Consultant Insight: Charters ease capacity constraint as air cargo demand continues

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] Global air capacity is slowly improving but is still down significantly year over year. In its recent earnings call, FedEx estimated that freighter capacity now accounts for 66% of total air capacity on the trans-Atlantic lane, 83% on the trans-Pacific, and 80% on the Europe-Asia lane. This compares to pre-COVID freighter capacity of 33% for trans-Atlantic, 59% for trans-Pacific, and 50% for Europe-Asia. “Ultimately, we believe this is an opportunity to disintermediate traditional freight forwarders’ commercial relationships,” said Brie Carere, executive vice president, chief marketing and communications officer at FedEx, during the call. Freight forwarders would probably disagree. Indeed, several forwarders have opted to charter flights to ensure customers have air capacity. For example, DB Schenker launched its new Global Flight Operations Program, connecting Atlanta and Chicago with Frankfurt, Germany, and other surrounding Central European markets. The new flights will operate three times per week via full- and part-charter flights. This latest program is in addition to charter flights introduced by DB Schenker earlier this year. To date, DB Schenker has provided 1,190 charter flights for its customers. Meanwhile, DHL Global Forwarding launched an air freight charter connecting Asia-Pacific to Europe and the U.S. to meet demand from customers in the technology, manufacturing and life sciences, and healthcare sectors. The twice-weekly charter originates from Chongqing, China, and flies to Amsterdam, Chicago and Incheon before returning to China. This month, Dachser also expanded its premium charter program to include the Hong Kong-Frankfurt route. It previously added a Frankfurt-Chicago route at the end of July. While shippers benefit from the capacity these forwarders provide, companies that lease planes for charters, such as Atlas Air , have financially benefited. The company noted in its recent earnings report that its charter segment was a significant contributor to its performance as revenue from cargo charters for commercial customers jumped by 196% YoY to $394 million. During the quarter, Atlas Air had entered into new long-term charter agreements with HP, DHL, Apex Logistics, DB Schenker, Flexport and Geodis. In June, Atlas also began a charter operation for Cainiao, Alibaba’s logistics subsidiary. The addition of charters to a market stretched for capacity has indeed proven beneficial to all involved. According to the U.S. Census Bureau, in terms of kilograms, U.S. volumes of air imports year to date through July are down 4.3% compared to the same period in 2019. However, positive YoY volume growth was recorded for the intra-North America trade lane, which was up 23.1% for the period; South and Central America, which was up by 2.1%; and Asia, which was up by 1.4%. Meanwhile, Africa and Europe noted YoY declines by 30.6% and 16.9%, respectively. However, while charters are helping to ease capacity shortages, extra charter capacity has not been able to keep a lid on air freight rates. Rates skyrocketed earlier in the year when passenger airplanes were parked because of COVID-19. Rates eased as some of these planes, along with charters, entered the market to focus on cargo, but still remain high compared to a year ago. For August, the TAC Index showed that prices on air services from Hong Kong to North America increased both month over month and YoY. Rates on services to North America reached $5.50 per kg in August, up from the $4.96 per kg average recorded in July, and $3.29 per kg in August 2019. Freightos noted in a Sept. 15 email statement that post-Golden Week orders were beginning to pile up, and that it is likely air cargo rates will rise further beginning next week. The founding of the People’s Republic of China is celebrated during Golden Week, celebrated this year Oct. 1-8. How long the global air cargo market will experience capacity constraints is anyone’s guess. In July, FedEx expected the situation to last at least 18 months. Meanwhile, the International Air Transport Association (IATA) predicted that same month that it would be 2024 before long-haul belly cargo space return to pre-pandemic levels. However, as the market prepares for a vaccine for COVID-19, the air cargo market will need to be ready to reintroduce capacity quickly to ensure the quick and safe delivery of vaccines around the world.

Consultant Insight: Charters ease capacity constraint as air cargo demand continues

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