With Rise In Transportation Costs, Competition For Cargo Planes Is Also Increasing

As the shipping supply problem deepened last summer, an Italian cargo plane was quickly filled with thousands of lipsticks. They had a tight timetable to get to the United States.

Mehir Sethi, CEO, and founder of True + Luscious, a California-based beauty firm, says she has relied on sea freight for years. It had always been trustworthy.

However, the only way to get those 15,000 lipsticks to her customers on time was to pay to deliver them by air.

“At great pain to myself, we had to do it for two time-sensitive shipments. These were goods that were already committed to retailers,” said Sethi.

Thousands of such judgments have been made by businesses in recent months. And there’s no sign of it slowing down any time soon.

“We have used a lot of air freight, which we’re not excited about, but it’s a necessary thing with the challenges we’re all being faced with,” explained David Bergman, chief financial officer for the sportswear brand, Under Armour, on an earnings call in November.

Similarly, the Eastman Chemical Company reported using air freight to transport specialty plastics.

According to a US Census Bureau tool called USA Trade Online, which analyses cargo flows in and out of the country, 78.9 million kg of car components were carried by air from Asia to the US in the first ten months of 2021, up from 3 million kg in the same period in 2020.

Transporting products by air has always been costly. However, it is currently more expensive than it has ever been.

According to Greg Knowler, senior Europe editor at IHS Markit’s Journal of Commerce, air freight costs from Asia to North America “have achieved levels I’ve never seen before, $15 per kilogram, which is just crazily exorbitant.”

Part of the reason for this is due to delays in marine freight, but it’s also due to the massive drop in passenger flights since the outbreak began.

Moreover, half of all flying freight in the world is carried in the holds of passenger planes as “belly cargo.” However, with significantly less room available, airlines have been scurrying to convert passenger planes into freighters and resurrect older types.

After what commercial director Alexey Zotov describes as a “peak season we’ve never seen before,” AirBridgeCargo Airlines, a subsidiary of Russian air freight specialist Volga-Dnepr, is adding six more planes to its fleet.

He says that airport backlogs have been “rolling over like [a] snowball” since early September.

Some airlines, such as Air Canada, have also hurried cargo planes into service ahead of schedule, often before they’ve even finished their repaint.

Manufacturers, including Airbus, have been swamped with demands to modify former passenger planes to carry more cargo just to add capacity to the skies. The passenger seats are removed and wider doors are installed as part of the operation.

According to Crawford Hamilton, orders for Airbus passenger planes converted to freight planes are sold out for the next two or three years.

“We’re seeing a lot of people buying these conversions, they’re sold out for the next two to three years,” says Crawford Hamilton, head of marketing for freighter marketing at Airbus.

“That’s something that we were not in a position two years ago to say.”

While air freight accounts for only approximately 1% of the total freight business in terms of volume, it accounts for nearly 35% of the total value. Expensive goods with a short shelf life, such as consumer electronics and fashion items, are occasionally shipped by air. In addition, planes brought countless cargoes of vaccinations and personal protective equipment during the pandemic.

Airbus has also inaugurated a new air-cargo service using its BelugaST aircraft, which are often known as flying whales due to their massive fuselage.

Even if the pandemic subsides, the question is whether demand for air freight would remain robust.

With many airplanes permanently converted to carry freight and belly cargo capacity expanding once more, Cranfield University’s Robert Mayer wonders if the market will be overburdened in half a decade.

Nonetheless, airplane manufacturers appear to be optimistic.

(Adapted from BBC.com)

Categories: Economy & Finance, Entrepreneurship, Regulations & Legal, Strategy, Sustainability, Uncategorized

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