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Cargo Fuel Surcharge

Since the temporary suspension of fuel surcharges in early 2016, CAD had been monitoring the movements of fuel prices and reviewing the regulation on fuel surcharges and had engaged a consultant to conduct a consultancy study on the regulation of fuel surcharges. The initial findings of the consultancy study released in early 2017 concluded that there was a global trend of liberalization of fuel surcharges to enhance competition and recommended that the CAD take a similar approach to fuel surcharge regulation. CAD subsequently conducted a further review on the way forward for fuel surcharge regulation in the long run. Pending the results of the further review and considering that the oil price had greatly increased by almost 80% from January 2016 to January 2017, which greatly impacted on the aviation industry, particularly the air cargo market which largely operates on a long-term contract basis and in response to the concerns of the industry, CAD in March 2017 agreed to implement a time-limited arrangement of allowing airlines to levy cargo fuel surcharge based on the Cargo Fuel Surcharge Mechanism for flights originating from Hong Kong from April 2017 to end-2019.

With the completion of the further review, the CAD announced on 21 September 2018 (http://www.info.gov.hk/gia/general/201809/21/P2018092100522.htm), that from 1 January 2020, individual airlines may, based on their commercial considerations, set cargo fuel surcharge at a level based on their own circumstances or choose not to levy such surcharge.

Cargo Fuel Surcharge Mechanism

Calculation of Cargo Fuel Surcharge is based on the following formula:

Cargo Fuel Surcharge =
(Prevailing Oil Price – Baseline) x Unit Fuel Consumption x Recovery rate (80%)

Note:

  • Baseline: The baseline is US$46 per barrel of Brent Oil (reflecting crude oil price). The baseline of US$46 is the 12-month average price level of Brent Oil, i.e. between February 2016 to January 2017. As the information on Brent Oil is easily accessible by the general public, using Brent Oil Price will enhance the transparency of the formula.
     
  • Prevailing Oil Price: CAD will update in the middle of each month the prevailing oil price and the corresponding fuel surcharge level to be levied for the next month. The prevailing oil price is determined from the available average daily Brent oil prices of the whole month preceding the date when it is updated on the CAD website.
     
  • Unit Fuel Consumption: The unit fuel consumption is a weighted average calculated based on the actual fuel consumption data collected from all local airlines in the past 12 months (as of January 2017), which represented more than half of cargo throughput in Hong Kong air cargo market. Fuel consumption data of airlines are commercial confidential information and are provided on a confidential basis to CAD for calculating a weighted average. CAD will review and update the unit fuel consumption every IATA Season, i.e. every six months.
     
  • Recovery Rate: A recovery rate of 80% is introduced, as per the consultant's recommendation, so that airlines are also sharing the risks of fuel price fluctuation to their operating cost.


Airlines may choose to levy a lower cargo fuel surcharge than CAD's published level or choose not to levy any such surcharge at all based on their own circumstances and business strategy. Under this Mechanism, airlines are not required to submit an application to CAD prior to the levying of CFS level which is same as or lower than CAD's published level.



A Cargo Fuel Surcharge Table at different oil price levels is constructed based on the above formula with results as follows:

Cargo Fuel Surcharge Table (updated on 12 June 2018)

Prevailing Oil Price(i)
(Average Brent Oil Price)
(US$/Barrel)

Short-haul(ii)
(HK$/kg)

Long-haul(ii)
(HK$/kg)

46

to

50.99

0.1 0.2

51

to

55.99

0.2 0.7

56

to

60.99

0.3 1.1

61

to

65.99

0.4 1.6

66

to

70.99

0.5 2.0

71

to

75.99

0.7 2.5

76

to

80.99

0.8 2.9

81

to

85.99

0.9 3.4

86

to

90.99

1.0 3.8

91

to

95.99

1.1 4.3

96

to

100.99

1.3 4.7

101

to

105.99

1.4 5.2

106

to

110.99

1.5 5.6

111

to

115.99

1.6 6.1

116

to

120.99

1.7 6.5

121

to

125.99

1.8 7.0

126

to

130.99

2.0 7.4

131

to

135.99

2.1 7.9

136

to

140.99

2.2 8.4

141

to

145.99

2.3 8.8

146

to

150.99

2.4 9.3

151

to

155.99

2.6 9.7

156

to

160.99

2.7 10.2

161

to

165.99

2.8 10.6

166

to

170.99

2.9 11.1

171

to

175.99

3.0 11.5

176

to

180.99

3.2 12.0

181

to

185.99

3.3 12.4

186

to

190.99

3.4 12.9

191

to

195.99

3.5 13.3

Note

  1. Prevailing Oil Price is the monthly average Brent Oil Price sourced from U.S. Energy Information Administration (https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=rbrte&f=m).

  2. Long haul: to North & South America, Europe, Middle East, Africa, Southwest Pacific, Indian Subcontinent

    Short haul: to other points in Asia


Airlines are allowed to charge cargo fuel surcharges according to the Cargo Fuel Surcharge Table with reference to the respective Brent Oil Price range for a given month. The cargo fuel surcharge levels for short-haul and long-haul shown in the Table are the maximum levels only. Airlines may levy a lower cargo fuel surcharge or not to levy any such surcharge at all based on their own marketing strategies and operations.

Around the middle of each month (N), the Prevailing Oil Price and the corresponding maximum cargo fuel surcharge levels that would be applicable for the following month (N+1) will be published on CAD website. The Prevailing Oil Price will be determined by CAD based on the average daily Brent Oil Price of the preceding month (N-1).

Example:

Given the Prevailing Oil Price was US$54.87/Barrel for the month of February 2017, the maximum cargo fuel surcharge allowed for April 2017 would therefore work out to be HK$0.2/kg and HK$0.7/kg for short and long haul flights respectively.



Prevailing Oil Price (updated on 13 November 2018)

The Prevailing Oil Price in October 2018 for determination of the cargo fuel surcharge for December 2018 is US$81.03/Barrel. The maximum levels of fuel surcharge for December 2018 will be increased to HK$0.9/kg for short-haul flights and HK$3.4/kg for long-haul flights respectively.

Cargo Fuel Surcharge Levels of Previous Months