The Biggest Ocean Shipping Lines Are Turning to Airfreight

Annie Erling Gofus - Nov 09 2022
Published in: Mobility
As customers begin to opt for air shipping that is more expensive but reliable, containership operators are forced to buy aircraft and search for aviation partners.

As shippers look for a more efficient way to move goods around the world, ocean freight companies are adding air cargo to their businesses. Although airfreight represents a small section of the broader cargo industry, issues with supply chains, travel bans, and consumer spending caused it to become more prominent during the pandemic.

Air travel has become increasingly important for companies engaged in oceanic trade. With the pandemic came a drastic increase in online shopping, which threw off the delicate balance that shipping companies rely on to deliver goods both via sea and land. For weeks, ships have been idly anchored as congested ports prevent them from docking. Further complicating matters, a shortage of workers to load and unload vessels has hindered deliveries. Containers that should be holding exports are instead sitting idly, while exporters who have plenty of goods to ship can't find enough containers to hold them.

Airfreight has been largely shunned by the three European companies that dominate container shipping: Denmark’s AP Moeller-Maersk, France’s CMA CGM Group, and Switzerland’s Mediterranean Shipping Co. These companies felt that airfreight was an expensive distraction from their globe-spanning fleet of giant vessels, container terminals, and related logistics businesses. But many customers are now opting for air shipping because it is more expensive and reliable, say executives. Now, these container ship companies are vying for market share.

Maersk, the world’s largest container shipping firm, started an air cargo division in April of last year and currently has a fleet of 15 aircraft. Their competitor CMA CGM also started their air division last year and will have 12 airplanes operational by 2026.

According to the International Air Transport Association, demand for air cargo has increased by 2.2% in the first half of 2020 as compared to 2019 numbers.

Ocean Freighters Are Using Surplus Cash to Buy Air Planes

Boeing and Airbus are both selling freighter versions of their newest widebody planes, which are more fuel-efficient than older cargo jets. The demand to convert older passenger planes into freighters has been so strong that some slots are booked up for years.

Maersk stated that it anticipates free cash flow to be more than $19 billion by the end of this year in its most recent guidance. The company plans to have seven Boeing 767s (three of which it is buying, and four leasing) by the beginning of November. The aircraft will fly routes between Asia and both the United States and Europe. In 2024, Maersk will also receive delivery of two Boeing 777s.

Last year, Maersk increased its air cargo volume by 100% when it bought German airfreight forwarder Senator International. In addition to this, Maersk has been purchasing airplanes for its air cargo division, which was formally called Star Air. The division, which has long been contracted by United Parcel Service Inc. and Germany’s DHL to fly freight, operates 15 Boeing 767 freighters. In addition to the four it has leased, it has ordered three 767s and two 777s.

In May, CMA CGM, the world's third biggest ocean shipper, not only agreed to share cargo space with Air France-KLM but said it would buy a 9% stake in the airline.

The airfreight industry grew over 21% last year, according to the International Air Transport Association (IATA). The IATA trade group came to this conclusion by measuring tonnage and distance flown. Revenue increased to $289 billion this year, up from $238 billion last year and $264 billion in 2019.

In the past three years, 400 freight planes have been added to the world fleet, according to Boeing. This is a 20% rise. The plane maker's estimate of the global freighter fleet is that it will increase to 3,600 in 2040 from its current amount of 2,000. IATA predicts that worldwide airfreight will rise 4.4% this year. Freight rates more than doubled from January to April this year, compared to the same period last year.

What Is the Future of Airfreight?

The economics of shipping is changing, and this is encouraging the shift. For large and heavy shipments, air cargo is often more than three times pricier than sea freight. But for products like computer chips, gadgets, and electronics, the margin is smaller. For businesses of all sizes, airfreight is a smart choice when accounting for the rising fees that ports and carriers charge for late container arrivals.

The cost of airfreight is dropping, but some businesses maintain that the global market shift to this mode of transportation will keep it appealing for years.

Unlike last year when businesses were willing to pay high airfreight rates to avoid ocean shipping disruptions around the holidays, this year's cost declines for airfreight suggest a return to normalcy.

How Increased Accessibility in Airfreight Will Affect Global Mobility

In the past, airfreight for relocations was so highly priced that many considered it an unattainable option. However, there are two factors that have been causing employers and transferees to use airfreight more: lower costs and ongoing congestion at global ports.

As airfreight rates become more affordable, companies and their employees are increasingly choosing to ship goods by air. With more employers offering lump sums for relocations, and ocean shipping delays being commonplace, transferees are choosing to bring less of their belongings with them when they move abroad. The fewer belongings somebody is moving and the quicker they want their move to be, the more likely it is that they will choose airfreight for their next relocation.

At the GWS2022 conference, global mobility professionals repeatedly discussed how to improve the employee experience. Although the airfreight method is quite costly, it eliminates delays in relocations, which improves the employee experience. Airfreight is the quickest, most dependable option, and it has become more reasonably priced this year.