LECTURE 13

AIR TRANSPORT
IMPORTANCE OF AIR
TRANSPORT
Air transport is one of the world’s fastest
growing industries. The air
transportation of goods involves sending
the goods through one of the
international airlines.
Air transportation has developed rapidly
since World War II, mainly because it
avoids the forbidding geographic
obstacles that hamper surface travel.
network of air routes. A modern
economy needs
the links to the outside world that air
transport provides, both to ensure its
own businesses
are competitive and to attract business
from overseas. It is worthy to remember
that the

Air routes, in purely theoretical sense, volume of cargo shipped by air is

can be laid in any direction. In fact, it is relatively small—less than 2% of the
commonly said that the aeroplane has total world figure.
the freedom of air and freedom of action, Development of air transport, directly,
denied to any other forms of transport. affects expansion of trade to unexploited
This is an essential industry tomodern regions and
life. It is difficult to imagine or wish a widening the market. Now, no place is
world without air transport, since the distant as the problem is overcome by
benefits means of air
are linked to all regions worldwide via a transport.
 FACTORS THAT INFLUENCE
SELECTION IN FAVOUR OF AIR
TRANSPORT
(A) Total Distribution Costs are Relevant
The crucial factor for selection is total distribution costs in each mode of transport, not
mere freight costs. It is found that the individual important elements of cost in total
distribution costs behave in the following fashion for ocean and air transport: From the
above comparative statement, it can be seen that the freight, a direct variablE cost, is
higher in air transportation. However, in respect of other elements of cost, air
transportation enjoys its supreme edge over transportation by ship. The total
distribution costs are to be arrived at, before a final choice is made about the
appropriate selection between transportation by ship or air. For certain destinations, it
is perfectly possible air transportation may turn to be cheaper compared to
transportation by ship.
FACTORS THAT INFLUENCE
SELECTION IN FAVOUR OF AIR
TRANSPORT
(B) Nature of Product and the fuel cost. However, air transport is
best suited for the carriage of commodities,
At times, there may be no choice to be made.
If cut flowers are to be exported, time factor which are low in bulk but high in value, or for
is crucial to exploit the demand. Air commodities of perishable nature. High value
transportation is the only mode that can be
but low volume goods are eminently suitable
considered while exporting. If they are to be for air transportation. The incidence of freight
exported, at all, there is no other choice or
costs, as a proportion to the final landed price
alternative. This is the case in respect of of goods in the importing country, constitutes
emergency shipments too.
a lower proportion and so their competitive
(C) Availability of Time picture does not adversely affect. The
classical
If time is very short, only air transportation is
to be made for the goods to reach on example is diamonds and precious stones that
are exported by air but not by ship. In respect
schedule.
of these goods, airfreight costs are of a low
(D) High Value but Low Volume Goods proportion to the total costs and they occupy a
Air transport is still, in general, costly, the low volume of space in transportation.
reason being the expensiveness of its vehicle
FACTORS THAT INFLUENCE
SELECTION IN FAVOUR OF AIR
TRANSPORT
(E) Speed, Frequency, Reliability, Safety and
Appropriateness
Appropriateness may beat all other factors in
certain types of cargoes such as heavy
and bulky goods. The lifting capacity of the
aircraft may stand in the way for consigning
bulky goods. However, the recent introduction of
large all-cargo jets has solved the problem
to a large extent. In respect of other factors such as final delay for reaching the goods to the
speed, frequency, reliability and safety,
transportation by air has gained edge over
transportation by sea.
(F) Terms of Contract
Finally, the terms of contract between the exporter be a cause for strained relationship between the
and importer govern the mode of
transport. Even where transportation by air is
specified as mode of transport, it must be
made clear in the contract whether transshipment
of goods is permitted or not. Transshipment
of goods permits the change of plane before the
goods finally reach the point of destination.
In case of transshipment, there are possibilities of
delay in reaching the goods to the final
destination if the connecting flight is not available,
immediately or the originating flight
reaches the intervening point with abnormal delay
and in the meanwhile the connecting
flight departs. All the circumstances may result in
place of importer though goods are sent before the
permitted date of shipment of goods. In
this process, ultimately, the purpose of the
importer may be defeated and may turn out to
exporter and importer. To avoid the
embarrassing situation, it is desirable to explicitly
mention that such delay does not make
the exporter liable provided the consignment is
dispatched before the stipulated date
mentioned in the contract.
FACTORS THAT INCREASED
AIR TRANSPORT
There are some factors that have stimulated the increasing use of air
transport for the carriage of traffic, these are:
• Freight rates, formerly prohibitively high, have begun to drop;
• The carrying capacity (i.e. the pay load factor) has been on the
increase over the
past years; and
• The use of standard containers, which can be handled easily by
aircrafts, to the
fullest extent, have substantially increased.
AIRWAY BILL
Airway Bill is a transport document. It shows goods from the shipper.
the proof that the airline has taken
• An evidence of the contract of carriage.
charge of the goods. The documentation for
air transport is far simpler than for sea • A contract between the shipper and the
transport. airline for moving the goods to the
destination.
The exporter, normally, begins by completing
an air-consignment note, or letter of • A freight bill as it contains all the details.
instruction, • A document of instructions to carrier’s staff
to the airline. This note gives basic details of in handling, dispatching and delivering
the cargo, the customer’s name and address shipments.
and services the exporter requires, such as • A customs declaration
COD (cash on delivery) or special insurance
Airway Bill is issued and signed by the
arrangements. From these instructions the airways company. They are made out in the
airline prepares the airway bill.
name of the buyers or bankers of the buyers.
Purposes The issuance date of the airway bill (AWB)
Airway Bill serves the following purposes: is considered to be the date of shipment.
• A receipt, acknowledging consignment of
CONTENTS OF AIRWAY BILL
The Airway Bill contains the following • Pre- paid freight or freight collect
information:
• Name of the ship/carrier,
• Name and address of the shipper,
• Name and address of the consignee,
• Port of departure and destination,
• Particular marks necessary for
identification of goods,
• Description of goods (General
description),
• Packing and Container description,
• Indication of Full Container Load
(FCL) or Less Container Load (LCL)
clauses,
• Transit places (where applicable),
clauses,
• Date and signature of the issuing
carrier or his agent and
• Declaration that the Warsaw Rules
(the provisions in the 1929 Warsaw
Convention),
as amended, apply to limit the carrier’s
liability for loss of goods or damage to
the goods.
The above information has to
correspond with that appearing on the
invoices and packages. The airway bill
should be presented within two or three
days from the date of shipment to the
banker or within such period from date
of issue as stipulated in the letter of
credit.
DISPOSAL OF AIRWAY BILL
The airway bill is made up of three original copies, one each for:
• The carrier (the airline). The airline uses copies for various purposes, such as
customs clearance, as an invoice, for accounts and so on.
• The consignee (receiver). Carried with the consignment and delivered to the
customer
at the airport of destination.
• The consignor (shipper). Returned to him as a receipt and evidence of his
affreightment contract with the airline.
Sometimes a L/C calls for “a full set of original airway bills”. This is obviously a
mistake; the seller cannot provide the complete set. This is a point exporter has to
watch
for in examining a letter of credit (L/C). The airway bill is an internationally
standardised
document, printed in English and in the language of the carrier.
AIRWAY BILL NEITHER DOCUMENT OF
TITLE NOR NEGOTIABLE DOCUMENT
The airway bill is not a document of title to
goods and, in consequence, not a negotiable
document, unlike Bill of Lading. If the
airway bill is prepared in the name of
consignee, the consignee can take delivery
of goods even, without producing copy of
airway bill. It is a riskyway to prepare the
airway bill in the name of the buyer unless
the buyer’s integrity is
unquestionable or advance payment has
been received. It is highly desirable to
consign to
a third party like the issuing bank and
mention the bank as consignee. In such an
event,
the bank takes delivery of goods and keeps
the parcel (small size that can be kept in a
cupboard) with it, till receipt of payment.
After making the payment to the bank, the
buyer
can get delivery of the parcel from the bank.
If this procedure is not adopted, the importer
can obtain the goods from the carrier at
destination, without paying the issuing bank
or the
consignor. Therefore, unless the exporter
has received cash payment or integrity is not
doubted, consigning goods directly to the
importer is totally risky. For air consignment
to certain destinations, it is possible to
arrange payment on a COD
(cash on delivery) basis and consign the
goods directly to the importer. If this
procedure is
adopted, the goods are released to the
importer only after the importer makes the
payment
and complies with the instructions in the
AWB. In
CONSIGNOR’S RIGHT OF
DISPOSAL
The exporter only has to present his copy of the airway bill to the airline to exercise
his ‘Right of Disposal’ to the goods. He can do this at any time and so can:
• Stop the goods at any point of their journey,
• Have the goods delivered to a different consignee, other than one mentioned in the
airway bill and
• Have the shipment returned.
The ‘right of disposal’ can be very important, especially if any differences arise
between
the shipper and consignee. For example, the shipper may discover after dispatching
the
goods that the consignee is in an unsound credit position and chances of realization
are
remote. In such circumstances, the consignor can exercise the ‘Right of Disposal’ to
protect
his financial interests.
TRANSSHIPMENT PERMITTED
IF AIRWAY BILL IS ONE
If the airway bill indicates that transshipment will or may take place,
then the
transshipment is allowed even if the letter of credit (L/C) prohibits
transshipment, provided
that the entire carriage is covered by one and the same airway bill.
The airway bill also
operates like a through bill of lading. It can be used in transshipment,
that is, unloading
and reloading from one aircraft to another aircraft during the course
of carriage from the
airport of departure to the airport of destination, stipulated in the L/C.
LIABILITY OF AIRLINES have the ability to fly above terrestrial obstacles.
Under the terms of a normal airway contract, 218 Export-Import Procedures, Documentation
airlines have a liability the equivalent and Logistics
of $16.00 per kg. If an exporter wishes to cover (iii) It is a convenient means of transporting
a higher liability, he has to declare the value perishables and fragile goods.
on the airway bill and pay an additional charge (iv) It is suitable for transporting goods of high
on top the normal freight rates per kg. In value.
any case, it is important for an exporter to take (v) The risks associated with deterioration and
out insurance on the freight. obsolescence of goods is reduced.
Advantages of Air Transport (vi) It provides regular and punctual services.
The benefits of air transport are increasingly (vii) The losses due to rough handling, breakage
significant in terms of access, timesavings, and pilferage are reduced to the
economic benefits and safety. The transportation minimum.
of goods by air offers many advantages to
(viii) The insurance premium in the case of air
the exporter. Some of them are as follows: transport is lower as compared to sea
(i) It provides fast means of delivering goods. transport, in view of reduced level of risks.
(ii) It links almost all countries of the world. (ix) The warehousing costs are reduced to
Aircrafts are not tied to the surface and minimum.
DISADVANTAGES OF AIR
TRANSPORT
Air Transport carries certain disadvantages too and they are:
(i) Cost of operating airlines is very high and so freight cost is very
high as compared
to sea transport.
(ii) It is difficult to carry bulky, awkwardly shaped goods.
(iii) Very risky in case of accident.
(iv) It is controlled by climatic conditions, thus bad weather leads to
uncertainty in its
time table.