Global Trade • January February 2023 • COLLABORATION IS KEY

It is a particularly challenging time for international logistics due to the current instability in the air shipping field. Getting cargo to destinations on time and on budget is exacerbated by: limited cargo flights, with unreliable shipping schedules extending beyond holiday seasons; limited charter flights impacted by geopolitical situations and the ongoing pandemic disruption; and backlogs at major airports and borders.

Given this industry turmoil, compounded by a labyrinth of geographic and regulatory requirements, the importance of logistics cannot be overstated: Seamless operations depend on the timely delivery of cargo. Yet in the logistics arena, inflation remains high, fueled by double-digit cost increases of 10% to 30% in international freight fees.

As economies recover from the pandemic, the air charter market is in disarray. Plagued by a limited number of cargo flights, rate fluctuations are more frequent, and not limited to holiday seasons, as in past years. However, shipping cargo of odd dimensions can make securing a booking on a regular cargo flight difficult. In these circumstances, the only option is often to charter an aircraft.

But aircraft chartering can be an expensive proposition. Data show jet fuel prices are not falling in sync with the crude price. Amnon Ehrlich, director of Sales for North America Aerospace, Government and Defense Programs at Antonov Airlines, recently advised, “Not to expect reductions in charter flight rates as pricing is dependent on charter availability and not only jet fuel price.”

And industry experts see no quick resolutions on the horizon. In an interview with The STAT Trade Times, Liana Coyne, chief operating officer of Coyne Airways, said, “It is easy to say that charter capacity will continue to be an issue over the next 5-10 years, as new freighter conversions come online and passenger flights resume.”

Across the charter and passenger airline industry, the consistent underperformance of operated flights is rampant. The International Air Transport Association (IATA) reports that approximately 29% of cargo flights are not flying as scheduled, so companies have no guarantees that even after paying high cargo fees, their equipment will be delivered on time. And after suffering heavy losses since the pandemic, airlines have no more capacity to absorb costs or add flights. In August 2022, Forbes reported that many of the major airlines had reduced their fall and winter schedules by eight to 16%, representing a decrease of 10,000 to 31,000 flights.

“Most of the air charter capacity is booked by e-commerce companies like Amazon, so it’s going to be challenging to deliver guaranteed capacity during what seems like a perpetual peak season,” said Phil Nowak, director of the Power and Energy sector at Ascent Global Logistics.

In this unstable flight era, the airline industry’s unreliability and longer lead-times are driving companies to experience an unprecedented increase in the use of charter flights, up to 20% year over year.

IMPROVING COST EFFICIENCY & RELIABILITY

Increasing charter use is propelling the industry from $48 billion in 2022 to projected growth exceeding $52 billion by 2029. The number of charter flights operated has increased in each of the past three years. In fact, freight forwarders are leasing aircrafts and operating busy lanes at premium costs, creating—at conservative estimates—more than 25% potential to co-load and/or avoid empty ferries.

Three examples illustrate how synergies produce better outcomes for an unidentified oilfield services this company, which is managing air charter spend by utilizing route optimization and cargo consolidation techniques.

EXAMPLE 1

Problems: Unavailability of charter aircraft due to year-end and vaccine disruption

The OFS company created opportunity out of chaos by scheduling a milk run to collect and deliver shipments from various places to multiple destinations. The route originated from Brussels with consolidated European shipments, stopping at St. John’s International Airport (YYT, Canada) and George Bush Intercontinental Houston Airport (IAH, USA) on the way to deliver critical items to Piarco International Airport (POS, Port of Spain Trinidad and Tobago).

In this example, the company avoided multiple charters, managing to deliver everything using a single charter. The result was a savings of $335,000, on-time delivery, plus greenhouse gas savings equivalent to 600 gallons of gasoline, or the carbon sequestered by 6.3 acres of U.S. forests in one year.

EXAMPLE 2

Lead time vs. cost: Longer LT for securing landing permits (Boeing 767,747)
Bigger charter flights are expensive (AN 124, Boeing 747)

To solve the problems created by the “Black Swan” event of March 2021, the company optimized the route: instead of chartering a flight all the way from Singapore to the Caribbean, the company managed the first leg on an airline flight and used a consolidated charter with cargo available in Europe for the second leg, achieving a lower total cost enhanced by GHG savings.

The benefits of cargo consolidation, including reduced costs and resource optimization, are well-known. Based on the successes that the OFS company achieved in its early efforts to leverage synergies, its project team is embarking on phase two, working with its other global shippers to form a consortium to consolidate cargo, optimize charter flight capacity, and reduce its carbon footprint, as described in the following examples.

EXAMPLE 3

CO-LOADING WITH OTHER SHIPPERS TO OPTIMIZE SPACE & FIND COST-EFFECTIVE SOLUTIONS

Original equipment manufacturer (OEM) in Calgary, 16 OD pieces / 23 metric tons (MT)

Instead of sending a charter half-empty, the OFS company collaborated with its suppliers to share the ride, enabling it to move 62 MT in aggregate instead of the 23 MT originally planned.

In the complex world of international logistics, external synergies are a pathway to better profitability.

Vinit Pednekar, an expert in global supply chain logistics, has 15 years of experience working for Schlumberger in the Middle East, Asia, eastern Canada, the Caribbean, and the United States. He is currently responsible for supply chain management for drilling operation, which includes managing sourcing and negotiation strategy for critical third-party suppliers, performance management for the company’s centralized hubs, and directing complex logistics mobilizations.