Although air freight rates are usually higher than ocean freight rates air

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Although air freight rates are usually higher than ocean freight rates, air freight may be less costly for a firm. Explain why this statement is correct or incorrect.

Newcomers to exporting might assume that ocean freight is a better choice than air freight because ocean freight is so much cheaper. Comparison of total costs of each mode may suggest otherwise. Total cost components that may be lower for air freight include insurance rates, because of much less chance of damage during shipment; packing costs, because the shipment does not need the heavier, more costly export packing, which is usually done by an outside firm; customs duties, when calculated on gross weights; replacement costs for damaged goods, again because of the reduced damage risk; and inventory costs, because the rapid delivery by air freight often eliminates the need for expensive warehouses. For example, Mercedes-Benz includes in the price of its luxury sports car Brabus SLR McLaren air freight from Bottrop, Germany, to anywhere in the world. Another cost saving is that machinery shipped by air does not require a heavy coat of grease to protect it from the elements, as does machinery sent by ship. Table 14.2 provides a sample comparison of the cost elements of ocean and air freight. Even when the total shipping costs are higher for air freight, shipping by air may still be advantageous for several reasons:

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