Capacity and the ‘network effect’

Yesterday’s teleconference on the threat of an oversupply of main-deck freight capacity was a good one, and generated some interesting discussion in the Q&A session which followed. But I’d also like to share some of my own thoughts about what I call the “network effect,” which is already changing the way air freight moves.

[If you missed the teleconference, you can listen to the replay here, and the powerpoint slides covering the main points of the discussion are available here.

Obviously, a short teleconference is not going to offer anything like complete analysis of an issue as complex as this one, and those interested in the subject would do well to purchase a copy of the full report prepared by Air Cargo Management Group (ACMG, Cargo Facts’ parent). More information on that report is available here.]

In the June issue of Cargo Facts I offered an analysis of the current production freighter backlog, which at that time stood at 221 units. In my conclusion, I pointed out that the increase in belly freight capability of the current and next generations of widebody passenger aircraft (A330, A380, 787, 777, and 747-8, and the coming A350) was significant when compared to their predecessors, and that they were being ordered in huge numbers. As I said in that piece, “a look at the backlogs for these types, and a bit of back-of-the-enveolpe math, tells us that the 2,240 units on order will bring into service the cargo payload equivalent of about four hundred and fifty 777Fs.”

That’s a lot of capacity. But there is more to it than just the number of pallet positions. I am referring to what I have christened the “network effect.” By this I mean that the value of all that capacity doesn’t lie just in its existence, but rather in the level of connectivity it offers. The emergence of long-haul supercarriers like Emirates has meant that no city of any size is much more than 36 hours from any other city, anywhere. You want a multi-tonne shipment of cherries from Washington State delivered to Moscow while they’re still fresh?  Once upon a time, that would have required a freighter charter, but now it’s just a routine shipment in the belly of a 777 passenger plane.

And the same goes for hundreds of city pairs everywhere. As the big carriers get more and more of the new passenger widebodies, and expand their networks, they eventually cross a threshold that allows cargo connectivity on a whole new level.  Consider Emirates: The Dubai-based carrier now operates 167 current-generation widebody passenger aircraft to a huge number of destinations. But the belly capacity and network it has now, while vast, is nothing compared to what is coming. Emirates has 220 more pax widebodies on order. Even allowing for some retirements, this will give it a widebody passenger fleet of over 350 units, in which the minimum belly capacity is 15 tonnes, and which will include 120 777-300ERs with a capacity of over 30 tonnes each.

But again, it is not just the capacity, but the network that is important. The ability to carry serious tonnage from anywhere to anywhere, in about 36 hours, every day of the year. (Something the integrators are increasingly leveraging in their move into the general freight business.)

Now, having said that, I should also point out that there will still be a need for plenty of long-haul freighters. Consider the recent transfer of a tremendous amount of electronics manufacturing to Chengdu and Chongqing. The computers and phones and other equipment being built there require air shipment, and the quantity is so staggering that there is no way it can move on passenger aircraft. Ditto for flowers from South America and Africa at certain times of the year. Or Beujolais Nouveau every November. Or anything too high to fit on the lower deck of an A330 or 777. Or dozens of other special cases.

But to take advantage of that demand, freighter operators are going to have to bring their “A” game. If they don’t, they’ll be gone.

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4 Comments

  1. I guess this means that nobody sees a problem scanning and having ‘known shipper’ details on all that freight so it can move on a pax aircraft instead of on a freigher where today there isn’t such a requirement.  

  2. galanolucien says:

    well noted Mr Bery

    …asking myself who is protecting who in the all cargo business …..

    hope RyanAir will be able to interline in the future their passengers on the Fedex freighters …….

  3. stanwraight says:

    David, Sorry I missed the call, some confusion on date and call in numbers.

    You are spot on, and this is the key point that should have been discussed. The game has changed, and the slow reaction to these changes will kill off more all cargo airlines without a very specific niche in the coming years.

    There are two elements at play here one being the network effect and the fact that an Emirates, Cathay, Air China and in some ways BA can answer all your needs (as a forwarder or shipper/Consignee) with their huge fleet of pax wide bodies and their freighters that are “used to keep the passenger bellies full” policies. They have a unit cost when pax and freighter aircraft are looked at as complimentary production units, not stand alone, that no all cargo airline can match with a full freighter equivalent calculation.

    The second element is choice, global forwarders have a key account relationship with airlines, quantity and loyalty is rewarded with traffic. If the combination carriers mentioned above as examples leverage their global capabilities with forwarders they will cherry pick the prime routes and that will always remain the golden triangle of Asia Europe Americas. 

    Whats left for all cargo operators? Africa, places in the west of China? South America?

    With the development of home grown competitors with low cots like Ethiopian, and the Chinese big three, the new super cargo savvy TAM/Lan tie up, good luck to the rest. Add to that equation points of interest to the gulf carriers in Africa and South America with daily 777 pax, and the organic growth of the big integrators etc., very good luck.

    The key to all this is the airlines reinvention of their business cases, are they up to it?

  4. davidharris says:

    Regarding the issue of screening the freight, I don’t see how this can be a problem. Over half the world’s air freight already moves in the bellies of pax a/c, and an incremental increase in that share would not be difficult to deal with from a security perspective.

    Obviously, if _all_ freight were suddenly shifted to belly holds, the security bottleneck would be unworkable, but such a shift is not going to happen.

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