Market Overview

'Ghost' Freighters Boost Shippers

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'Ghost' Freighters Boost Shippers

Ghost freighters, passenger planes flying around the world with no paying customers on board, do not frighten logistics companies. That's because the planes aren't empty. They're packed with valuable cargo that producers, retailers, and their transportation intermediaries need to move fast.

Freight forwarders and consolidators were in a jam three months ago when the coronavirus pandemic forced passenger carriers to ground fleets, but the launch of cargo-only flights has proved a valuable — if limited — relief valve, industry professionals say.

"It's helped the forwarders immensely, but it's like throwing a bucket of water on a house fire. It's not having an impact on relative demand," said Brian Bourke, chief growth officer at Chicago-based SEKO Logistics.

Airlines shut most of their passenger networks after the coronavirus pandemic destroyed travel demand. The grounded planes represent more than half of the global capacity for moving goods by air, according to Boeing. Travelers believe the space underneath their feet is exclusively for storing suitcases, but it also gets sold to businesses shipping loose packages and large pallets of goods, depending on the size of the aircraft. Without enough pure freighters in the market to take up the slack, logistics companies faced severe capacity shortages and price spikes for moving emergency shipments of COVID-related medical supplies, food, e-commerce orders, and intermediate goods needed to keep manufacturing plants going.

Even though global airfreight volumes fell about 30% through April and early May because widespread quarantines extinguished economic activity, the supply of cargo space dropped even more. Airfreight rates, which vary by trade corridor, jumped three to six times above those typically seen during peak shipping seasons. Passenger airlines, sensing an opportunity to utilize idle assets they'd already paid for at a time of ultra-low fuel prices, began marketing aircraft as auxiliary freighters — or "preighters." Many are stuffing cargo into the passenger cabin, too.

Richard Fisher, executive vice president of BTX Global Logistics in Boston, said cargo-only services tend to favor the large, global forwarders, which are able to generate higher freight volumes to secure either partial or full charters of cargo aircraft.

Flexport, a fast-growing logistics startup that automates many traditional freight functions, has contracted with several passenger airlines for dozens of ghost charters on multiple routes, in addition to about two dozen full freighters operated by all-cargo carriers, according to Neel Jones Shah, the company's executive vice president and global head of airfreight.

"These passenger charters do not in any way make up for the loss of passenger flying. Not even close. But they are a shot in the arm. And they have added capacity in some very significant trade lanes," Jones Shah said in a phone interview.

One of the key benefits is that "they have given us sort of a regular cadence of flights," he added. Having smaller consignments several times a week is often easier to manage than a single 100-ton flight in a pure freighter, especially when there are backlogs at airports because of customs bureaucracy or overcrowding, as was the case in Shanghai recently. "I'm glad the airlines stepped out of their comfort zone" to offer cargo-only flights, said the former head of Delta Air Lines' cargo division.

Win-Win

The transformation into full-time cargo operators has been financially beneficial for airlines, too. More than 150 airlines worldwide are operating in excess of 1,300 passenger planes in cargo mode, according to data compiled by Cargo Facts.

Aside from the extra revenue during the coronavirus dry spell, there are considerable costs associated with parking aircraft, including maintenance and electrical checks, storage fees, and keeping pilots current on certifications by paying for simulator training, said Michael White, president of Cargo Network Services, the U.S. subsidiary of the International Air Transport Association.

Aeromexico, on Monday, said it operated 83 profitable, long-haul cargo charter flights in May, representing two-thirds of its deployed capacity. Avianca Airlines, which is seeking bankruptcy protection, said it performed 396 cargo flights with Boeing 787-8 passenger planes through the end of May.

Meanwhile, Delta Air Lines (NYSE: DAL) in June slightly decreased cargo-only flights from Seoul, South Korea, to the U.S. The airline continues to operate daily to Detroit but now flies four times per week to Los Angeles and three times to Atlanta. During the previous two weeks, Delta operated daily cargo flights to Los Angeles and Atlanta. The Atlanta and Los Angeles flights are operated using Boeing 777-200 Extended Range aircraft, while the Detroit service utilizes an Airbus A350-900. Both aircraft can carry up to 42 tons of cargo in the lower hold.

How long airlines will continue to operate quasi-freighters remains an open question. With the pandemic waning in some areas and governments loosening travel restrictions, passenger airlines are beginning to schedule more people flights in the second half of June and beyond. The resulting increase in freight capacity is welcomed by forwarders, but there still may not be enough flights, or frequency, on certain lanes to satisfy demand. Conversely, airlines are beginning to see signs of margin erosion, which could worsen as the price of jet fuel rebounds. 

Since passenger planes can't be filled with cargo to the same degree as a pure freighter, fuel prices and cargo rates are determining factors for airlines in deciding whether to operate. "Preighters" are also more difficult to load and unload because of their limited space and narrow cabin doors.

Jones Shah predicted passenger-cargo operations will be economically viable for airlines, at least through June. "I think in Europe, they'll continue doing them even longer because it's a much shorter stage length from Asia and you have a good flow going both ways," he said. 

Rates are already softening as the level of COVID infection and hospitalization rates subside, and organizations build up inventories to the point they can shift some orders to the slower ocean mode. Rates fell about 20% since the start of June to about $5.62 per kilogram on the trans-Pacific route while the price from China to Europe is down a similar amount to $5.75 per kilogram — about the level normally seen at the highs of the fourth-quarter peak season, according to The Air Cargo Index.

And analysts say the market for temporary freighters could be extended if there are further COVID waves, U.S. protests or U.S.-China tensions that limit travel.

(Chris Gillis contributed to this story.)

(Click to read more FreightWaves stories by Eric Kulisch)

Photo by Anna Shvets from Pexels.

 

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