Forwarders and shipping lines take to the air

As Covid-19 starts to fade away, work-from-home is not the only new normal, it seems; forwarders and shipping companies are stepping into the air cargo market as freighter operators!

Strategic shift or tactical opportunism?
Is this new-new? Not entirely. Panalpina operated dedicated freighters for decades - a program now carried forward by DSV, while Moeller-Maersk created Star Air in the 1990s already, providing UPS with +10 B767 freighters for their intra-European services. However, this was more the exception than the rule.   

So, what is happening now? The key question is if the new trend is a strategic shift or tactical opportunism? The very marginal profitability of freighters in the late 201x’s seem rapidly forgotten, likely powered by the very different profits and capacity shortages realized in 2020-22 and perhaps staying somewhat so into 2023.

The traditional industry basic: 50% of the capacity is provided by freighters and 50% by passenger flights next to baggage. The freighters are partly operated by passenger airlines and partly by dedicated freighter airlines. The emerging additional basic: the rapid growth of e-commerce with e. g. Amazon building an air force allegedly reaching around 100 freighters by the end of 2022.

Are shipping lines competing with forwarding agents?
While the who-operates-the-freighters is the surface question, there is another more consequential question: is the role of the forwarder as the asset-light-high-profit-service-integrator now being challenged by shipping companies broadening their service and offering all modes, while forwarders secure access to capacity by operating own freighter routes?

Whereas container shipping companies get a solid part of their business directly from shippers, airlines remain primarily in the traditional modus of whole-selling capacity to forwarders who, in turn, retail to shippers.

Financial ties
So, Marseilles-based CMA CGN with 10 freighters and further 12 on order, ties up with Air France-KLM and foresees a 9% stake in the traditional airline. This freighter capacity supplements the lower deck holds of the AF-KLM passenger fleet and becomes an integral part of the partner’s global network. It ensures a distribution model backed by having CEVA inhouse as a freight forwarder.

Over in Denmark, Maersk creates Maersk Air Cargo and transfers Star Air into the new entity that is to operate out of Billund, Denmark, rather than as until now Cologne, Germany, while it adds the purchase of Senator as the experienced air freight forwarder to the mix.

Switzerland-headquartered Kuehne+Nagel takes on two Atlas Air B747-8F as the debut of a dedicated air network, while its owner increases his shareholding in Lufthansa to 15% in addition to already holding 30% in Hapag-Lloyd. Is this the beginning of a conglomerate indicated by the financial interdependence?

Last example: DB Schenker links up with LATAM Cargo for its first dedicated freighter operation. Etc., etc., etc.

New normal or temporary phenomenon?
Now back to the future: as the Covid-19 upset is winding down and passenger networks are increasingly back in the air, according to World ACD, the air freight market is already softening and this while aircraft manufacturers and P-2-F converters continue to fill their freighter orderbooks very quickly.

The question, therefore, comes up as to whether the shipping companies’ and freight forwarders’ interest in operating freighters is a new normal driven by new business models, or a temporary phenomenon spurred by very positive cash perspectives and Covid-19 profit scenarios.

As far as the shipping companies are concerned, they are in a comfortable situation as long as short-term profitability is not a must. Not so the forwarding agents. Soon they will be faced with over-capacity in the market, challenging their earnings, and normalizing their business by generating less interesting or even negative returns on investment. Or even worse: A freighter capacity bubble is looming on the horizon - unless you are powering e-commerce like Amazon or Alibaba do.  

Henrik Ambak


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