Cargo Fuel Surcharge
Cargo fuel surcharge (CFS) will be liberalised starting from 1 January 2025, and from then on, airlines may set their own CFS levels or choose not to levy such surcharge for flights originating from Hong Kong. For the smooth implementation of cargo fuel surcharge liberalisation, airlines and members of the air cargo industry are strongly encouraged to collaborate and make appropriate preparation in advance.
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 took 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 operated 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.
In the light of the challenges faced by the cargo industry in implementing the new cargo security screening requirements by mid-2021, coupled with the prolonged trade activities amongst major economic powers that created great uncertainty to the normalcy conducive to the development of a healthy and competitive transportation environment for air cargo, the CAD considered that on an exceptional and one-off basis, there was a merit to extend the current regulated cargo fuel surcharge regime to help the cargo industry gear up for the full implementation of the new screening requirements. Taking into account the opinions from various stakeholders, the CAD announced in July 2019 that the time-limited arrangement for airlines to levy cargo fuel surcharge based on the current Cargo Fuel Surcharge Mechanism of the CAD for flights originating from Hong Kong would be extended to the end of June 2022 from end 2019.
In March 2022, having considered the exceptional circumstances of the COVID-19 epidemic, as well as the views from the logistics trade, particularly the challenges brought about by the epidemic on the logistics trade, the Government has decided to impose a moratorium on the liberalisation of CFS for two years, i.e. between 1 July 2022 and 30 June 2024. In May 2024, with a view to providing the air cargo industry with sufficient time to better prepare for the liberalisation, the Government has announced to introduce a six-month lead-in period (i.e. between 1 July 2024 and 31 December 2024) prior to the liberalisation of CFS. In the said period, airlines may continue to levy CFS, based on their own circumstances and business strategy, with reference to the maximum level as determined by the existing CFS Mechanism and published by the CAD. This mechanism will be removed from 1 January 2025.
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$46 is the 12-month average price level of Brent Oil, i.e. between February 2016 to January 2017. As the information on Brent Oil is easily accessible by the general public, using Brent Oil Price will enhance the transparency of the formula.
- Prevailing Oil Price: CAD will update in the middle of each month the prevailing oil price and the corresponding fuel surcharge level to be levied for the next month. The prevailing oil price is determined from the available average daily Brent oil prices of the whole month preceding the date when it is updated on the CAD website.
- Unit Fuel Consumption: The unit fuel consumption is a weighted average calculated based on the actual fuel consumption data collected from all local airlines in the past 12 months (as of January 2017), which represented more than half of cargo throughput in Hong Kong air cargo market. Fuel consumption data of airlines are commercial confidential information and are provided on a confidential basis to CAD for calculating a weighted average. CAD will review and update the unit fuel consumption every IATA Season, i.e. every six months.
- Recovery Rate: A recovery rate of 80% is introduced, as per the consultant's recommendation, so that airlines are also sharing the risks of fuel price fluctuation to their operating cost.
Airlines may choose to levy a lower cargo fuel surcharge than CAD's published level or choose not to levy any such surcharge at all based on their own circumstances and business strategy. Under this Mechanism, airlines are not required to submit an application to CAD prior to the levying of CFS level which is same as or lower than CAD's published level.
A Cargo Fuel Surcharge Table at different oil price levels is constructed based on the above formula with results as follows:
Cargo Fuel Surcharge Table (updated on 13 June 2024)
|
Prevailing Oil Price(i) (Average Brent Oil Price) (US$/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 | 1.5 |
| 66 | to | 70.99 | 0.5 | 2.0 |
| 71 | to | 75.99 | 0.7 | 2.4 |
| 76 | to | 80.99 | 0.8 | 2.8 |
| 81 | to | 85.99 | 0.9 | 3.3 |
| 86 | to | 90.99 | 1.0 | 3.7 |
| 91 | to | 95.99 | 1.1 | 4.1 |
| 96 | to | 100.99 | 1.3 | 4.6 |
| 101 | to | 105.99 | 1.4 | 5.0 |
| 106 | to | 110.99 | 1.5 | 5.4 |
| 111 | to | 115.99 | 1.6 | 5.9 |
| 116 | to | 120.99 | 1.7 | 6.3 |
| 121 | to | 125.99 | 1.9 | 6.7 |
| 126 | to | 130.99 | 2.0 | 7.2 |
| 131 | to | 135.99 | 2.1 | 7.6 |
| 136 | to | 140.99 | 2.2 | 8.0 |
| 141 | to | 145.99 | 2.3 | 8.5 |
| 146 | to | 150.99 | 2.4 | 8.9 |
| 151 | to | 155.99 | 2.6 | 9.4 |
| 156 | to | 160.99 | 2.7 | 9.8 |
| 161 | to | 165.99 | 2.8 | 10.2 |
| 166 | to | 170.99 | 2.9 | 10.7 |
| 171 | to | 175.99 | 3.0 | 11.1 |
| 176 | to | 180.99 | 3.2 | 11.5 |
| 181 | to | 185.99 | 3.3 | 12.0 |
| 186 | to | 190.99 | 3.4 | 12.4 |
| 191 | to | 195.99 | 3.5 | 12.8 |
Note
- 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).
-
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 (final update on 13 November 2024)
The Prevailing Oil Price in October 2024 for determination of the cargo fuel surcharge for December 2024 is US$75.63/Barrel. The maximum levels of fuel surcharge for December 2024 will be maintained at HK$0.7/kg for short-haul flights and HK$2.4/kg for long-haul flights respectively.
This mechanism will be maintained up to 31 December 2024. From 1 January 2025, airlines may set their own cargo fuel surcharge levels or choose not to levy such surcharge for flights originating from Hong Kong.
Cargo Fuel Surcharge Levels of Previous Months