LOG355 Air Freight Management

Study Unit 6
Time-sensitive Cargo, Licensing and
International Trade Compliance
Schedule
 Objectives

• At the end of this study unit, you are expected to:

– Distinguish different types of air cargo services and marketing environment for
time-sensitive cargo.
– Appraise distinct nature of the air cargo product and critical aspects in air cargo
distribution.
– Examine the licensing regime of airlines.
– Discuss the regulation of international air services and future liberalisation of the
air cargo sector.

Prepared by WY Yap for SUSS

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 11.1 Types of Transactions in Air Cargo Services
4 ways to transact

• Business to business (B2B)

– Firms subcontract parts of production process to other companies as well as buy final
products such as computers or office supplies from other companies.
– Agents may be required for distribution and air cargo carriers and logistics specialists chosen
for transport and warehousing.
– These producing entities will have their air transport needs met by integrators or
airline/forwarder combinations. Consignees and shippers can also deal direct with airlines.
– With big volumes of air cargo, may engage in longer-term contracts with a few service
providers.
• Business to administration (B2A) and Consumer to administration (C2A)
– Decision making by committees of government officials and can take longer.
– Businesses sell to governments and governments also sell their services to consumers.
– Governments may negotiate with and supply other government departments in joint
provision of products or services.
– Government entities can choose either integrators or forwarders in same way like firms.

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 Types of Transactions in Air Cargo Services

• Business to consumer (B2C)

– One of the parties involved is an individual person or family unit.
– Decisions of family unit mostly made only by one or two people at home.
– Online sales seen rapid expansion.

– Items located far from buying consumer Figure: Differences Between

and should short delivery time be B2B and B2C Marketing
requested, air cargo may be the choice
transport.
– Likely to choose integrator for the air
transport because they provide a retail
service and include home delivery and
collection compared to a forwarder.
– Transactions mostly involve small
shipments and these are the core express
business for integrators.
Source:
https://www.thebalancesmb.com
Prepared by WY Yap for SUSS /b2b-vs-b2c-marketing-2295828
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 Types of Transactions in Air Cargo Services
B2B2C: Need for intermediaries

• Customers can be segmented by needs, price and type of product that best cater to
those needs. E.g.
➢ Airline may not be familiar with the consignor or shipper as forwarder can act as
intermediary.
➢ Large forwarders may be intermediaries that airlines deal with for several market
segments. e.g. small and big importers/exporter. These large forwarders form a
customer segment for airlines
➢ May also be of little interest to the airline to
know whether importer or exporter is
responsible for choosing the transport mode
(e.g. CIF) and carrier. Left decisions to the
forwarder These exporters and importers form
a segment
➢ Exporter or importer unlikely to be dealing
direct with air cargo carrier unless for an
integrator who also operates its own flights.
Prepared by WY Yap for SUSS
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 Activity 6.1

Air cargo service transactions may be divided into B2B, B2C, B2A and C2A services. Illustrate
each of these transactions with the example of a company that you are familiar with and
specify the product or service involved.

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Activity 6.1

• Discuss in your GBA groups (10 min)

• Present findings (10 min)
• Choose one person to present
• Total (20 min)
Class Discussion & Presentation

B2B: Forwarder (consolidated shipment of 300,000 pcs of hand

sanitisers + one million face masks) vs airline (air cargo service)

B2C: Forwarder/online firm vs consumer (purchase of a carton of

hand sanitisers and a carton of face masks)

B2A: Forwarder/firm (3m hand sanitisers, 10m face masks) vs

Govt dept

C2A: consumer vs Govt dept (distribution of one litre of hand

sanitiser and 4 pcs of face mask to each household)
 11.2 Distribution and Marketing Environment
Impact on air cargo development

• Global trends airlines need to watch in managing time-sensitive cargo:

– Open skies:
➢ Ability to transport air cargo between different parts of the world gradually being
eased with fewer restrictions.
➢ Cargo airlines may be able to base their planes in foreign countries and operate round-
the-world flights and circular routes to allow more economic operations.
➢ Scope for more differentiated strategies to market services but raise new challenges by
having to sell in foreign countries where culture may be different.

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 Distribution and Marketing Environment
Another global trend

• Global trends airlines need to watch in managing time-sensitive cargo:

– Globalisation and free trade:
➢ Globalisation described as closer integration of regions and countries through trade,
tourism and communications.
➢ Exchange of services and goods across borders enabled by removal of trade barriers.
➢ Negotiations at World Trade Organisation (WTO) resulted in:

▪ Elimination of tariffs.
▪ Creation of FTZs with no or little tariffs.
▪ Reduced transport costs.
▪ Elimination or reduction of capital controls.
▪ Elimination, harmonisation or reduction of
subsidies for local businesses.
▪ Harmonisation of laws on intellectual
property across countries.
Source:
Prepared by WY Yap for SUSS https://www.singaporeairfreight.com/articles/industry-articles/trending-higher
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 Distribution and Marketing Environment
MNCs – how they operate

• Global trends airlines need to watch in managing time-sensitive cargo:

– Multinational corporations (MNCs):
➢ Establishing local firms in different countries/regions often with own manufacturing
capability.
➢ Key to success is establishment of global brands like McDonald’s.
➢ Also important to adapt to suit cultural needs of the host country.

― Outsourcing and offshoring - results in products made outside the company and air freight
back
➢ Trade-off between labour productivity and lower wages.

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 Distribution and Marketing Environment

• Global trends airlines need to watch in managing time-sensitive cargo:

– E-commerce:
➢ More products are bought and sold electronically.
➢ 2 important drivers for this trend:
▪ More widespread use of credit and debit cards by consumers and secure means of
payment
▪ Shipping or delivery costs often passed to consumer particularly if items are needed
urgently with consumer willing to pay the premium. Figure: Forecasts of E-Commerce’s
Share in Global Retail Sales (2015-2021)
➢ “Final mile” as key with trend of concentrating
shipments using local/workplace pick-up
points.
➢ Produce air cargo or mail revenues usually for
integrators although they may procure space
on all-cargo or combination airlines.
➢ About 25-30% of purchases online are sent
back (for clothing and apparel: 30-50%).
Source: Coface (2019).
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 Distribution and Marketing Environment

• Common to see multinational offshoring and outsourcing production of several different

components (e.g. Ford)
• These will need to be put together at final production line which can be in different regional
centres.
• Some parts require reliable long-distance transportation in order not to cause delays to
production.
• JIT can become complex operation as suppliers in turn outsource to other firms.
• Lower labour costs can be offset by expensive air freight charges.
• Main advantages of using air transport:

Figure: Example of – Lower costs of packaging

Multinational
– Smaller economic order quantities
Production Offshoring
and Outsourcing – Improved cash flow

– Lower borrowing costs

– Reduced safety stocks

Source: Boeing (2016). – Centralised warehousing

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 Activity 6.2

• Select a manufactured product which you are in common contact on a daily basis (see
Figure 11.2 for reference). What are the different components that make up this product,
where are they manufactured and where is the product assembled for distribution in
Singapore?
• What is the role of the air cargo industry in the whole process from production to
consumption?

Figure: An Example of Multinational

Production Offshoring and Outsourcing

https://www.ford.co.th/en/about-
ford/ Source: Boeing (2016).

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Activity 6.2

• Discuss in your GBA groups (10 min)

• Present findings (10 min)
• Choose one person to present
• Total (20 min)
Class Discussion & Presentation

Product: Cars
Components:
Instrument panels (Netherlands)
Head lamps, rear seat (Germany)
Tail lamps (France)
Mirrors (Spain)
Starter motors (Hungary)
Etc

Assembly plants - Thailand (for SE Asia market)

https://www.kimbercreekford.com/blog/ford-plant-locations/

Air transport role: Shorten transit time, lower costs of

packaging, insurance, reduce safety stock and centralize
warehousing leading to lower costs of distribution
 11.3 Total Distribution Cost Model
Speed and reliability offset total distribution costs

(1) Inventory costs (L to R):

– Handling and storage of shipments between production and final sale and financial carrying
cost of the goods (e.g. obsolete or write-down of spoiled goods).
(2) Transport costs (L to R):
– Freight rates charged for movement of goods door-to-door employing variety of transport
modes.
– Also include any related costs such as documentation, customs inspections and special
services provided by the carriers.
Figure: Total Distribution Cost Model
• High speed and reliability going by air results in high
transport related costs but low inventory related costs.

• Objective is to locate minimum point (shown by ‘A’) Sea Air (A)

that offers optimum combination of transport and
inventory-related costs. Inventory
costs
• Some commodities go by air (e.g. fashion clothing)
because slower transit times via surface modes will Transport
costs
incur lost sales and very high inventory costs.

Prepared by WY Yap for SUSS Source: Morrell and Klein (2019).

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Exercise

What did you take away from LO-1?

Think about different types of air cargo services and

marketing environment for time-sensitive cargo
Takeaways (LO-1)

• Air cargo services are transacted in several ways: B2B, B2C, B2A, C2A
• Firms segment air cargo customers by similar needs in terms of price
levels, types of products
– Forwarders and individual shippers (price levels)
• Several global trends impact air cargo development:
– Open skies
– Globalisation and free trade
– MNCs
– Outsourcing and off-shoring
– Growth of e-commerce
• Total Distribution Cost Model - Speed and reliability of air transport offset
total distribution costs of commodities
• For some commodities, air transport is still preferred over cheaper surface
transport which increase the risks of lost sales and high inventory costs.
 Objectives

• At the end of this study unit, you are expected to:

– Distinguish different types of air cargo services and marketing environment for
time-sensitive cargo.
– Appraise distinct nature of the air cargo product and critical aspects in air cargo
distribution.
– Examine the licensing regime of airlines.
– Discuss the regulation of international air services and future liberalisation of the
air cargo sector.

Prepared by WY Yap for SUSS

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 11.4 The Air Cargo Product

• Air cargo airlines:

Offer an airport to airport service.
– Quality of service refers to security and reliability including avoidance of damage or theft.
➢ Quality of service also means capability to handle special products including flowers,
dangerous goods, chilled goods and animals.
➢ Loading instructions are important.
Example of product segments:
– Flight aspects of services:
• Smooth/td: Careful handling of shipments that
➢ Frequency of service can be easily damaged
• Cool/td: Temperature controlled, e.g. medicines
➢ Delivery time promise or guarantee
• Fresh/td: Perishables such as flowers and fruits
➢ Time of aircraft departure
• Safe/td1: Highly valuable shipments like gold and
➢ Type of aircraft (may have diamonds
loading restrictions) • Safe/td2: Theft endangered goods
• Care/td: Dangerous goods
• Animal/td: Transport of animals
Prepared by WY Yap for SUSS
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 The Air Cargo Product
Different priorities

• Air cargo airlines:

– Different market segments carry different priorities in terms of product aspects.
– Emergency shipments require good selection of flight departure times and comparatively
high frequency of flights. Preference for direct flights given likelihood of fewer delays.
– Flights which are scheduled should be flown.
– Shipments booked on the flight should not be offloaded and put onto another flight.
– Stringent demands on connecting surface transport in the door-to-door trip although
these can be covered by consignee and shipper instead of the integrator or forwarder.
– Systems for tracking are essential and desirable to have delivery guarantees.

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 The Air Cargo Product
Door2door

• Integrators:
– Provide door-to-door delivery and assume this overall responsibility even if they may have
subcontracted part of the service to other operators.
– Monitor closely every stage of journey, frequently scanning shipments and keeping track of
location.
– Use websites for increasing number of bookings and easy to use systems for booking and
tracking.
– Example of UPS’s product offerings and includes guaranteed delivery times:

Table: Structure for Air Freight

Rate for UPS (May 2017)

Source: UPS (n.d.).

– FedEx offers similar services but these were withdrawn for packages delivered to certain
countries where FedEx reckoned customs inspection can significantly hold up deliveries.

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 11.5 Air Cargo Distribution

• Air cargo airlines:

– For passenger business, airlines deal with individual passengers or corporate travel
departments.
– For cargo business, airlines tend to sell via forwarders who deal with preparation of AWB
and make arrangements for payments from shippers.
– Forwarders effectively become final customer to the airline as carriers did not possess
capability to consolidate shipments as efficiently compared to consolidators.

– Shippers generally obtain good service

from forwarders who shop around to
look for best door-to-door option.
– Estimated only 4% of shippers used
airline direct whereas forwarders only
was preferred choice for 53% and
integrators for 31%. Remainder used
both integrators and forwarders (12%).

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 Air Cargo Distribution
Information flow

• Air cargo airlines:

– Large number of airline bookings by forwarders still occur by telephone with data
subsequently entered into airline’s computerised booking system.
– Process then used to automatically prepare documents like load sheets and cargo manifests.
– Air cargo industry also saw air cargo community systems (CCS) developed to connect
computers of airlines serving particular airport or are based at the airport, custom
authorities and handlers.
➢ Descartes Global Freight Exchange (GF-X) offers neutral online booking system to cargo
airlines.
➢ Cargo Portal Services from Unisys offers message switching and consignment tracking.
➢ Cargomarket allows rate comparisons across various air cargo operators (similar OAG’s
cargo portal which is designed more for information gathering to make comparisons).
– Many airlines possess cargo electronic booking system which can be accessed through the
airlines’ websites via direct link with forwarders or a portal such as GF-X.
– Airlines may appoint GSA (general sales agent) to market their services in return for
commission on sales or freight forwarder purchases capacity from airline and subsequently
sells it to small and medium sized forwarders that are too small to secure very favourable
rates from airlines.
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 Air Cargo Distribution

• Integrators:
– Provide their services to the wholesale, retail
and company sectors.
– Need both direct telephone and website
booking systems.
– FedEx stresses importance of technology
infrastructure which includes its website and
computer system for customers.
– Website “fedex.com” offers a single point of
contract to customers to access FedEx Freight,
FedEx Express and FedEx Ground shipment,
customer service, tracking and invoicing
information and FedEx Office services.
– Customers can easily and quickly evaluate air Source:
http://faculty.poly.edu/~brao/The
freight and surface shipping options by making a %2520FDX%2520Group.htm
call to FedEx Expedited Freight Services.

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Exercise

What did you take away from LO-2?

Think about Appraise distinct nature of the air cargo

product and critical aspects in air cargo distribution
Takeaways (LO-2)

• The air cargo service refers to airport-to-airport service. Its quality is defined by security, reliability
and safety; and special handling of products that are perishable, valuable or alive
• Product segments are differentiated as smooth (careful handling), cool (temp controlled), fresh
(perishables), safe (protection from theft) and care (DG)
• Each market segment has different priorities. For example: Emergency shipments require good
selection of departure time, high frequency of flight times and direct, on-time departure
• Integrators take responsibility for their door-to-door service even if they may have subcontracted part
of the service to other operators.
• part of the journey is sub-contracted by close monitoring and commitment to delivery lead times
• Air Cargo airlines sell via forwarders who take care of AWB documents and payments from shippers
• Forwarders still rely on phone to make bookings and enter data into airline’s computerised system to
produce air transport documents
• Airlines may appoint GSA to market their services on sales commission or freight forwarders who
consolidate shipments from smaller sized freight forwarders or shippers
• Integrators provide services to wholesales, retail and company sectors
– Website offers single point of customer contact to customers to access eg FedEx freight products,
customer service, tracking and invoicing info
– Customers enjoy convenience of evaluating air freight and surface shipping options
30
Break
 Objectives

• At the end of this study unit, you are expected to:

– Distinguish different types of air cargo services and marketing environment for
time-sensitive cargo.
– Appraise distinct nature of the air cargo product and critical aspects in air cargo
distribution.
– Examine the licensing regime of airlines.
– Discuss the regulation of international air services and future liberalisation of the
air cargo sector.

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 12.1 Licensing of Airlines

• Chicago Convention of 1944 had 19

annexes that establish standards Table: Annexes of the Chicago Convention of 1944
and recommended practices (SARP)
regarding civil aviation and covers
technical, commercial and
economic aspects.
• E.g. under Annex 18, ICAO bans
shipments of lithium-ion batteries
in form of cargo on passenger
aircraft (does not cover those
shipped using freighters or installed
in personal electronic devices of
passengers or crew).
• Various SARPs associated with
safety management consolidated
into one annex by November 2019
with intentions to develop
enhanced requirements.
Source: ICAO (1974) and ICAO (2013).

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 Licensing of Airlines

• Convention has no legal status and its standards have to be incorporated into each country’s
aviation legislation.
• Requirement is also for an air operator to have an operating licence which is granted by the
country in which it is domiciled.
• Granting an operating licence depends on satisfying the requirements of:
– Company’s registered office and principal place of business located in the country.
– Effectively controlled and majority owned by nationals of the country (for EU – nationals of
European Economic Area).
– Possesses sufficient financial resources.

– Possesses necessary insurances to Source:

http://www.scillon
cover accidents concerning cargo, iaairways.co.uk/Sci
passengers and third parties. llonia_Airways/Scil
lonia_Airways_-
– Possesses an Air Operator’s _News/Entries/20
14/8/15_Air_Oper
Certificate. ators_Certificate.h
tml

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 Licensing of Airlines

• For route licence, some countries set separate categories including scheduled and charter.
• May be restrictions to operations to certain international routes.
• An air cargo operator based in the US will be regulated by US Department of Transportation
(DOT), the Federal Aviation Administration (FAA) and the Transportation Security
Administration (TSA).
– DOT primarily deals with economic matters of air transport.
– FAA’s main responsibility is air safety (which includes aircraft operating procedures) and
other responsibilities include record keeping standards and maintenance of aircraft,
movement of hazardous materials, and licensing of ground facilities and technical staff.
– FAA issues operating licence which is subject to compliance with its standards and
regulations.

– TSA in charge of regulating

various security aspects of
transport of air cargo. Its
regulations encompass staff,
facilities and procedures.
Prepared by WY Yap for SUSS
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 Licensing of Airlines

• Authorities in a country can withdraw permission for the airline to operate to their country if
they consider the airline registered in another country not meeting applicable international
safety standards.
• These bans may be lifted if foreign carrier ‘wet leases’ an aircraft registered in another country
which has acceptable safety standards (usually mentioned as ACMI lease).
• This also means licensing authority from the first country exercises little control over standards
and regulations imposed by the other country.
• Specialised airlines including Atlas Air, Evergreen and Southern based in the US and Silkway and
Cargolux have provided freighters on ACMI or wet lease basis to British Airways, Thai Airways,
Qatar Airways, Emirates and Qantas cargo divisions.

Source:
https://www.reuters.com/ Source:
article/us-airlines-eu- https://www.thejakart
blacklist/eu-bans-all- apost.com/news/2018
indonesian-airlines-from- /06/15/eu-lifts-ban-
its-airspace- on-all-indonesian-
idUSBRU00577920070628 airlines.html
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 Activity 6.3

With reference to the air cargo industry in Singapore, can you identify key
government agencies that are involved in the licensing of air cargo carriers
including the roles played by these agencies?

Source: CAAS.
https://www.caas.gov.sg/operations-safety/air-operations/singapore-air-operators

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Activity 6.3

• Discuss in your GBA groups (10 min)

• Present findings (10 min)
• Choose one person to present
• Total (20 min)
Class Discussion & Presentation

CAAS is a government statutory board under the MOT responsible for

regulating aviation safety, and civilian air traffic within the country’s
airspace.
MOT: Deals with economic matters eg air services agreements
CAAS – enable growth of the Singapore air hub, promote safe industry
practices, engages air operators in civilian air service agreements
https://www.caas.gov.sg/operations-safety/air-operations/singapore-air-
operators

Singapore Air Operator certificate

Before the anticipated start of operations, the airline needs
Air operator certificate to satisfy Air Navigation Regulations (ANR) of
Singapore
A commercial air permit (route license)

The Air Navigation Regulations ensure that the Air Operator satisfy the
necessary conditions, qualities, qualifications, standards and procedures for
the safety of the travelling public
 12.2 Financial Fitness
• Granting air operator’s licence involves assessment of financial and technical fitness of the
airline.
• Technical fitness ensures airline can operate safely in compliance with international standards.
– Consists of airworthiness of aircraft, licensing of its personnel and provisions for
maintenance.
• Financial fitness ensures airline possesses sufficient capital at the outset to allow continuous
trading at least for its first year (in some cases for period of 2 years).

– Financial oversight and monitoring

continue and are based on submission of
financial statements in subsequent
periods (assessment by relevant
authorities in the country).
• Setting too high financial hurdles risks
deterring new entrants as new players help
ensure industry remains competitive and
often are best source of change and
innovation.
• Setting too low hurdles may lead to failure Source: https://www.marketwatch.com/story/planning-a-europe-trip-
the-airlines-that-are-in-financial-trouble-in-one-chart-2017-10-23
and disruption.
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 12.3 Drones and Unmanned Aerial Vehicles (UAVs)

• Becoming widespread and some have strayed into protected airspace of airports.
• Regulators in many countries introduced stringent rules to ensure safe operations.
• Simultaneously, integrators and online shopping giants considering their use in door-to-door
delivery.
• As range and payload increases, greater regulatory oversight will become necessary.
• In UK, ‘large’ UAVs of 20kg or above in weight are covered by existing regulations for small
aircraft.
• In US, 25-kg cut-off by FAA where ‘Unmanned Aircraft Systems’ (UAS) exceeding this cut-off
need to be registered in same manner as aircraft and with remote pilots licensed.
• Remote pilots of UAS need to carry out pre-flight check to make sure it is in safe condition for
flight.
• Must fly under 400 feet.
• FAA’s rules for small unmanned aircraft:
• Must keep aircraft in sight (i.e. visual line-of-
sight).
• Must fly at or below speed of 100 mph.
• Must fly during the day.
• Must yield right of way to aircraft which is
manned.
• Must not fly from moving vehicle.
Prepared by WY Yap for SUSS • Must not fly over people.
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 Activity 6.4

The Singapore Government introduced a set of rules to govern the use of Unmanned Aerial
Vehicles (UAVs) and drones. Compare this set of rules with those of the FAA in the US. Which
do you think is more restrictive and what are the reasons for doing so?

Source: CAAS.
https://www.caas.gov.sg/
public-
passengers/unmanned-
aircraft-systems

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Activity 6.4

• Discuss in your GBA groups (10 min)

• Present findings (10 min)
• Choose one person to present
• Total (20 min)
Class Discussion & Presentation
FAA vs CAAS – Comparing regulations for flying
drones
FAA (under 25kg) CAAS (under 7kg)
Line-of-sight
. LOS at all times
Under 400 ft Under (200 ft) 60m (12-storey
(121m) height of HDB)
• Dense population – not much
Day time only Avoid strong winds, poor visibility
open spaces to fly drones-
Under 100mph Follow UAV instructions control usage of space
(161kph)
• Airport very busy – security
Give way to Not within 5km from airport and costly disruptions
manned aircraft
• High rise HDB – safety to
Not fly over People, public events, crowds
residents and privacy
people
(peeping toms)
Not fly from Not near any road
moving vehicle • Crowds and vehicles on the
roads or above ground MRT –
No hazardous materials
safety and disruptions
Not under influence of alcohol
Not drop any item from UA
Not fly when there is on-going
emergency response
Exercise

What did you take away from LO-3?

Think about licensing regime of airlines

Takeaways (LO-3)

• Chicago Convention of 1944 had 19 annexes that established standards and

recommended practices (SARP) regarding civil aviation covering technical, commercial
and economic aspects.
• These standards are incorporated in each country aviation legislation. Air operator need
to have operating license granted by its own country, registered in the country, majority
owned by its nationals, financially secure, and possess insurances against accidents
• Air cargo operator may be issued route licence that subject them to fly certain int’l
routes.
• In the US, air cargo operators are regulated by DOT, FAA, TSA
• If an air operator fail to meet int’l safety standards, authorities in a foreign country can
withdraw permission for it to operate there
• An air operator’s license is granted based on an assessment of technical (safety
compliance and air worthiness of aircraft) and financial fitness (sufficient capital to
operate for at least the first year)
• UAVs have become common and strayed into the protected airspace of airports. As range
and payload increase, regulators have introduced rules to ensure safe operations and
security.
 Objectives

• At the end of this study unit, you are expected to:

– Distinguish different types of air cargo services and marketing environment for
time-sensitive cargo.
– Appraise distinct nature of the air cargo product and critical aspects in air cargo
distribution.
– Examine the licensing regime of airlines.
– Discuss the regulation of international air services and future liberalisation of the
air cargo sector.
Self study

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 12.4 Air Services Agreements (ASAs)
What are these

• Negotiated bilaterally between two countries and encompass carriage of cargo and
passengers by air including freighter and passenger flights.
• By the agreement, airlines designated by each country entitled to equal and fair
opportunity to compete (but country can decree air trips by government employees
take national flag carrier).
• Include also traffic rights permitted by route.

Source: https://www.mot.gov.sg/About-MOT/Air-
Transport/Aviation-Hub/Liberal-Aviation-Policy/

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 Air Traffic Rights
What are these

• Usually determined by passenger potential

with few or zero input from airline’s cargo
division.
• Air cargo traffic rights usually granted under
same ASAs as passengers and have benefitted
with gradual opening up.
• For some cases, there are separate agreements
signed for freighter or all-cargo routes as case
for US-Japan flights.
• Air cargo traffic rights often more liberal than
their passenger counterparts as they pose less
threat to national carriers that depend on
passengers.
Figure: Freedoms of the Air (i.e. Air Traffic Rights)
Source: Morrell and Klein (2019). * ‘Sixth freedom’ coined to explain
combination of 3rd and 4th rights to reflect reality of hub-and-spoke
networks and is not usually recognised for air services agreements. 7th
and 8th freedoms seen as potential opportunities for liberalisation.

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 Ownership and Control
Requirements

• Bilateral ASAs usually contain an article concerning airline nationality that states
that foreign airline must be controlled or majority owned by its nationals or citizens
in order for airline to have access to traffic rights available in the bilateral
agreement.
• EU agreements require majority to be above 50% while the US insist on 75%.

Table: Airline Foreign

Ownership Limits of Select
Countries

Source: https://centreforaviation.com/analysis/reports/us-airline-
Prepared by WY Yap for SUSS foreign-ownership-time-for-a-rethink-405817
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12.5 Competition and Mail Regulation
How competition is regulated

• Progress to more open market accompanied by increasing intervention by competition

authorities.
• Alliances and mergers need approval although most are concerned primarily with
passenger markets.
• Another area of scrutiny concerns concerted practices, especially regarding collusion in
setting rates and air fares which is illegal in many countries.
• In liberalised markets, cargo rates are set by individual airlines and not required to be
submitted to governments for approval.
• But with fuel surcharges introduced, a significant tariff component charged to shippers
and forwarders saw possibility of collusion (e.g. same fuel surcharges introduced by a
number of airlines on same day).
• Collusion was confirmed by antitrust authorities which obtained evidence of these
contracts between carriers through raids on airline offices.
• Given lawsuits filed and investigations taken, cargo managers very cautious to whom
they talk to, when they change their price and by how much.
• Although price leadership is not illegal, a carrier following another by increasing fuel
surcharges with same amount within a short period of time may raise questions.
52
Competition and Mail Regulation
How mail is regulated

• Regulations also concerned over carriage of mail which apply to postal services
which have largely been provided by government agencies until recent times for
many countries.
• Mail also includes parcels which integrators have been taking increasing part of the
market.
• Previously, government-owned incumbent operators in mail market are protected
from competition in many EU countries.
• E.g. in Germany, operations are privatised and owned by large integrator – DP-DHL.

Source: https://www.dpdhl-brands.com/dpdhl-group/en/guides/group-basics/group-architecture.html
53
Exercise

What did you take away from LO-4?

Think about the regulation of international air services

and future liberalisation of the air cargo sector
Takeaways (LO-4)

• Air Services Agreements are bi-lateral agreements between 2 countries that covers air
cargo and passengers.
• Singapore signed bilateral agreements with more than 140 countries
• Singapore signed a Multilateral Agreement on the Liberalisation of Int’l Air
Transportation
• Within ASEAN, Singapore is a party to various multilateral agreements for the full
integration of air services
• Air traffic rights allow commercial air services between countries that are parties to ASA
and are referred by the 7 Freedoms of the Air. (See SU6-33).
• Bilateral ASAs have ownership and control requirements for airline to have assess to
traffic rights: EU: Above 50% US: Above 75%
• As air services become more liberalised, intervention by competition authorities have
increased:
• Alliances and mergers need approval
• Scrutiny over collusion in setting eg fuel surcharges
• Air mail which is a key part of air cargo traffic is regulated. It includes postal services
provided by govt agencies e.g. DP-DHL
Summary (SU-6 Chap 11) 1/2

• Air cargo services are transacted in several ways: B2B, B2C, B2A, C2A
• Firms segment air cargo customers by similar needs in terms of price levels,
types of products
– Forwarders and individual shippers (price levels)
• Several global trends impact air cargo development:
– Open skies
– Globalisation and free trade
– MNCs
– Outsourcing and off-shoring
– Growth of e-commerce
• Total Distribution Cost Model - Speed and reliability of air transport offset
total distribution costs of commodities
• For some commodities, air transport is still preferred over cheaper surface
transport which increase the risks of lost sales and high inventory costs.
Summary (SU-6 Chap 11) 2/2

• The air cargo service refers to airport-to-airport service. Its quality is defined by security,
reliability and safety; and special handling of products that are perishable, valuable or
alive
• Product segments are differentiated as smooth (careful handling), cool (temp controlled),
fresh (perishables), safe (protection from theft) and care (DG)
• Each market segment has different priorities. For example: Emergency shipments require
good selection of departure time, high frequency of flight times and direct, on-time
departure
• Integrators take responsibility for their door to door service even if part of the journey is
sub-contracted by close monitoring and commitment to delivery lead times
• Air Cargo airlines sell via forwarders who take care of AWB documents and payments
from shippers
• Forwarders still rely on phone to make bookings and enter data into airline’s
computerised system to produce air transport documents
• Airlines may appoint GSA to market their services on sales commission or freight
forwarders who consolidate shipments from smaller sized freight forwarders or shippers
• Integrators provide services to wholesales, retail and company sectors
– Website offers single point of customer contact to customers to access eg FedEx freight
products, customer service, tracking and invoicing info
– Customers enjoy convenience of evaluating air freight and surface shipping options
Summary (SU-6 Chap 12) 1/2

• Chicago Convention of 1944 had 19 annexes that established standards and

recommended practices (SARP) regarding civil aviation covering technical, commercial
and economic aspects.
• These standards are incorporated in each country aviation legislation. Air operator need
to have operating license granted by its own country, registered in the country, majority
owned by its nationals, financially secure, and possess insurances against accidents
• Air cargo operator may be issued route licence that subject them to fly certain int’l
routes.
• In the US, air cargo operators are regulated by DOT, FAA, TSA
• If an air operator fail to meet int’l safety standards, authorities in a foreign country can
withdraw permission for it to operate there
• An air operator’s license is granted based on an assessment of technical (safety
compliance and air worthiness of aircraft) and financial fitness (sufficient capital to
operate for at least the first year)
• UAVs have become common and strayed into the protected airspace of airports. As range
and payload increase, regulators have introduced rules to ensure safe operations and
security.
Summary (SU-6 Chap 12) 2/2

• Air Services Agreements are bi-lateral agreements between 2 countries that covers air
cargo and passengers.
• Singapore signed bilateral agreements with more than 140 countries
• Singapore signed a Multilateral Agreement on the Liberalisation of Int’l Air
Transportation
• Within ASEAN, Singapore is a party to various multilateral agreements for the full
integration of air services
• Air traffic rights allow commercial air services between countries that are parties to ASA
and are referred by the 7 Freedoms of the Air. (See SU6-33).
• Bilateral ASAs have ownership and control requirements for airline to have assess to
traffic rights: EU: Above 50% US: Above 75%
• As air services become more liberalised, intervention by competition authorities have
increased:
• Alliances and mergers need approval
• Scrutiny over collusion in setting eg fuel surcharges
• Air mail which is a key part of air cargo traffic is regulated. It includes postal services
provided by govt agencies e.g. DP-DHL
TOA 2021 Q2

(a) Time-sensitive cargo is an important market segment for the air freight
business. Integrated carriers are reputed to offer fast and reliable services and
thus play a major role in catering to this cargo segment. Select an integrated
carrier that is based in Europe. Briefly describe the characteristics of this
carrier.
From the perspective of your chosen carrier, discuss three (3) global trends
that the airline should monitor in the management of time-sensitive cargo. It is
important that you contextualise your answer to this carrier and not give
generic answers.

(b) Take the perspective of “Actura” which is a large freight forwarder based in
Europe. Comment on the strategies that you think the company can adopt to
minimise the total cost of distribution in serving its customers in the country.
What are the possible trade-offs?
Feedback

In (a), most students could identify an integrated carrier such as FedEx and
describe its fleet, portfolio of products and network coverage. FedEx is
successful because customers are willing to pay a premium for FedEx
guarantee that their time-sensitive shipment will arrive on time.
Students did a good job of appraising the trends that drive the growth of time-
sensitive air cargo. These trends include open skies, globalization, E-commerce
and so on.

In (b), students performed satisfactorily – to improve answer on the tradeoff

between speed and reliability of air-freight and inventory costs, both of which
make up the total costs of distribution.
Those who did well illustrated their answer with the total distribution model
shown in the study guide.
TOA 2023 Q4a

You are a freight forwarder helping companies export and import goods
worldwide by using a mix of air and sea transport. However, certain types of
goods will always go by air.

Apply the total distribution cost model to show the economic case for using air
freight for some goods.

In your answer, think of a product that will use air freight. With the help of the
total distribution model, demonstrate the economic case for using air freight
to ship this product.
Feedback

(a) Most students did not make use of the diagram showing total distribution model
and an example to show the economic case for using airfreight for some goods.

For example, fashion clothing and a diagram of the model showing the variation in costs
comprising transport-related and inventory-related costs of fashion clothing.

Most attempted to explain the model

without a diagram. Some provided
good examples e.g., high-value
products (e.g., mobile phones or
integrated circuits or even perishable
food products) but did not go further
with specific details to show the high
retail price of say fashion clothing can
easily absorb the costs of airfreight
and therefore such goods will always
go via airfreight.
TOA 2023 Q4b

In the Singapore Budget 2021, S$870 million was provided to save the aviation
sector, amid the COVID-19 fallout.

Why do you think the aviation sector is so important to Singapore? In your

answer, comment on two (2) important factors that support the need for
Singapore to save its aviation sector.
Feedback

(b) Most students identified the important factors that support

the need for Singapore to save its aviation sector. These factors
include creation of jobs, foreign investment, and economic
growth, and most importantly the security of Singapore towards
protecting its food and essential supplies.
Thank you for your attention.
Contact details:
wyfong001@suss.edu.sg
9683 5117