Beyond the sea: How liners are looking to the air
In the pre-COVID era, when transporting goods by sea was a much less expensive and more predictable affair, shippers were willing to wait a little longer in exchange for the lower freight rates of the maritime industry as opposed to shipping by air.
But when historic container rates and unprecedented supply chain congestion started to go hand in hand, the friendly skies became an appealing alternative, even as air cargo rates also began to climb.
According to October 2021 data from the International Air Transport Association (IATA), global air cargo demand was up 9.4% compared to October 2019.
As the ATA noted in its press release announcing the results: “Supply chain disruptions and the resulting delivery delays have led to long supplier delivery times. This typically results in manufacturers using air transport, which is quicker, to recover time lost during the production process.”
Quoted in the release, Willie Walsh, IATA’s Director General summarized the results—as well as how the Omicron variant of COVID-19 might interfere with progress: “October data reflected an overall positive outlook for air cargo. Supply chain congestion continued to push manufacturers towards the speed of air cargo. Demand was up 9.4% in October compared to pre-crisis levels. And capacity constraints were slowly resolving as more passenger travel meant more belly capacity for air cargo. The impact of government reactions to the Omicron variant is a concern. If it dampens travel demand, capacity issues will become more acute. …”
In the following video from Yahoo Finance, Xeneta Chief Analyst Peter Sand discusses some of the current dynamics related to air cargo.
Liners Shore Up Air Cargo Offerings
In light of clogged ports and long lines of waiting cargo ships, it’s not surprising that sea-to-air conversions have increased. But what some experts are noticing are the more aggressive moves by liner companies into the air cargo space.
In a recent article from The Loadstar, “Shipping lines vertically take-off as 'integrators' – a threat to air cargo?”, post author Alex Lennane writes that with record profits in hand, two major liners—Maersk and CMA CGM—have made significant moves in this area recently. Lennane notes that while these dynamics aren’t new, the “amount of money and competition in the market is.”
A November 2nd Maersk press release provided the details of its recent news: “To accelerate its product offering which integrates Logistics, Ocean, Rail and Air and expand its global air network, Maersk intends to acquire Senator International, a company with a renowned operational air freight platform of own controlled capacity and operations across Europe, Asia, South Africa, and America. In addition, Maersk is purchasing two new B777F and leasing three B767-300 cargo planes. To operate and manage this added capacity, the cargo airline Star Air - the internal air cargo operation of Maersk established in 1987 - will become a key vehicle supporting Maersk’s logistics offering.”
Maersk also noted that its ambition is “to have approximately one third of its annual air tonnage carried within its own controlled freight network. This will be achieved through a combination of owned and leased aircraft, replicating the structure that the company has within its ocean fleet. The remaining capacity will be provided by strategic commercial carriers and charter flight operators.”
Quoted in the release, Vincent Clerc, Executive Vice President and CEO of Ocean & Logistics, A.P. Moller-Maersk said, “As a global provider of integrated logistics, Maersk is improving the ability to provide a one-stop-shop and end-to-end logistics capabilities to our customers. We have strengthened our integrated logistics offering through E-commerce logistics acquisitions, tech investments, expanding our warehouse footprint and, as a natural next step, we are now ramping up our air freight capacity significantly and creating a broader network to cater even better for the needs of customers.”
Like Lennane, Splash247.com’s Sam Chambers included CMA CGM’s air cargo moves when he reported on the Maersk announcement, noting that the liner “has also been using cash accrued during container shipping’s greatest peak to push more into air freight.”
On September 29th, CMA CGM Group announced that it had ordered two Boeing 777 Freighters “to grow the Group’s air freight division operations.”
According to the release, “CMA CGM Group launched its dedicated air freight division, CMA CGM AIR CARGO, in February 2021, commencing commercial operations in March with its first flight between Liege (Belgium) and Chicago, followed by flights to New York, Atlanta, and Dubai. CMA CGM AIR CARGO represents a major new component of the CMA CGM Group in both operational and commercial terms. It is also a new milestone in the Group’s strategic development into logistics. …With its logistics arm, CEVA Logistics, a world leader in logistics services, CMA CGM handles 400,000 tons of airfreight and 2.8 million tons of inland freight every year. CMA CGM is constantly innovating to offer customers new maritime, air, inland and logistics solutions.”
And then there’s Amazon
Of course, one of the most visible one-stop-shop-minded companies committed to rapid growth is Amazon, which Lennane refers to as “the most vertically integrated company,” writing that it recently predicted that “it would be bigger domestically than FedEx and UPS by the first quarter of 2022.”
The following CNBC video, “How Amazon Beat Supply Chain Chaos With Ships, Containers And Planes,” notes that in addition to chartering its own ships, building its own containers, and continuing to expand its warehouse footprint, Amazon has been building its Amazon Air cargo fleet, too.
According to this CNBC report, “For those high margin goods, there's another way Amazon is bypassing ports altogether. Since 2016, Amazon has been building its Amazon Air cargo fleet, saying it'll reach 85 leased and owned aircraft this season. They fly out of 42 U.S. airports, totaling at least 164 flights per day, with some additional flights out of Canada and Europe. Now amid the current challenges, Amazon is reportedly looking to lease at least 10 larger long-haul planes that can hold 25% more volume and have traditionally been used to fly across the North Pacific, getting goods from China to the U.S.”