Weekly Wrap: UPS results and a new focus on hospitality logistics

In this episode of the Air Cargo World Weekly Wrap, Publisher JJ Hornblass and Editor Caryn Livingston discuss the major news stories for the week of July 27, 2020. IATA’s June results showed an improvement in cargo traffic from earlier months during the COVID-19 pandemic, assisted by strong traffic in the North American market, where major integrators UPS and FedEx are based. Along the same lines, UPS outperformed expectations for its most recent quarterly earnings, supported by strong e-commerce demand during the pandemic. Revenue jumped by 13% during the second quarter to $20.5 billion, but whether the strong performance will continue through the remainder of 2020 remains to be seen. Finally, some third-party logistics providers have recently launched new divisions aimed at supporting the hospitality and cruise industries , which have been among the hardest hit by the global pandemic. Despite the seemingly odd timing, global lockdowns are causing major shifts to the supply chain for these businesses, and forwarders are working to develop new offerings to appeal to the changing needs of cruise lines and hotel chains. Find this and more in the most recent edition of the Weekly Wrap. https://vimeo.com/444378688 A transcript is available below. This transcript has been generated by software and is being presented as is. Some transcription errors may remain. JJ Hornblass 00:01 Hi everyone. Welcome to On Air, the podcast of Air Cargo World since 1941, the leading magazine for the air freight industry. I'm JJ Hornblass Air Cargo World's publisher and I'm joined by Caryn Livingston, the editor of Air Cargo World. Welcome, Caryn. This is the weekly wrapup of what's happening in air cargo for the week of July 27, 2020. It is August 3, 2020. Before getting to our discussion, wanted to thank our sponsors: BFT International, Apex Logistics, Hawaiian Air Cargo, Alaska Cargo, EVA Air, Southwest Cargo, Incheon, Swiss Cargo, Virgin. So thank you very much to our sponsors who very much appreciate it. So last year, cargo capacity and demand numbers came out from IATA. As you know, Caryn, and these were numbers from June, maybe you could share just some an overview of what those numbers kind of told us. Caryn Livingston 01:15 Yes. So when IATA released its June traffic figures, they found that overall global demand was down by about 17.6%. year over year, which is a smaller demand or a smaller demand, the client then was recorded for me. So things are looking up it seems, since some of the worst months of 2020 for Air Cargo demand, but there there's quite a lot going on behind these numbers. One thing to be aware of is that summer is typically a slow time when it comes to air cargo. So the year over year comparison Things are going to be a bit easier, necessarily. And another thing to note is that a lot of this strength was found in North America, especially which outperformed all the other regions during the month. And I had to account for that by pointing out that UPS and FedEx, two of the largest freighter fleets in the world are both based in the US. JJ Hornblass 02:31 So we're going to talk about ups in a second. But my question centers on kind of the implications of these numbers, you're still talking about a 17% year over year decline. And how is that good? How are we looking at Wherever we go, what is going on and we would think of a 70% decline as being a good one? Caryn Livingston 03:02 Well, unfortunately, when you're looking at some of the earlier months this year, you know, with 20% or greater year over year declines, then when you're getting, you know, into the teens, it's looking a little better. But yeah, you're right that this, this isn't exactly good news. A lot of the decline is still due to, you know, the overwhelming number of passenger flights that are still canceled. And some of those have resumed. But it's still, as cases are reemerging in some countries that kind of had suppressed the first wave. It's not clear if you know if this positive trend will continue over the upcoming months. JJ Hornblass 03:48 Yeah, so I mean, demand is part of the equation right, the other is his yield or rates and what's driving rivaling that. And are there any signs that even with a 17% decline and maybe from a sort of overall economic perspective, the situation may be better for forwarders than that 17% number might imply Caryn Livingston 04:19 Yeah, on the rates front as you mentioned, while air freight rates have spiked in April they have been coming back down as ocean shipping has become a little more reliable but that's changing a bit again, Freightos reported an increase again in air cargo rates kind of toward the end of July, which has to do with you know, another modal shift back to air as ocean freight is getting backlogged and lockdowns are coming back up in some in some countries. So, air is of course, you know, more expensive But oftentimes it's going to be the most reliable means of shipping as the situation remains so uncertain. JJ Hornblass 05:09 Is that modal shift? To what degree is the modal shift really mirroring the quarantine pattern? Caryn Livingston 05:17 Well, I mean, as far as that goes the real issue with the modal shift has to do with you know, ocean freight is much slower than air. So if if you're not sure what some you know what a situation is going to be in a country you know, sometimes from week to week, let alone from month to month, then it's it's really risky to the supply chain to try to demand you know, to rely on this ocean freight supply. That may not be there whenever you actually need the shipment and when and you know, when the shipment arrives, if you're if your economy is locked down again, then you have to store that you know, you have to store that those things. Apply somewhere so airfreight is really, you know, despite its cost and has a lot of benefits as we're going through these cycles of lockdown and reopen JJ Hornblass 06:11 So the positives on the rate side would you say that one glaring example of that of the positive benefits of that maybe came for came in ups his earnings for the second quarter? Caryn Livingston 06:34 Yeah, definitely. As you know, as you can see in the story on air cargo world calm, UPS kind of outperformed all expectations, and a lot of that is due to, I mean to their strength with the freighter fleet. And a trend that we discussed in our recent feature on how e-commerce has changed during the pandemic. That is The increase of b2c shipments, as b2b has declined with the lockdowns has been really a huge boon to the Express companies. JJ Hornblass 07:12 The zoo was an analyst to call there to cue, they said that UPS is in regards to their second-quarter earnings, crushed elevated expectations. So they had a 13% increase in revenue in the quarter to $20.5 billion. I mean, 13% is just mind-boggling when you consider global trade numbers and even US GDP. What's going to, you know, I guess, that's not sustainable. They're not sustaining that. So, it you know, what would you expect from let's say ups or the other I express companies, you know, through the end of the year. Caryn Livingston 08:06 Yeah, I mean, on the one hand, as you said, it's not really sustainable like this, this type of growth as GDP declines. And as unemployment has continued to be an issue, especially in certain countries, including the US, you would expect some of those numbers to come down. But on the other hand, it's really hard to say moving into the end of the year with peak season. I know a couple of major retailers have announced that, you know, they're not going to be holding the normal Black Friday sales. And so you can, I mean, you can kind of extrapolate from that, that e-commerce is going to be more important, this upcoming holiday season and play more of, you know, have a larger effect on airfreight than it likely has ever had before. So it's kind of you know, continuing unprecedented year. JJ Hornblass 09:04 It seems to me that a hint is in their hiring. During the quarter 39,000 workers are hired by ups in the second quarter. We're not even at the peak season yet. So it would imply if you're hiring or who you're not expecting to, you're not expecting to lay off at work or in short order. I mean, you would expect that worker to continue working certainly through the end of the year, so maybe that's an indicator or is that or my chin to that number? Caryn Livingston 09:46 I know I think you're right that it is an indicator and UPS isn't the only express company to you know, bring on several thousand additional new hires to handle these increased volumes. DHL made an announcement Earlier this year that it would do the same. And yeah, it really seems like they are they're doing you know, everything they can to kind of increase their capacity and take advantage of this huge demand increase that they're that they're seeing right now. JJ Hornblass 10:18 So let's talk about an interesting story that we had on Air Cargo World last week on hospitality logistics. So first, let's say maybe, Caryn, you could set the stage for that story. What's that story all about? Caryn Livingston 10:38 Yeah, so there's been a couple of interesting announcements so far during the during this pandemic of a couple of freight forwarders launching new divisions, targeting this industry of hospitality, tourism and cruise logistics. And so this was something that was kind of curious to me because mean just because based on, you know how severely this, this industry has been impacted by the Coronavirus with, you know, thousands of cruises canceled many cruises, it's not clear when they might start up again. And so, I mean, yeah, the question I had about this as well, why now like, why does this division makes sense to launch at this time? And yeah, I did. I had some interesting conversations with executives who are in charge of this division. And yeah, it's been interesting to kind of hear about how really they're, the supply chain in this industry kind of ground to a halt because suddenly, you know, it went from very steady demand a huge industry billions of dollars of revenue every year to virtual standstill. Like you know, these cruise ships cannot leave port. They're not taking any new passengers. And yet the supply chain, often through ocean shipping has been in the works, you know, months into the future. So something you know, urgent is needed to address this situation. JJ Hornblass 12:11 So you're saying that in order for let's talk about the cruise ship industry in order for the cruises to begin again, there needs to be a ramp-up, supply ramp-up of several months in advance. That's basically the upshot. Caryn Livingston 12:33 That is I mean, that is one possibility. As you can imagine, that's really hard to calculate into your business model right now as often people don't know what to expect in the upcoming months. And on another angle of this topic is that a lot of the supplies that had been pre ordered are now you know, in warehouses, awaiting a time when business can resume but Because of this, you know, complex supply chain, this is kind of an opportunity for air freight in the sector just because the volumes that are needed of some of these supplies and then the lead time that you know that they'll have to order these and obtain the supplies have has decreased. So that really airfreight has kind of found a way into this industry into this sector of logistics that typically doesn't really exist for it. It's usually much more reliant on ocean freight. JJ Hornblass 13:35 I can't think of an industry that has been harder hit. I literally they are the the the worst-hit industry in the world without any definitive restart date, this investment and what why is this investment And not just completely misguided. I mean, look, you know, if you're saying that if you're saying that, you know, the supply chain needs to kind of ramp up, I don't know, whatever, what is it three, four months in advance of cruises starting to go out something along those lines, you know, you can kind of gauge that right if you've got a definitive or even a tacitly definitive, but without that, there may not be a cruise ship industry for at least another 12 months. So why focus on you know, it's a very key I mean, I find it very curious, Karen, that this is, this is sort of were paying their investment dollars, these freighters, these freight forwarders. Excuse me. Caryn Livingston 14:47 Yeah, I mean, it is interesting that that's part of the reason why I decided to look into this topic as they were making these announcements. I mean, on the one hand, you do have some cruises between Learning, of course, a much lower level than previously existed. There was a German cruise line that I launched a couple of short cruises, with only about 40% of their passenger capacity filled. But as as I learned, during my conversations about this industry, there is a need to have this plan in place from a supply chain stance just because of the the huge share of the global economy that, you know, hospitality and tourism encompasses. You know, as I, as I mentioned before, it's billions of dollars a year, a huge percentage of the global workforce is involved, I think. Crane worldwide one company that I spoke with for this story estimated about 4% of the global workforce is affiliated with the hotel industry. So it is you know, A hugely important industry to the global economy. And so there is a need to serve this. This niche even though it's faced, as you said, some of the worst setbacks among any industry today. Yeah. JJ Hornblass 16:14 Well, we'll see if the bet pays off, right. Yeah. All right. What do you have planned for this week? Karen? Caryn Livingston 16:21 Yeah. So for this week, we're going to be publishing our Freight 50, which is Air Cargo World's ranking of the top 50 air cargo carriers based on 2019 traffic. So we'll be doing quite a bit of reporting this month that focuses around the carriers on this year's list. JJ Hornblass 16:41 That's a good ranking to see. All right. Well, thank you so much, Caryn, for this and thank you all for, visiting with us on the On Air podcast. We really appreciate it. Thanks for being a part of it. I encourage You to rate the podcast wherever you listen to your podcasts and also follow us on Twitter and LinkedIn. And of course, please visit us at AirCargoWorld.com, where we'll have breaking news and analysis for you throughout the week. Thank you all so much for tuning in. See you next time. Thank you.

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