Unveiling the Mystery: Why Freight Forwarders Use Different Rates on Airway Bills

If you're a seasoned shipping professional, you might have noticed a peculiar practice: freight forwarders often issue higher rates on airway bills than what they use to make the actual transaction. This can be quite confusing, leading to questions about transparency and accuracy. In this article, we'll delve into the reasons why this practice is common and explore the consequences and best practices.

The Practice of Higher Rates on Airway Bills

Freight forwarders typically charge higher rates on airway bills compared to the rates they use to settle the actual transaction with the carrier. This discrepancy is often due to a few specific reasons.

1. Inclusion of Ancillary Charges

Airway bills often include additional charges such as customs clearance, stowage, and other fees that are not reflected in the carrier's basic rate. These ancillary charges can inflate the total cost, making it appear higher than the actual shipment rate. Forwarders do this to ensure they cover all costs and retain a margin of profit.

2. Profit Margins and Markup

Forwarders operate as intermediaries between shippers and carriers. As such, they need to mark up the rates to cover their services, margins, and to make a profit. This markup is reflected in the airway bill rate to ensure they can sustain their profitability while providing dependable services.

3. Legal and Compliance Requirements

According to the International Air Transport Association (IATA), freight forwarders must follow certain rules when billing air cargo. These rules require the airway bill to reflect a general, average rate that is acceptable to the carrier, but not necessarily the exact rate used in the billing process.

4. Transparency and Client Confidentiality

Forwarders sometimes hesitate to disclose the true cost when it is prepaid by the shipper. They may worry about client confidentiality, ensuring that the consignee does not know the buying rate. To mitigate this, they often opt for a higher rate on the airway bill.

Understanding IATA Tariff Rates

To better understand this practice, it's important to know about IATA tariff rates. These are the official rates established by the IATA for airlines to charge for transporting goods by air. However, these rates are not always the rates actually used in billing. Forwarders may use different rates within the IATA range, depending on a variety of factors, which can further complicate the billing process.

What You Can Do

Given the prevalence of higher rates on airway bills, it's crucial to understand the context and ask your forwarder for transparency. Here are some steps you can take:

1. Inquire About the Actual Rate

Don't hesitate to ask your forwarder for the actual rate used in the transaction. This will give you a clearer understanding of the costs involved and help ensure you are getting a fair and accurate quote.

2. Negotiate Terms

Discuss the possibility of having the rate marked as 'as arranged.' This can provide more transparency and keep costs clear and understandable.

3. Keep Good Records

Ensure you maintain records of all transactions and bills. This will help you track costs, spot discrepancies, and negotiate better terms in the future.

Conclusion

The practice of freight forwarders using higher rates on airway bills is multifaceted, driven by various economic, legal, and practical considerations. While it can be confusing, understanding the reasons behind it can help you navigate the shipping process more effectively. Always seek clarity and transparency, especially when dealing with pre-paid shipments or sensitive expenses.