French company CMA CGM launched its air cargo division in March 2021.
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Ocean freight companies are adding air freight to their business as shippers seek a “one stop shop” to move goods around the world.
“We are finding more and more that our customers really need an end-to-end logistics solution,” Michel Pozas Lucic, global head of air cargo at Moller Maersk, said in a phone call with CNBC.
“They’re looking for that one-stop-shop that not only takes the complexity out of logistics, but also makes it a streamlined, effective and efficient solution,” he added.
Maersk, the world’s largest container shipping company, launched an air cargo division in April and now has a fleet of 15 planes, while rival CMA CGM launched its air division last year and will have 12 aircraft in service by 2026.
Supply chain disruptions have created a need for freight transportation, Pozas Lucic said.
“For most of our customers, air is part of their needs, either because of the speed they need for their specific products, or because of a disruption… [and] ocean freight wouldn’t be ideal because it takes too long, so we realized it was important to look in the puzzle,” he told CNBC.
Air cargo demand is higher than before the Covid-19 pandemic, according to the International Air Transport Association, up 2.2% for the first half compared to 2019 levels.
“No one really cared about supply chains”
The pandemic has raised the profile of supply chains, according to Marc Zeck, an analyst at wealth management firm Stifel. “The last three years have shown many companies that their logistics divisions are not up to the task,” Zeck told CNBC by phone.
“Nobody really cared about supply chains…before the pandemic started. Now it’s an issue or a boardroom issue,” he added.
“In pre-pandemic times… [if companies] need to ship stuff by ocean, then you go to the shipping carrier and book the shipment… it arrives, and the job is done. Now it’s not,” Zeck said.
Chinese factories closed in 2020. Then demand for goods skyrocketed in 2021 as lockdowns began to be lifted, causing widespread supply chain disruptions.
This disruption has continued this year, with sailings being canceled recently due to congestion at North American ports and strikes at European ports causing delays.
“Awash in Money”
Planes are an attractive buy for ocean shippers, according to Morningstar senior equity analyst Michael Field.
“A lot of these ocean freight companies are awash with cash right now, having had a bumper few years, and they’re looking for ways to spend it – and buying air capacity is certainly one of those ways,” did he declare. CNBC by phone. Airlines, meanwhile, had a tough pandemic and needed cash, Field added.
Maersk said it expects free cash flow of more than $19 billion this year in its latest forecast, and is expected to deliver seven Boeing 767s (three of which are buying and four on lease) by the start. of the month of November. The aircraft will fly Asia-US and Asia-Europe routes. Maersk will also buy two Boeing 777s, scheduled for delivery in 2024, a company spokesperson said in an email to CNBC. Maersk also acquired freight forwarding company Senator International last year.
CMA CGM, the world’s third largest shipping carrier, signed an agreement with Air France-KLM in May to share cargo space and said it would buy a 9% stake in the airline.
But is now the right time for a shipper to buy aircraft?
“The air capacity was increased anyway during the pandemic. Now the demand for ocean freight is going down over the last few months, as we’ve seen. So the pressure is going down, so it’s probably not the best time to go and buy airlines now,” Field said.
“Can they make money in the longer term? Yeah. Is this a good idea in terms of upselling? [to customers]? Yes,” he added.
What awaits us
Companies shipping goods are also planning ahead, Field said. “The carriers told them, if you want the capacity, you have to lock yourself in for a year or two with us and they will guarantee that capacity…I think we’ll see a continuation of that,” he said.
“Customers…view these shippers as more of a partner rather than someone you just call when you need something. This will definitely benefit shippers in the long run in terms of the actual planning process as well, and can -being ensuring that the supply -demand imbalance doesn’t go haywire as we’ve seen over the past decade,” Field added.
– CNBC’s Lori Ann LaRocco contributed to this report.