You’d have to be forgiven for wondering why anyone would want to be in the air freight business.
It’s divided into two distinct versions – express carriers like UPS, DHL and FedEX, and the general air cargo business covering airlines as diverse as the mainstream airlines like BA all the way to Cargolux and AtlasAir and dozens in between.
Pure cargo is a much rarer thing than it used to be, larger companies dominate, and the mainline airlines have a growing share through their belly cargo operations, which offer a considerable challenge to many of the pure cargo companies.
Divide that further between ad-hoc and scheduled cargo services and things get more complicated still.
In the middle of 2017, there was a general panic at the lack of available cargo space. Yes, the lack of it! After years of scrapping, defunct airlines and over capacity, there wasn’t enough to go around and they made staggering profits. Shippers couldn’t get capacity even if they overpaid.
In 2018 having learnt their lessons from 2017, contracted space was something of an in-trend. Shippers signed up for the space they needed to make sure they weren’t caught out.
Now things are different, The Trump Administration’s tariff wars with China and threats to use them on just about everyone else has seriously impacted the air transport business, calming trade, creating uncertainty – and there is nothing shipping and air freight hate more than uncertainty.
Demand has dropped, shippers are being picky and the amount of available space on big air freighters is at a high.
To fill space the cargo airlines are offering ridiculously low rates, some are burning through their reserve cash saved up from 2017-18, others looking at the future and realising its never going to be the same.
Lufthansa especially has had enough and sees only one way out – slash the least profitable MD-11F’s from the fleet, reduce capacity and get back to premium rates with newer 777F’s as the only aircraft type. Lufthansa of course are also able to include belly cargo operations through the passenger fleet to make up for some capacity.
Others like Qatar Cargo have a very different agenda. They have a blockade that is going nowhere soon, to overcome.
Yet the rest of the airlines are struggling, in six months they’ve gone from profitable to loss making and its worsening quickly. Some are getting worried at the speed of decline, although compared to 2015-16 it’s still far from a disaster.
The problem is when you have to shift 30 tons of freight in a 748F every day, all day, just to break even, the competition for that tonnage is now so intense, the differential is becoming so dangerously thin that only capacity cuts will solve it.
The trouble with capacity cuts is that once you take down an aircraft and get rid of its crews, its expensive to change course when things come back, as they inevitably will. Once freight is taken out of service its exceptionally hard to get aircraft back.
MD-11F’s are now being seen as as too expensive to run and slowly falling out of favour.
The shortage of viable 744 frames is also being felt. Few are left to come out of service, and most of those are too old to actually be worthwhile converting, most 744’s end up scrap now.
777F’s are expensive, and there’s little else left. The A332F has never been top of anyones list, the wait for a 767F behind those for Fedex and UPS is years, and they don’t suit most operators.
Much of air freights bookings are secured through middlemen known as forwarders. They do the dirty work – they find the freighter space, get the rates and arrange the paperwork for import/export.
Volga Dnepr group decided late last year not to take bookings from them, expecting customers to come to them directly. Many of the big operators have in-house forwarders for their major clients on long term deals, but most businesses use forwarders, much as many people use a travel agent.
Regular exporters may well choose to book direct, but forwarders have a unique insight that allows them to access more of the market.
They cost money – they have fees and often take a percentage. Air freight companies would love to not have them in the mix.
Volga Dnepr tried it and suddenly changed their mind. Because they couldn’t do without them.
Forwarders are just as alarmed- too much freight space, lack of demand means they too earn less.
The air freight business for the rest of the year – and it’s about to enter peak season – is looking decidedly soft. And with it there will be casualties. Any company with fewer than 10 operational freighters is considered unsafe, lack of service, poor customer care will break those airlines who don’t make extra effort.
Time of course will tell, but somewhere an air freight business is almost certain to go under.