International Shipping Corporations Want To Fly Their Cargo As Well

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  • The unpredictable nature of supply and demand created a need for goods to be flown, and ocean freighters have been buying air capacity as a result.
  • Maersk launched an air cargo division in April and now has a fleet of 15 aircraft, while CMA CGM started its air division last year and will have 12 airplanes in operation by 2026.
  • Being able to ship or fly goods helps firms create a “one-stop-shop” for cargo, according to Maersk.

A recent CNBC news article states that ‘Awash with cash’: Global shipping companies now want to fly their goods too.

Ocean freight companies are adding air cargo to their businesses as shippers look for a “one-stop shop” to move goods around the world.

“We are finding out more and more that our customers really need an end-to-end logistics solution,” said Michel Pozas Lucic, Moller Maersk’s global head of air freight, in a phone call with CNBC.

“They’re looking for this one-stop-shop that takes away not only the complexity of the logistics, but also makes it an optimized, efficient and effective solution,” he added.

Maersk, the world’s largest container shipping firm, launched an air cargo division in April and now has a fleet of 15 aircraft, while competitor CMA CGM started its air division last year and will have 12 airplanes in operation by 2026.

Supply chain disruptions created a need for goods to be flown, Pozas Lucic said.

“For most of our customers, air is part of what they need, either because of the speed that they need for their specific products, or because of a disruption … [and] ocean freight would be not ideal because it takes too long, so we realized that it’s important to have air as part of the puzzle,” he told CNBC.

Demand for air cargo is higher than before the Covid-19 pandemic, according to the International Air Transport Association, up 2.2% for the first half of the year compared with 2019 levels.

Nobody really cared about supply chains

The pandemic raised the profile of supply chains, according to Marc Zeck, an analyst at wealth management firm Stifel. “The last three years have shown quite a lot of companies that their logistics divisions are not up to the task,” Zeck told CNBC by phone.

“Nobody cared really about supply chains … before the pandemic started. Now, it’s an issue or a topic for executive boards,” he added.

“In pre-pandemic times … [if companies] needed to ship some stuff by ocean, then you go to the ocean carrier and book the shipping … it arrives, and the job is done. Now, that’s not the case,” Zeck said.

Chinese factories shut down in 2020. Then, demand for goods rocketed in 2021 when lockdowns started to be lifted, causing widespread supply chain disruptions.

That disruption continued this year, with sailings canceled recently because of congestion at North American ports and strikes at European ports causing delays.

Awash with cash

Airplanes are an attractive purchase for ocean shippers, according to Michael Field, a senior equity analyst at Morningstar.

“A lot of these ocean freight companies are awash with cash at the moment, having had a bumper couple of years, and they’re looking for ways to spend it — and buying up air capacity is definitely one of those ways,” he told CNBC by phone. Airlines, meanwhile, had a tough pandemic and needed the money, Field added.

Maersk said it expects free cash flow of more than $19 billion this year in its latest guidance, and it is set for delivery of seven Boeing 767s (three of which it is buying, and four leasing) around the start of November. The aircraft will fly Asia-U.S. and Asia-Europe routes. Maersk will also purchase two Boeing 777s, set for delivery in 2024, according to a company spokesperson in an email to CNBC. Maersk also bought the freight-forwarding company Senator International last year.

CMA CGM, the world’s third-largest ocean shipper, signed a deal with Air France-KLM in May to share cargo space, and said it would buy a 9% stake in the airline.

But is now a good time for an ocean shipper to buy airplanes?

“Air capacity has been added to anyway over the course of the pandemic. Now ocean freight demand is decreasing over the last few months, as we’ve seen. So, the pressure’s coming off, so it’s probably not the best time to go and buy airlines now,” Field said.

“Can they make money in the longer term on it? Yeah. Is a good idea in terms of upselling [to customers]? Yes,” he added.

What’s ahead

Companies shipping goods are also planning further ahead, Field said. “The carriers have told them, if you want the capacity, you have to lock yourself in for a year or two with us and they will guarantee that capacity … I think we will see a continuation of that,” he said.

“Customers … are looking at these shippers as more partners rather than someone you just call up when you need something. That will definitely benefit the shippers in the long run in terms of their actual planning process too, and maybe making sure that supply-demand imbalance doesn’t get out of whack like we’ve seen in the last decade or so,” Field added.

 

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Source: CNBC

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