As business and commerce become ever more globalised, the logistics industry is evolving to meet the new opportunities and challenges that globalisation and regionalisation provide. Air cargo transport is playing a highly important role in that evolution, reports Chris Kjelgaard
This piece first appeared in the Summer issue of Airline Cargo Management, you can read the full magazine here.
The global tumult wrought by the Covid-19 pandemic over the past 18 months has only intensified the increasing pace of change within the logistics industry worldwide. Logistics companies large and small have evolved to remain well-positioned in serving industrial and commercial sectors which are becoming ever more globalised in nature.
Vital to the logistics-industry evolution have been the capabilities and services offered by air cargo – which have proved critical to the world’s continuing response to the pandemic, with the global movement of PPE and vaccines where they are needed most.
The importance of air cargo’s role in oiling the wheels of global commerce has become even greater as a capacity crisis has intensified within the ocean freight industry, by far the world’s largest international mover of goods and commodities. There are various causes of that crisis and they continue to interact in complex ways. They have certainly been magnified by the economic chaos that Covid-19 produces wherever it goes. But foremost among them have been the disruptions in global supply chains produced by the USA’s trade war with China – as well as other trade wars elsewhere – and growing shortages of cargo ships and containers.
Extra ship and container capacity is needed urgently as companies scramble to re-stock depleted inventories of retail and other goods to respond to rapidly growing consumer and commercial demand in nations now beginning to emerge from their worst days of the pandemic, according to Asok Kumar, executive vice-president and global head of airfreight for DB Schenker.
Orders for many new cargo ships – including substantial numbers of huge new container ships – have been placed as a result of the ocean freight capacity crisis, but ships take a long time to build. A global shortage of containers, exacerbated by thousands of empty containers piling up at some ports because their virus-swamped local economies can’t make enough goods to fill them, is only making the ocean-cargo capacity crisis more severe. The recent blockage of the Suez Canal by the container ship Ever Given, while lasting only three days, made the situation even worse by throttling one of the world’s largest long-distance trade routes and disrupting the voyages of hundreds of huge cargo vessels.
Nowadays much more than merely freight forwarders, the major logistics providers all offer wide varieties of logistics services to their industrial and commercial customers, many of which increasingly require customised mixes of different delivery solutions – many using intermodal transport – in order to meet their own complex supply-chain needs. As business becomes more and more international both regionally and globally, logistics providers are innovating to provide more timely, reliable and cost-efficient delivery arrangements.
Experts from four logistics companies interviewed for this article all say that, as the ocean freight capacity crisis has intensified, their companies have looked to the air cargo industry to help offset the worst effects of the capacity shortage. But the logistics providers’ need for air cargo capacity, particularly on a full-freighter or part-freighter basis, has intensified even further because of a second major capacity shortage: the grounding of many passenger widebody aircraft as the pandemic shut down most long-haul international passenger travel.
For the logistics providers, “airfreight is always an active part of the conversation as we bring different solution designs to our customers” to help them optimise their supply chains, says Matt Castle, vice-president global forwarding – products and services for C.H. Robinson. “It has continued to play an [increasingly] instrumental role in our solutions” – particularly today, as consumer demand heightens, supply chains continue to be disrupted and long-haul passenger air travel remains almost dormant.
“There’s a lot more pressure on capacity in the air cargo market because of the pandemic,” says Peter Penseel, chief operating officer airfreight for CEVA Logistics. “We’re trying to solve this for our customers… I think CEVA has the right solutions, even in a market where demand is sometimes higher than supply.” Those solutions rely in substantial part on a practice that CEVA shares with most other very large, globally present logistics providers: ensuring it has access to sufficient air cargo capacity by establishing its own controlled network of scheduled and charter air cargo flights –
of which more below.
“Air cargo has always been an extremely important part of our core business,” says Tim Robertson, CEO of DHL Global Forwarding Americas. “If anything, events of the last 17-18 months have only accelerated the importance of air cargo transportation.” He says DHL Global Forwarding has “participated significantly” in the transportation of both PPE and Covid-19 vaccines globally.
Kumar believes the pressure on air cargo capacity isn’t going to let up any time soon. He sees the ocean-freight capacity shortage lasting through this year and probably into next, while it remains anyone’s guess as to when long-haul passenger air travel will return globally. “For shippers, the news isn’t good,” he says. “Capacity will continue to be tight and the market remains constrained. Expectations [of capacity easing] are being dragged out even longer. At the end of last year, ship‑owners said [the easing] would be after the Chinese New Year. Now they’re talking about the end of this year before it gets better, possibly going into the first quarter of next year.”
Own controlled networks
While the continuing ocean-freight capacity and passenger-aircraft belly capacity shortages don’t necessarily represent good news for the major logistics providers, most if not all are protected to at least some degree by the own controlled networks of freighter-aircraft capacity they have built up over the years. For some, such as DHL Global Forwarding and more recently CEVA Logistics, much of their own controlled capacity is provided by sister companies – DHL Aviation and new operator CMA CGM Air Cargo respectively. (CEVA is a subsidiary of ship-operating and maritime services group CMA CGM, as is CMA CGM Air Cargo.)
Embracing a substantial number of in-house and third-party cargo carriers throughout the world, DHL Aviation (effectively a division of Deutsche Post DHL) owns a fleet of nearly 200 freighters, including production A300-600RFs, A330-200Fs, 747-400Fs, 747-8Fs and 777Fs, as well as a variety of A321s, A330-300s, 737s, 747s, 757, 767s and ATR regional aircraft converted from passenger to freighter configuration. The list even includes a Tupolev Tu‑204-100C freighter operated for DHL by Russian carrier Aviastar-TU. DHL Aviation’s aircraft also provide airlift for many third-party customers, other major logistics providers among them.
CMA CGM Air Cargo, meanwhile, recently took delivery of four ex-Qatar Airways A330-200F production freighters and has Air Belgium operate them on its behalf from a base at Liėge, one of Europe’s leading air cargo hubs. (The aircraft wear CMA CGM Air Cargo titles and livery.) CMA CGM Air Cargo provides airlift for a variety of third-party customers including logistics providers other than CEVA, but its sister company makes substantial use of the new carrier’s capacity as an important part of its own controlled network.
In addition to their in-house freighter fleets, DHL Global Forwarding, CEVA, along with most other major global logistics providers which don’t have sister companies that operate aircraft (such as DB Schenker) all boast considerable access to large freighter aircraft operated by third parties.
In some cases, as with DB Schenker, logistics companies have taken long-term wet leases on freighters operated on their behalf on an ACMI basis by third-party carriers which possess the AOCs required to fly the aircraft.
This arrangement allows DB Schenker (for instance) to operate up to 57 own controlled scheduled flights a week on 15 long-haul routes, some of which are multi-stop, some of which are two-way and some of which are one-way only. Its route network for its own controlled scheduled flights includes destinations in the USA, Europe, China, India, South Korea, Japan, Singapore and Australia. Up to 75 per cent of DB Schenker’s cargo traffic between the USA and Australia is flown, according to Kumar.
Major logistics providers have access to a great deal of additional capacity by means of whole-aircraft freighter capacity contracts operated on either a scheduled or a charter basis (and often both) by third-party carriers, as well as blocked-space agreements on a part-aircraft basis.
Normally, logistics providers make heavy use of the belly capacity on passenger aircraft operating on long-haul routes. In 2019, 63 per cent of CEVA Logistics’ air cargo tonnage globally was flown on passenger aircraft. CEVA flew 363,000 tonnes of air cargo that year, while in 2020, even as the pandemic raged, C.H. Robinson flew 225,000 tonnes – 54,000 tonnes east across the Pacific from Asia to the USA and 20,000 tonnes in the opposite direction.
C.H. Robinson flew a total of 47,000 tonnes of air cargo in both directions between Europe and North America, 21,000 tonnes in both directions between China and Europe and 7,000 tonnes from North America to Australia – a market which Castle says is “a very important part of our portfolio of services”, due in large part to its acquisition of Melbourne-based APC Logistics in 2016.
Blocked-space, whole-aircraft and belly-capacity contracts can be so extensive that, according to Robertson, DHL Global Forwarding offers customers for its logistics services more than 15,000 scheduled departures a week on a network linking more than 200 global destinations.
Many of those flights are operated and many of those destinations are served by DHL Aviation aircraft, but even the pre-pandemic world’s largest passenger carriers didn’t operate many more than 15,000 flights a week – so it appears the weekly total Robertson cites includes flights operated by third-party cargo and passenger carriers.
Even the largest logistics providers, all of which have true global reach and serve the vast majority of the world’s nations, have more substantial presences in some geographical markets than in others.
Minnesota-based C.H. Robinson has traditionally had strong customer bases for its logistics services on transpacific routes, in the Korea-Singapore market and in North America, according to Castle. Kumar says DB Schenker sees particularly high cargo volumes in its China, USA and Germany markets.
Marseille-based CEVA Logistics, meanwhile, is one of the top performers in the Asia-Americas markets and also is very strong in the Europe-USA and Europe-Latin America markets, says Penseel, adding that the China-Europe market, in both directions, is also becoming important for the company. While DHL Global Forwarding (whose parent is based in Germany, as is the logistics company itself) considers the entire world its oyster, Robertson says “significant capacity is deployed on transatlantic and transpacific routes”, and it considers its customer-specific distributed operations also a particular area of strength.
Similarly, while the major logistics providers have corporate customers in all or nearly all industrial and commercial segments, each company considers itself particularly strong in serving one or more particular segments. Customers active in the pharmaceutical industry and in the oil and gas sector are particularly important users of CEVA Logistics’ own controlled air cargo network, according to Penseel. This is not surprising considering that both sectors require substantial access to time-critical and (in pharma’s case) environment-controlled delivery services.
C.H. Robinson uses a roster of some 73,000 third-party contract carriers to provide the road, rail, sea and air transport elements of its supply-chain logistics services, customers for which include many Fortune 500 companies.
Castle considers the beverage, oil and gas and fresh produce industries as being particularly strong markets. Founded in the early 1900s, C.H. Robinson started life as a wholesale brokerage providing and delivering fresh produce throughout Minnesota and North Dakota, so its experience in providing time-critical logistics for the produce and perishables industry is vast.
Like its peers, DB Schenker has customers throughout the world and in every major industrial sector. However, it considers its presence in and services to the chemicals, healthcare, perishables, electronics, automotive and fashion/retail industries as being particular strengths, according to Kumar.
Robertson says DHL Global Forwarding, active everywhere and serving every major industry, has four areas of particular specialty. First is the market for high-tech consumer-electronics devices and components, which he says is a “real core vertical for us”. Also “near and dear to us for decades, [an industry where] we have been developing our services”, is the life sciences and pharmaceutical industry, for which the company provides supply-chain services delivering items such as medical devices, clinical tests and trials, and vaccines.
The automotive industry is a third major market for DHL Global Forwarding, in large part because it is “a prime user of aviation”, according to Robertson. Today the industry’s use of the company’s air cargo logistics solutions “is even more important [than usual], because of the dramatic chip shortage” which has prevented timely deliveries of integrated-circuit chips to every major industrial user of modern consumer electronics, including the car makers who nowadays outfit their cars with many computerised aids and tools. He says the company is “extremely well positioned” in the sector because of its ability to support the industry’s arrangements for just-in-time delivery, allowing car manufacturers to optimise their component-inventory levels.
Over the past 12 months, DHL Global Forwarding has also seen a fourth industrial sector, the chemicals industry, emerge as an unexpectedly large user of the company’s air cargo logistics services, according to Robertson. In many cases its air cargo delivery services for chemicals necessarily have to employ specialist containers and need “unique handling requirements”, because some of the materials it carries by air are subject to hazardous materials regulations.
Aviation, aerospace and marine
Another industry which most major logistics providers serve well, and which requires very stringent and time-critical logistics solutions, is the aviation and aerospace industry. This is hardly surprising considering that the logistics companies themselves make such widespread and extensive use of air cargo transport and in some cases are aircraft operators themselves. So they appreciate the financial and operational impacts of a large commercial aircraft experiencing an AOG event, perhaps occurring halfway round the world.
To serve the aerospace and aviation industries, whether the customer is an OEM, an airline or another type of operator, both DB Schenker and DHL Global Forwarding operate global networks of rapid-response ‘AOG desks’. These desks, situated in strategically or geographically important airport locations throughout the world, are staffed by aerospace industry specialists on a 24/7 basis and can typically guarantee delivery of a time-critical part anywhere in the world within a day – or even less. Robertson says the aerospace industry is a core customer of DHL Global Forwarding’s ‘Same Day’ air cargo service, which guarantees delivery on the same day as the service is ordered.
The ships operated by the marine industry are also subject to AOG-type events, and logistics companies are sometimes asked to transport components and replacement parts to allow idled ships to resume their journeys. As a subsidiary of one of the world’s largest shipping groups, CEVA Logistics has plenty of experience providing logistics solutions to the marine industry (it also serves the aerospace industry, Rolls-Royce being an important customer).
Meanwhile, although Kumar says the marine industry has mainly contracted DB Schenker’s logistics services on an ad hoc basis to date, he says the company is looking at how it might apply and adapt its time-critical aircraft AOG expertise for marine-industry needs.