Impact of trade tensions and Brexit uncertainty on air cargo charter market

Ongoing geopolitical uncertainties continue to affect the global air freight business. We examine the impact that trade tensions are having on the air cargo charter market.

Trade standoffs between the US and China, Brexit uncertainties and other geopolitical squabbles are just some of the issues that our cargo industry must contend with.

Citing a fall in world trade following a series of tariff increases as one of the reasons behind the slow-down, IATA’s Cargo Chartbook for Q3 notes that industry-wide air freight kilometres’ annual growth remained negative at -3.8 per cent in the three months up to July. According to the association, the performance was the weakest since early 2012 for two consecutive quarters.

It’s no wonder, then, that air charter companies have been preparing for the impact on the market by taking precautions.

One example of this is Air Charter Service, a global air cargo charter broker that offers private jet, commercial airliner and cargo aircraft charters as well as onboard courier solutions, which in March this year appointed industry veteran and former Air Charter Service CEO Tony Bauckham as its dedicated Brexit consultant. Air Charter Service chief executive officer, Justin Bowman, commented at the time of the appointment that as Brexit Consultant Tony would be reporting directly to the ACS group board.

Tony will be working with the business to ensure that internal systems would be ready in the event of a no-deal Brexit. He will ensure that business heads are aware of the implications that various scenarios could have on different airlines and other suppliers.

Responding to a changing landscape

When it comes to demand, airlines are naturally responding to changes by adjusting supply. Lufthansa Cargo, which offers an extensive and high-frequency network consisting of belly capacity and freighter connections, responded in May this year to weaker demand in the market by adjusting its schedule and reducing its overall offering for the second and third quarters.

Air cargo, charter market
For Amerijet, the regional charter market remain attractive

The carrier said this allowed the company to ensure profitable load factors and continued deployment of its aircraft at optimum levels going forward as well.

“We have traditionally taken a flexible approach to the flight programme for our freighter fleet to suit customer requirements. This has allowed us to respond quickly to normalising demand in the market so that our operations remain cost-effective,” said Peter Gerber, CEO and chairman of the executive board at Lufthansa Cargo AG.

“We will continue to closely observe market developments and flexibly adapt our supply in line with demand.”

The airline planned to cut services across its entire flight programme in line with trends in demand and stated the adjustment to offered flights was in keeping with its planned rollover from the MD-11F freighter to the Boeing 777F jet.

Miami-based cargo airline Amerijet operates its freighter fleet of B767-300/200 aircraft to 48 destinations throughout the Caribbean, Mexico, Central and South America. Glen C. Gates, director charter sales at Amerijet, says that the regional cargo charter markets in the Caribbean, Central America and North America; while similar to last year, remain attractive for oil and gas, energy, perishable produce, seafood and automotive parts and that increases in the amount of aircraft dedicated to e-commerce and slimmer twin-engine widebody feedstock options for P2F conversions are moving the market for on-demand cargo charter to higher rates.

Hurricane recovery and cross border Mexico to US automotive charters continue to drive increasing demand and RFQ’s (Request for Quotation), Gates states, commenting that aerospace charter has been negatively affected by the B737Max grounding and telecoms charters are down due to Huawei’s restrictions. “Some Asian traffic that used to transit the US is now bypassing it on the way to other regions.”

According to Gates, the US charter market remains strong. However, recent integrator capacity reductions associated with China trade tensions will impact what happens in regions including the US, South and Central America, Puerto Rico, The Marianas – Guam and the Northern Mariana Islands, the US Virgin Islands, American Samoa, Hawaii and Alaska.

Air cargo, charter market
Magma Aviation manages regular flights to Africa and ad hoc charters around the world

“Amerijet continues operating in support of the US Department of Defence (DoD) printed matter, auto parts, oil and gas and high-tech manufacturing. Disruptions to global supply chains are often solved with air cargo charters but rarely planned ahead of time. When the bell rings, everyone has to react and the carrier with the right combination of aircraft, timing, availability and expertise can count on being awarded high yield on-demand charter contracts.” Gates concludes.

Variations in the market

Chapman Freeborn, a global air charter broker with over 45 years of experience in the cargo charter market, has observed an impact on the air cargo market due to trade tensions. Reto Hunziker, Group Cargo and OBC sales director at Chapman Freeborn notes: “Intensified trade tensions inevitably impact the air cargo industry – the market in general is seeing reduced demand between US and Asia in the last 12 months.”

When it comes to the global cargo charter market and variations in market demand in certain regions, Hunziker says the company has seen a shift in demand away from traditional trunk routes this year. “For example, demand has been high on intra-Asia routes, plus Asia to Middle East, Middle East to Africa, and so on,” Hunziker notes.

“As always though, it is difficult to accurately predict where and when charter demand will spike – due to the event-driven nature of the charter business. Charter demand can surge due to humanitarian events, port strikes, industrial action, political events and broader market conditions. This year we’ve already had hurricanes in the Bahamas, Brexit uncertainty in the UK, and trade tensions elsewhere.”

An air cargo charter platform that locates and calculates suitable aircraft for immediate ‘Go-Now’ charters in a matter of minutes, says the company has experienced increasing demand despite changes caused by trade tensions.

“Given the ongoing uncertainty and dismantling of key trade lanes, there is no doubt that the global cargo charter market has been affected this year. Worldwide air freight is very elastic to the macroeconomy with factors such as the US–China trade dispute creating great friction in the sector. Despite this, demand from our side has been increasing month by month since our launch, with demand placing pressure on supply within the intra-European sector,” director of CharterSync, Ed Gillett states.

Air cargo, charter market
The charter market has changed significantly

“We have also seen an increasing trend towards shorter lead times for cargo transport, and the requirement to charter much faster aircraft with higher cruise speeds,” Gillett continues. “This, in part, can be seen to be the result of constrained road infrastructure throughout Europe, and the necessity to charter aircraft to meet the strict cargo deadlines.

“We even had a situation recently where we had a time-critical shipment that was stuck on a motorway, and our platform had to quickly react to find the most suitable aircraft to intercept the cargo. This calculation was achieved in less than a minute through our platform, and we soon had an aircraft available to intercept the shipment at a nearby airfield.”

Moving on to discuss the impact of Brexit on air cargo charter business, Gillett says preparations for the changes have also resulted in an increase in demand: “As the UK heads into unchartered territory with the imminent exit from the EU, we have actually witnessed a substantial increase in the demand for cargo charters. Many forwarders have been making contingency plans for such a scenario, and we have been making additional preparations our side to cater for this increase in demand.”

“Supply chains will certainly need to be working to their most optimum during this period of uncertainty, and it is the CharterSync that will be well-positioned to react quickly to the urgent demands of the freight forwarder,” Gillett continues. “We now have a great range of aircraft on the platform, and it is the intelligent live tracking and quick reaction of our technology that will provide the best air charter solutions to our clients.”

Future of air cargo charter

So how will the air cargo charter business be developing following such challenging environments? Hunziker shares his thoughts on the broker side of the market: “Over the last decade, the charter market has changed significantly in terms of changing freighter fleets and operator profiles – as well as the role of a broker.

For a broker to be successful now, they must add value beyond just sourcing an aircraft. For example, the ability to finance large scale operations, plus offering specialist consultancy, compliance screening, project management, 24-hour flight monitoring, and so on.”

Air cargo, charter market
US-China trade disputes have created some friction in the sector

Hunziker says that larger brokerages are also increasingly diversifying their portfolios, one example being Chapman Freeborn’s investment in its animal transport division Intradco Global, and the company’s hand-carry service Chapman Freeborn OBC.

“Brokers can also play a role in ensuring charter capacity continues to be available long term – for example, our investment in supporting Magma Aviation. This is nothing new; at various points several of the leading brokers have helped to ensure that ad hoc capacity is available for the wider charter market.”

Commenting on how he sees the global cargo charter market developing in the next five years, Gillett adds: “With an ever-increasing demand for air charters, we may start to be in a position where demand outstrips supply. With a continued increase in the number of ageing cargo aircraft, systems such as CharterSync will help to better manage the coordination of aircraft and provide the fastest solutions available to the freight forwarder. We will continue to innovate and develop new solutions to make the processes quicker and more transparent than ever before.

“We are constantly thinking ahead to the future, and need to be agile to seize new opportunities. Our stable IT backbone will be at the heart of this, and new capabilities will help us adapt to our customers’ changing needs. We see a fully digitalised sales and customer service experience becoming the industry standard in the future, and CharterSync will be developing in line with this.”

Just how far the current trade wars and geopolitical tensions will escalate remains to be seen. It seems clear though that the global air cargo charter business is ready to react to any changes and will continue to evolve, tackling the challenges and making most of the opportunities that may arise.

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