Biman’s high dollar rate squeezes freight forwarders, favours foreign carriers

The association said the higher rate directly increases costs for freight forwarders, while foreign airlines – which handle around 85% of Bangladesh’s air cargo exports – are the main beneficiaries of the higher rate.

Baffa President Md Ariful Hasan raised the issue in a letter to Biman’s managing director on 13 September, urging the national flag carrier to review the exchange rate based on market conditions and prevailing bank rates.

The association said the higher rate was causing direct financial losses to freight-forwarding companies and increasing the overall cost of Bangladesh’s exports.

There are mainly two methods of paying freight for export shipments – freight prepaid and freight collect, according to sector insiders. Under the prepaid method, the exporter pays the freight in advance. Under the freight collect method, the importer pays the freight after the goods reach their destination.

“About 10% of export shipments are transported under the prepaid method, while the remaining 90% use the freight collect method. As a result, most of the problems arising from exchange-rate differences are related to freight collect shipments,” said freight forwarder Nasir Ahmed.

Under the prepaid method, the exporter bears the freight cost for transporting the goods to their destination. Under the freight collect method, the foreign importer pays the freight at the destination.

In the latter case, freight forwarders incur losses when there is an exchange-rate difference between collecting the freight from the foreign party in US dollars and paying the local airline in taka.

The sector insiders said Biman itself handles around 10% of total export cargo, meaning foreign carriers handling the bulk of Bangladesh’s air cargo stand to gain more from the higher exchange rate.

Currently, around 38 foreign airlines operate from Dhaka airport, with carriers including Emirates, Qatar Airways, Singapore Airlines, Thai Airways, Saudia, Malaysia Airlines and Ethiopian Airlines among those handling significant cargo volumes.

If cargo volumes rise significantly, airlines also operate dedicated cargo flights. Around 400-450 tonnes of export cargo are currently handled daily, according to the International Air Express Association of Bangladesh.

Daily import cargo generally stands at around 400 tonnes, although the volume can fall to around 300 tonnes on some days, according to Dhaka Customs House.

Tk200cr annual impact

The financial impact becomes significant when the exchange-rate difference is applied across the country’s export cargo volume.

Around 2,00,148 tonnes of RMG export cargo was handled last year, with a total freight value of over $1 billion, according to industry insiders.

At a Tk2-per-dollar exchange-rate difference, the estimated additional cost would amount to roughly Tk200 crore a year.

Freight forwarders say the pressure is particularly severe because the sector operates on thin margins.

“For example, if a freight forwarder handles $1,00,000 worth of air cargo, the business is so competitive that there is little room for a large profit. Even if the profit margin is 5%, the profit would be only $5,000,” Nasir said.

Freight forwarder Nasir Ahmed said a bank recently offered the dollar at around Tk121.75, while Biman was applying a rate of around Tk123.65 for air cargo, creating a gap of nearly Tk1.90 per dollar.

“If the exchange-rate difference alone causes a loss of around $2,000, a large portion of the profit is wiped out. After TDS and other airport and handling charges, the actual margin becomes even smaller,” he added.

Industry insiders say freight forwarders cannot simply pass the additional cost on to exporters because of intense competition in the market.

Local forwarders fear losing ground

There are around 1,400 freight-forwarding companies in Bangladesh, although only about half regularly handle shipments, according to industry insiders.

Nasir said local freight-forwarding and logistics companies have been gradually building their capacity and infrastructure, but continued losses caused by exchange-rate differences could weaken their competitiveness.

He warned that continued pressure on local freight forwarders could eventually shrink their market share and create greater opportunities for foreign companies to dominate the sector.

BAFFA seeks market-based rate

In a letter to Biman on 2 July, Baffa urged Biman to revise its dollar exchange rate based on prevailing market rates.

Responding to the allegations, Biman spokesperson Mohiuddin Ahmed said the airline does not arbitrarily determine its exchange rate.

“Biman does not set any rate randomly. A rate determined by the government is forwarded to Biman. I have asked our finance department about the matter, and they have been discussing the issue for some time,” he said.