. There are number of strategies that can play with price element and avoid the transportation effect in oversea markets. One of the common strategy is allocating total fixed cost on products that selling in local market. The exporter can also draw an appropriate shipment plan of his yearly exports and then submit the plan to the forwarder in order to make bookings and export arrangements. This could decrease the shipping prices nearly by 7-15%. 12