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GSA


ISSUE 3 2010 Guarantees take the pain out of global airfreight


By a fortunate coincidence, the Federation of Airline General Sales Agents (FedAGSA), headquartered in Geneva, Switzerland, last year introduced a financial guarantee system for its more than 150 members worldwide to cover their business dealings with airlines at a time when the global financial crisis, economic recession and air cargo market downturn were biting hard.


In an exclusive interview with Phillip Hastings, FedAGSA general secretary Glenn Shires outlined the background to that development, other issues being tackled by the federation and some of the current key general trends in the GSA industry.


Phil Hastings: What financial guarantees do GSAs in general have to provide and what are the problems associated with that requirement?


Glen Shires: The guarantees have to be provided by the agents to the airlines which carry the cargo. Generally, freight forwarders settle with carriers through the IATA (International Air Transport Association) CASS (Cargo Accounts Settlement System) process. In Europe, agents which are members of IATA and in the


European Air Cargo Partnership programme do not normally have to provide guarantees if the account is being settled through CASS. However, if the business is being done outside that programme, IATA and CASS, then carriers will often demand a large financial guarantee before they will accept the cargo. Where a GSA is involved, that demand for a guarantee is


passed on to them. That can put a strain on the GSA’s financial position. For example, if a carrier wants a $25,000 guarantee, as the GSA you might have to go to your bank to get that. So if you had $100,000 in your account, you now only have $75,000 because the rest is blocked. Or if you had a $100,000 overdraft, you’ve now only got $75,000 available.


So what solution has FedAGSA come up with to help its members with those guarantee requirements and why now?


We had actually been working for a few years on getting a financial guarantee system in place for our members and the fact it was introduced last year when the global financial situation was so difficult was pure luck – we didn’t know the recession was coming but we were in the right place at the right time with the right product. What we are offering our members is an A-minus rated


insurance product, which is a higher rating than quite a few countries around the world and most of the world’s banks. The minimum guarantee is $10,000 and the maximum is $5 million; the collateral varies and is negotiable individually; and the system is usually cheaper for our members than securing a comparable bank guarantee. In fact, we have already had quite a few companies join FedAGSA to gain access to that system.


What other issues is FedAGSA is currently focussing on?


The major one is the terms of the current general sales and service agreement between GSAs and airlines. Our annual


general meeting in Istanbul will be a business conference, with a number of major carriers also attending. We will use that event to try and jointly come up with a resolution which brings the existing IATA agreement into the modern world because some of the things in it are quite frankly ridiculous. There are too many holes in it. If you pass that agreement to most lawyers, they laugh. As a result, what you see is that an airline and a GSA will have


a dispute over X and they will fight each other and go to court in the UK and then another airline and GSA will have exactly the same dispute and go to court in New Zealand or France or Japan. Every year, all sorts of rubbish like that goes on. Yet IATA has a perfectly good arbitration system and there is an International Court of Arbitration in Paris. So why is everyone spending all that money (on legal costs) when you could get a simple precedent set – this is the rule and this will be the result, don’t argue – and everybody saves their money? We could save this industry an absolute fortune. What we are trying to get agreed are two things: that


disputes are settled in a sensible way at the international court of arbitration, after you’ve gone through IATA’s arbitration process; and before you argue with each other over anything, how about having a proper agreement that prevents it in the first place?


What about the subject of e-freight and specifically IATA’s e-freight programme? What is the GSA industry take on that?


We like IATA’s e-freight programme, although it’s not really e-freight, it is really a message improvement programme. We already have that kind of communication between airlines and agents. But they shouldn’t be bickering over these old-style costs on old-style SITA-type systems – there should be electronic messaging on the internet that makes us work in today’s world. We already know how and it is there - so why doesn’t someone plug it in and get on with it? Who is the vested interest preventing internet-use over SITA? If GSAs start to use standard messaging more and employ


standard operating systems to deal with the carriers electronically, then carriers can respond properly. So in this case, we need to bring the GSAs up to a common speed. But somebody had better say what that speed is before we try and hit it. There are too many vested interests and it is no accident that those companies are big IATA e-freight supporters, is it?


Turning to more general GSA industry issues, there have recently been reports that more GSAs are now receiving ‘flat rate’ payments from their carrier principals, rather than commission-based fees? Is that the case? If so, what is encouraging that trend? And is it good or bad for GSAs?


There is still a lot of the old commission structure around, in other words, the GSA is paid a percentage on what it sells. However, some of the smarter ones are now doing flat rates. With a flat rate, the GSA effectively sells on so a carrier says: I will give you 50c (a kilo) and the GSA will sell it out at 60c. There can be a problem with that, though. In a faster-moving


market, where spot rates are going on, if volumes starts to drop and business gets very cut-throat, if you have got a flat rate you soon drop through your benchmark and you can’t sell. You have got to be very fleet of foot. That is almost a freight forwarding mentality rather than a traditional GSA approach. But many GSAs have changed their mentality in that respect. They now have no problem going back to the carrier and saying they are out of the market with the base rates they have been offering to the forwarders. One problem, though, is that some airlines are cumbersome when it comes to making those decisions – they are not quick with their rate adjustments.


So are flat rates replacing the more traditional percentage-based commission payments?


We see flat rates appearing all over the place. The reason is that they take away the vexed arguments over commission and the issue of surcharges. We have seen some of the smarter carriers, which don’t want to be accused of price-fixing, because they have all implemented surcharges in the same way, have put flat rates into the market and then allowed the GSAs to add their own mark-up. GSAs are almost becoming wholesalers selling to forwarders.


So, is this a positive trend for GSAs?


I definitely think so. The world has changed and markets now move much faster. It is not just getting the business for the airline. Airlines often do not have their staff in a particular location. So who monitors the quality of the ground handling operation, for example? What is happening is that more carriers are now issuing their GSAs with two contracts – one is a sales contract with sales targets and the other is a service contract.


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