Shippers struggle to find airfreight capacity

by Ian Putzger

In March, 2021, Montreal-based forwarder AGO Transportation was spending a lot of time trying to organize shipments from New Zealand to Canada.

“We’ve been having issues with imports from New Zealand. It’s been a terrible time trying to get space from New Zealand, both air and ocean,” reported vice-president Sandra Faraj.

More than a year after the global outbreak of Covid-19 decimated airfreight capacity, finding lift to move goods by air is still a challenge in many sectors. And if capacity is available, it may be too expensive to stomach.

The pandemic dealt a brutal blow to airfreight. Before the pandemic, almost half of all air cargo was traditionally flown in the bellyholds of passenger planes. As up to 80 percent of passenger flights were slashed, a large chunk of airfreight capacity disappeared. The damage has been particularly pronounced on international sectors, where most of the large widebody lift was cut.

Scrambling for capacity

Over the past year the global freighter fleet has expanded, while the return of passenger services has been hobbled by renewed outbreaks. At the same time, demand has grown, driven largely by the rampant growth in e-commerce. Issues with shipping by ocean have exacerbated the problem, as some of that traffic has been forced to shift to air to meet deadlines. This has left shippers and freight forwarders scrambling for capacity, particularly to markets that traditionally relied on belly capacity.

One reflection of the changed market conditions came in February, when Cargojet, Canada’s largest freighter airline, signed an order for two Boeing 777 freighters with options for two more. For one thing, this signalled a greater focus on the international market, an arena that has been peripheral for the carrier so far. Moreover, it marked a break with tradition.

“This is the first time we announced the acquisition of an aircraft in advance. In the past, fleet additions were always the result of new business,” said executive vice-president Jamie Porteous.

The change in stance reflects a buoyant air cargo market with juicy yields for airlines, and the expectation that this is not going to change significantly in the short term.

Air Canada was one of the first airlines to remove seats from passenger planes to carry more cargo, creating what is now known as a ‘preighter’. It has since upped the number of widebody planes used for cargo missions. In early March it was running 220 cargo flights a week – more than in the run-up to Christmas.

Still, the lift has been not enough to meet demand, according to Jason Berry, vice-
president cargo. “We’re seeing demand across the board. There’s not enough capacity. The additions that we make are a drop in the bucket,” he said, adding that Air Canada has no more viable planes left to shift to cargo missions.

Markets that traditionally relied on belly capacity, like New Zealand or holiday destinations, have been particularly challenging for shippers, but they are not alone. Forwarders report problems flying cargo from Canada to South America, where Covid travel restrictions reduced passenger flights to a minimum.

Direct flights were never abundant, so forwarders often trucked exports to U.S. gateways, especially Miami, to catch southbound flights. This option still exists, but airfreight rates out of the U.S. have gone through the roof, observed Joe Lawrence, president of airline sales agent Airline Services International. On top of this, trucking rates to Miami are as high as what Air Canada has charged on its flights to Latin America, he added.

“Rates from Miami to Sao Paulo are between four and five dollars. I got a request from a customer who was looking for $2.50,” he said.

Representing various international carriers, his company often uses interline agreements with third-party carriers to fly cargo from Canada to connecting points, a ploy that airlines also leverage to extend their reach. These agreements have been suspended in the pandemic, though, as airlines have little inclination to use precious space for low-yield traffic. All interline shipments are handled and priced on an ad hoc basis, which makes planning difficult, said Lawrence.

Crane Worldwide Logistics has chartered some freighter flights to move imports to Toronto. “Reduced capacity has been an ongoing problem,” said Sean Crawford, managing director Canada. “It’s a never-ending dialogue with clients to find the best route to serve markets [that have] no belly capacity.”

Besides ad hoc charters, large forwarders have increasingly signed agreements for regular charter flights to make sure they have lift to move their cargo on trunk routes, a trend that has had a knock-on effect on available capacity in the ad hoc market. This has been a minor contributing factor to the upward pressure on airfreight prices, as airlines have seen their load factors hit new records.

Balancing act

For Air Canada, the cargo flights have been a balancing act between operating a reliable network that enables customers to plan, and offering unscheduled flights to take advantage of opportunities.

“We’re working for our company that’s losing millions of dollars a day. We’re not out to maximize profit, but we try to improve cash flow for our company. Sometimes that means signing longer-term contracts even if we could shop the market for better rates,” said Berry.

By and large, though, there is not much appetite for long-term contracts among airlines or forwarders, due to the volatile market conditions. At Air Canada, network planning has become a weekly, if not a daily exercise, reported Berry.

Gary Vince, head of airfreight Canada at DHL Global Forwarding, said that forecasting and planning is still very difficult. His company books five to seven days ahead at best, he added.

“We haven’t tried to engage with longer-term contracts,” said Jeff Cullen, CEO of Rhenus Logistics Canada. “Beyond fixed prices for a couple of weeks they do not bear fruit.”

Where they are still in play, contract windows have shrunk. “We give 30 to 60 days max, not 12 months,” said Lawrence.

No guarantees

This extends to rate guarantees that forwarders give their clients.

“We guarantee a rate for a much shorter period of time. It used to be 15-30 days; now it’s maybe for seven days,” said AGO’s Faraj. “Airlines implement rate increases at short notice. We can’t predict where rates will be two weeks in advance. The only thing we can predict is that they’re probably going up.”

The elevated rate levels are a big problem for many clients, as they cannot pass them on to their customers, she observed.

“Companies with low margins struggle to ship on time or at all,” she said, adding that the problem is more pronounced on the inbound side than with exports.

The situation has induced players to experiment with creative combinations. Rhenus has developed some sea-air solutions through southern U.S. gateways for shipments headed to Latin America.

“With airfreight prices so high, we see clients try to become less reliant on airfreight and use more ocean and transload. We try to compress transit times without the cost of airfreight all the way,” Cullen said.

At least airfreight pricing has become more transparent, thanks in part to the rise of online booking platforms that are gaining traction among airlines. Air Canada was the first North American carrier to join the platform, which already hosts a string of international carriers including Lufthansa, All Nippon Airways, AirBridgeCargo and Etihad. Offering real-time capacity and pricing information, these channels allow users to see current prices of multiple carriers.

If those prices are beyond their pain threshold, though, that transparency is cold comfort.

The prospect of a reviving passenger business holds some promise of easing price pressure, but not much. The economics of flying passenger planes for cargo-only missions are thin, so an easing of rates would prompt airlines to suspend many of those flights, resulting in a new reduction in capacity.