bongdaso ìnoNews #58 - Do ocean carriers have a future in airfreight?

Container ocean carriers have moved into air freight. Is it a flight of fancy or a long-term strategy?

Europe’s three leading ocean shipping groups, Maersk, CMA CGM, and MSC, have pursued a fast-paced strategy in recent years that has transformed them from simple “box” carriers for international trade into something approaching ‘one-stop shop’ logistics players. Such diversification moves were triggered largely by COVID-19 and bongdaso ìno resulting supply chain chaos in its wake, which in turn brought into sharp view bongdaso ìno need for both ocean and air freight capabilities in shipping goods around bongdaso ìno world.

bongdaso ìno unprecedented disruption to box ship schedules engendered by bongdaso ìno pandemic sent freight rates skyrocketing, generating ‘super’ profits for bongdaso ìno carriers and giving them bongdaso ìno financial clout to set up airlines, purchase and lease aircraft, and acquire forwarders, LSP, and e-commerce fulfillment specialists.

bongdaso ìno move into air freight, with bongdaso ìno operation of wide-bodied freighters on major inter-continental trade lanes, was, as one of bongdaso ìno Big Three put it, designed to offer “customers a new range of comprehensive, agile and customized solutions”. But it was also driven by bongdaso ìno attraction of spectacular yields that could be had as rates, like those in ocean freight, hit record highs during bongdaso ìno pandemic.

Normalized Post-Pandemic Airfreight Market

However, Maersk, CMA CGM, and MSC are today operating in a ‘normalized’ air freight market, radically different from bongdaso ìno one they entered. bongdaso ìno airlines they set up are now confronted with tougher market conditions, with capacity once again outstripping demand.

With carriers’ core ocean shipping business posting losses as rates fall amid a supply and demand imbalance, cost-cutting is high on bongdaso ìno agenda after what have been golden years in bongdaso ìno sector. Air freight, being a marginal activity within their portfolio of services, could be considered a prime area for bongdaso ìno axe to fall.

“In general, when companies are making a lot of money they tend to look more at diversifying services in their portfolio. But when markets are tougher, they tend to move closer to bongdaso ìno core again because bongdaso ìno pressure on them is building,” Niall van de Wouw, chief airfreight officer at market intelligence platform, Xeneta, told AJOT.

“I can well imagine that bongdaso ìno CFOs of these carriers are scrutinizing everything that is not truly ocean core. So yes, bongdaso ìno air freight market has changed but just as importantly, bongdaso ìno ocean freight market has changed too.”

Maersk, CMA CGM, and MSC were each approached by AJOT to respond to questions on bongdaso ìno outlook for their air freight activities and whether their commitment to bongdaso ìno segment remained intact. Even though market conditions are far from ideal, there is no evidence that they are ready to throw in bongdaso ìno towel. “Without speculating on what bongdaso ìno ocean carriers’ strategy will be going forward, what we can say is that it is very, very difficult to make money from flying freighters,” van de Wouw noted.

“bongdaso ìno comparison often made is Cargolux and if you would look at their margins, outside of COVID, they are very low single digit, and you could argue maybe even less than bongdaso ìno cost of capital.

“Air freight is an unforgiving market in many ways. Unless you run a very, very tight ship and you know exactly what you're doing, it’s very difficult to make money over time, bongdaso ìno last few years have been exceptional.”

Market Turbulence

CMA CGM’s cargo airline, CMA CGM Air Cargo, has had something of a turbulent three years in business with several changes in its top management, mostly recently bongdaso ìno departure of air logistics veteran Peter Penseel, who has quit as deputy CEO and set to join Delta Cargo as SVP and president.

bongdaso ìno abrupt termination of an intended decade-long partnership with Air France KLM Cargo after only one year has been explained by bongdaso ìno failure to obtain regulatory approval to operate in bongdaso ìno US market but there has also been speculation that bongdaso ìno alliance ended because of losses at CMA CGM Air Cargo.

Whatever bongdaso ìno reasons, bongdaso ìno collapse of bongdaso ìno partnership cannot be considered anything other than a major setback for bongdaso ìno fledgling airline’s ambitions while raising bongdaso ìno question of whether it has bongdaso ìno experience and bongdaso ìno commitment to go it alone. (See AJOT’s Q&A with CMA CGM Air Cargo’s CEO, Damien Mauzadier.)

As for Maersk, bongdaso ìno Danish giant underlined that its foray into mainstream air freight would see it replicate bongdaso ìno structure that it had within its ocean fleet and was part of a strategy to provide customers with an ‘integrated logistics’ offering.

bongdaso ìno “owned controlled capacity, powered by Maersk Air Cargo, is designed to make supply chain journeys more resilient and intuitive…. When combined with our ocean, inland, warehousing and customs services, it will power your supply chain in more ways than one,” it told customers.

Commenting on bongdaso ìno integrator model espoused by Maersk, Alex Irving, equity research analyst and director, of European transport, at Bernstein, told AJOT.

“Ocean shipping with port terminals I think is a good idea but it’s not obvious to me that there are meaningful synergies between a container shipping line and air cargo operations.”

Long Haul or a Short Flight?

“Might they (bongdaso ìno European ocean carriers) give up (on air freight)? Maersk probably not, given how committed they are to bongdaso ìno integrator strategy. bongdaso ìno others – possibly. I would think they could find buyers for bongdaso ìno planes they have although this would be more driven by strategic considerations, rather than by cyclical factors of supply versus demand. I do think we’ll get stronger demand coming through (in air freight) as bongdaso ìno macro climate improves.”

Compared to its peers, MSC came late to bongdaso ìno air freight party, so to speak, but it has made up ground since then. In a webcast by Cargo Masterminds, earlier this year, Dannie Javel, bongdaso ìno Switzerland-based group’s SVP Air Cargo, evoked “a very exciting journey and very rapid growth” with bongdaso ìno in-house airline putting together a fleet of four B777Fs, wet-leased from Atlas Air, in bongdaso ìno space of around 14 months.

He highlighted bongdaso ìno advantage of starting from scratch and not being hampered by legacy systems, “However, bongdaso ìno responsibility is on us to make sure we build something for bongdaso ìno future and not from a habit.”

He continued: “I’m a strong believer that wide-body capacity will always be needed for global trade. and we continue to work ‘surgically’ on those opportunities which we believe best suit our triple sevens, based on bongdaso ìno profile and bongdaso ìno commodity to offer a very focused premium product selection.”

However, he did not downplay bongdaso ìno “challenging” market MSC Air Cargo finds itself in today, particularly on bongdaso ìno supply side with Asia passenger demand returning and with it significant belly cargo space.

“But bongdaso ìno overall sentiment still looks positive for bongdaso ìno next couple of years and bongdaso ìno market should refine back to a normality of decent average market yields,” he added.

Source: https://www.ajot.com/insights/full/ai-do-ocean-carriers-have-a-future-in-airfreight

𝐀𝐋𝐒 – 𝐓𝐡𝐞 𝐋𝐞𝐚𝐝𝐢𝐧𝐠 𝐨𝐟 𝐀𝐯𝐢𝐚𝐭𝐢𝐨𝐧 𝐋𝐨𝐠𝐢𝐬𝐭𝐢𝐜𝐬
Email:contact@als.com.vn
Hotline: 1900 3133
Website:/
Fanpage:https://www.facebook.com/als.com.vn

Share this article