From Sky to Sea: Will Freight Patterns Shift Once Again?

With ports a clogged mess, container space in short supply, and container rates hitting unprecedented highs over the past several years, many shippers looked to the skies for more reliable service.

However, now that container rates have taken a plunge, maritime options are looking more attractive once again. As a result, air cargo rates and volume have taken a downward turn as some retailers pivot back to the sea to get their goods delivered.

When we reported on the skyward shift in December of 2021, we included the fact that several liners were integrating air cargo as an additional option within their offerings. Two we covered then were Maersk and CMA CGM—with an additional look at Amazon.

In light of the current dynamics, we thought it’d be interesting to check out how their air cargo offerings have been faring since.

Air Freight’s Downward Trend

Air freight’s persistently downward trend has been captured by various experts—including the International Air Transport Association (IATA). November data released on January 9 captured the softening of air cargo demand: compared to the year prior, global demand fell 13.7% and capacity dropped 1.9%.

“This was the second year-on-year contraction following the first last month (in October) since April 2022,” IATA said.

“Air cargo performance softened in November, the traditional peak season. Resilience in the face of economic uncertainties is demonstrated with demand being relatively stable on a month-to-month basis. But market signals are mixed. November presented several indicators with upside potential: oil prices stabilized, inflation slowed and there was a slight expansion in goods traded globally. But shrinking export orders globally and China’s rising COVID cases are cause for careful monitoring,” said Willie Walsh, IATA’s Director General in a statement.

In its November 23 forecast, Xeneta predicted that dropping ocean rates may attract return business.

Here’s how the press release described the dynamics that could potentially occur: “One area where the ocean freight market may benefit is from a potential reduction in air freight.

Xeneta says this segment faces a ‘bumpy ride’ as lower ocean costs and better-scheduled reliability (from easing port congestion and available capacity) may tempt some shippers to make a modal shift. In a climate of increasing environmental awareness, shippers focused on sustainability may also be tempted to switch ‘general’ cargoes from the skies to the waves.”

“To be fair, a shift in general volumes wouldn’t be too significant for the ocean freight carriers, but it would strongly impact on the air segment, where cargoes are obviously far smaller,” Xeneta CEO Patrik Berglund said in the statement.

In its January 4 Air Freight Rate Alert, Xeneta described the environment for air cargo stakeholders as a “glass half full.”

“A turbulent 2022 for the global air cargo market ended in December with a ‘win/win’ outcome for airlines, forwarders and shippers as the chargeable weight fell -8% on a year ago and the general airfreight spot rate registered its largest year-on-year decline of 35%, but overall average rates remained 75% above the pre-covid level,” the statement said, citing weekly market analysis by CLIVE Data Services, part of Xeneta.

“It would be easy to take a pessimistic view of the global air cargo market’s downturn, but this would ignore where it has come from,” Niall van de Wouw, Chief Airfreight Officer at Xeneta, said in the statement.

“There is little use comparing it to the same time last year because then we had no Ukraine conflict, no high energy prices, no soaring interest rates, nor the impact of the subsequent cost-of-living pressures. So, based on the global environment we see right now, airlines are still achieving rates 75% higher than pre-Covid. That indicates the glass is very much still half full. If in January 2020, you had asked airline executives if they’d like to see airfreight rates across the Atlantic or from Asia Pacific 75% higher, we would have heard a unanimous ‘yes’. The difference now is that there’s less pressure if you’re a shipper, even though you’re still paying more. In terms of the long-term sustainability of the air cargo supply chain, this will help.”

Noting that the air cargo industry “remains in a very unpredictable state given world events,” van de Wouw said they don’t expect a quick recovery in demand “because of what is happening around the world.”

However, “we do expect to see supply continuing to come back into the market,” he said. “This, of course, will put further pressure on load factors and rates. So, we struggle to see where the tailwinds will come from, but looking at the broader perspective, we still see a very efficient air cargo market, especially when compared to the 70-80% fall in ocean rates in the past 8-9 months. The fact that the airfreight domain is more competitive and more fragmented on the supply side meant rates didn’t go as crazy as we saw with ocean container prices, so the decline, now airfreight volumes are lower, is more gradual.

Air cargo is much stronger than it was pre-Covid, but the current direction of the market means there is some degree of good news for everyone.”

In the following, we’ll take a look at how the air cargo efforts of two liners—Maersk and CMA CGM—have been progressing since our December 2021 report and check out what Amazon has been up to since then.

Maersk

In our previous post, we included Maersk’s November 2021 announcement of its intention to acquire Senator International, “a well-renowned global freight forwarding company with a strong air freight offering.”

Maersk also described its plans to expand its “own controlled air network” by adding aircraft to its operations with the lease of three cargo planes to be operational from 2022 and “two newbuilding Boeing aircraft to be deployed by 2024.”

Since then, Maersk has been busy expanding its air cargo footprint:

The following Maersk video captures the takeoff of “Our first Maersk Air Cargo A/S Boeing 767-300 freighter…from Greenville-Spartanburg Airport, South Carolina for the inaugural flight to Incheon Airport in Seoul, Korea”

CMA CGM

Here’s how CMA CGM describes its air freight offering: “In response to the growing demand from our customers for agile logistics solutions, the CMA CGM Group launched in March 2021 CMA CGM AIR CARGO. This new operational and commercial arm specialized in air freight transportation complements all the solutions we already provide for our customers, enabling us to support their entire transportation and logistics chain.”

The following series of headlines by Air Cargo News captures the progress CMA CGM has been making in the air cargo space since we covered it in December of 2021:

In the December 20 article, Air Cargo News also noted what additional outlets have been reporting: CMA CGM Air Cargo recently suspended service to the U.S.—which the company referred to as a “temporary” move, according to FreightWaves.

“As a customer-centric company, we permanently adapt our offers to provide tailor-made services to our customers,” CMA CGM said in a statement provided to FreightWaves. “To adjust to our clients’ needs, we have made the decision to temporarily suspend our connections with Chicago and Atlanta. Our customers have been kept well-informed throughout this process.”

For additional perspectives on the move, please check out the FreightWaves post.

Amazon

And as for Amazon?

In an update published on October 21, 2022, Sarah Rhoads, Vice President of Amazon Global Air, noted that the company’s first aircraft, “Amazon One,” took flight in 2016 and highlighted some of the progress Amazon Air has made in recent years.

“During the past two years, we added more aircraft to our fleet (we have more than 110 in our global network today), launched new facilities including our U.S. air hub at the Cincinnati/Northern Kentucky International Airport in Hebron, Kentucky and our European air hub at Leipzig/Halle Airport in Germany, and leaned into sustainable initiatives such as electric ground service equipment and sustainable aviation fuel,” Rhoads said.

But the more recent news she shared then was about the addition of 10 Airbus A330-300s—leased from Altavair—to the company’s fleet.

“The aircraft are currently undergoing passenger-to-cargo conversion and will be the first A330 freighter conversions to operate in the U.S. when they enter our network in late 2023,” Rhoads said. “At the same time, we’ll also begin phasing out some older aircraft whose tenure are nearing expiration. These A330s will not only be the first of their kind in our fleet, but they’ll also be the newest, largest aircraft for Amazon Air, allowing us to deliver more customer packages with each flight.”

She also announced the addition of Hawaiian Airlines as a “new partner” that “will maintain and operate these aircraft on our behalf.”

Amazon has been in the news recently—both for some major cost-cutting moves across the company and the launch of Amazon Air Cargo services in India, which the company announced on January 23.

“Amazon India has launched Amazon Air, making it the first e-commerce company in the country to have a dedicated air cargo network,” the announcement said. “Amazon Air will utilise the cargo capacity of two Boeing 737-800 aircraft operated by Quikjet Cargo Airlines. Each Amazon Air aircraft will ship thousands of packages every day and fly across Hyderabad, Bengaluru, Delhi, and Mumbai. …”

“We’re thrilled to launch Amazon Air in India to ensure we can provide our growing customer base with great selection, low prices, and faster deliveries,” said Rhoads in the announcement.

India is the third market, after the United States and Europe, for Amazon Air.