Air cargo faces up to an increasing number of turf invaders

The airfreight market is becoming more crowded and traditional operators face new competition, writes Ian Putzger.

The phalanx of freighter operators has grown to include some unexpected names – CMA CGM, Maersk, Amazon and Mercado Libre.

Amazon’s fleet of leased or outright owned freighters is now in excess of 80 planes and growing, as are the fleets of the likes of Cainiao, SF Express or Mercado Libre.

From the ocean carrier side Maersk and CMA CGM, flush with cash from soaring profits, are morphing into end-to-end logistics providers whose activities extend into freighter operations.

The latter has four A330 freighters in operation and is preparing to receive two B777 and four A350Fs all-cargo planes, while Maersk (through Star Air) is leasing three 767 freighters next year and has signed a purchase order for two B777 cargo planes. These will add to Star Air’s fleet of 15 planes.

Maersk underscored its ambitions in the air cargo sector with the $644m acquisition of Senator International, a forwarder with $730m revenues in 2020 and on course for an estimated $950m this year, which runs a freighter network of 19 weekly flights.

As these ocean carriers diversify from their traditionally low-margin core business, others may follow. Hanjin, Evergreen and NYK already own airlines with freighters – Korean Air, EVA Air and Nippon Cargo respectively.

They have not leveraged those links, but what is there to stop them from pursuing an integrated logistics provider strategy?

For airlines and forwarders these developments raise questions in how far they are changing the industry.

At a minimum this means more players competing for freighters in a market where capacity is precious and tight.

An executive of a large forwarder says that the shift of logistics providers to dedicated capacity is more than a short-term reaction to exceptional circumstances. He expects this to continue for some time.

In his eyes an even bigger change in the market is the push of e-commerce players beyond regional fulfilment into the international arena, which requires large widebody freighters.

Hence the noise around Amazon looking at B777 freighters to add to its line-up.

With their end-to-end capabilities, the e-commerce giants could go after B2B shippers. Maersk and CMA CGM own fully fledged forwarders, so for them this is a logical route to take.

For shippers this augurs more choices how to purchase airfreight capacity, reasons Eytan Buchman, chief marketing officer of Freightos. With its reliability and one-stop capabilities, possibly paired with lower costs, Amazon could be attractive for shippers, he adds.

On the other hand, forwarders are neutral and offer a broad carrier spectrum when it comes to airfreight capacity, he says, adding that customers often want global, multimodal solutions.

As for Maersk and CMA CGM, their airfreight capacities are relatively small, the forwarder executive says. His company continues to use these two for ocean freight carriage.

Maersk and CMA CGM’S airfreight capacities are relatively small according to Freightos.
Source: CMA CGM

What’s the take home message?

Should airlines be more concerned? The forwarder executive and Buchman note that the e-commerce players are taking freighters for their own needs, having concluded that the airlines cannot do this, but they will inevitably end up offering spare capacity on the market.

“They’re going into it for their own needs, but they will find they have dead legs and under-utilised flights. I think they will all slowly but surely open up their capacity to third parties,” the forwarder says.

Stan Wraight, president and chief executive of Strategic Aviation Solutions International, recalls how the integrators met little resistance from the airlines when they seized the express business.

“With CMA and Maersk we’re again seeing a disruption. I hope the airlines realise that and react,” he says. “Thirty years ago they lost express to the integrators, now they’re in danger of losing everything of value. They’re going to be left carrying the volume at low prices.”

He regards the incursions from the outsiders, notably the ocean carriers with their end-to-end logistics ambitions, as a wake-up call for the airlines.

“The standard airline industry doesn’t provide the service that customers want. That’s why Amazon own aircraft. Maersk are not getting from airlines what they want,” he says.

The airlines need to find out what customers want. This does not mean the requirements of the shipper at origin, but of the beneficial cargo owner (BCO) who controls the decisions, he argues.

“If you think like an airline, you’re going to fail,” he warns. “Talk to whoever is the decision maker, the BCO, and put products in that they want!”

The forwarder executive does not share Wraight’s concern about the newcomers snatching the juicy, higher yielding bits of the business.

“The airlines have all the infrastructure to handle the high-value cargo, they have the experience. It takes a long time to develop this skill set,” he comments.

Not only do the e-commerce players lack the wherewithal to handle high-touch, high-yield cargo, their route structure may not fit these flows, he adds.

“E-commerce networks are built primarily for their own business. Air cargo does not always fit into this,” he says.

In any case, the airfreight provider landscape is undergoing a significant shift. Every player needs to assess what this means for his/her business and how best to cope with it.

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