The economy’s impact on outsize cargo

To the Panalpina executives who were tasked with handling the logistics of the shipment, the best way to move the outsize steel structures was clear. The beams were loaded onto a Boeing 747 operated by AirBridgeCargo Airlines and shipped to Tokyo’s Narita Airport from Frankfurt Airport, after routing through Moscow.

Once the structures arrived in Japan, the crew onsite ensured that the steel was quickly cleared through Customs and trucked to southern Japan, where it was then ferried over to Okinawa Island. AirBridgeCargo Executive President Tatyana Arslanova admits that the move had all of the makings of a good movie — packed with action and full of thrills. It also had the requisite happy ending, she says.

“With this shipment, AirBridgeCargo demonstrated not only its expertise in the transportation and handling of outsize and heavy cargo, but also showed its ability to react promptly and professionally to such a short-notice request,” Arslanova says.

The ability to react quickly is a key reason why outsize cargo flights experienced double-digit growth in 2011, explains Dennis Gliznoutsa, group commercial director of charters for Volga-Dnepr Group, AirBridgeCargo’s parent company. Whether it was a broken oil rig that necessitated immediate repair or military equipment leaving Iraq, outsize cargo flights expedited the shipment of goods in a variety of sectors last year. And Gliznoutsa expects the number of these flights to grow steadily in the next two to three years, especially in Africa and the Middle East, despite the sour economy.

Outsize cargo demand will grow in the Middle East as major International Security Assistance Force members withdraw troops from Afghanistan. Not only will this exodus require extra flights for military personnel, Gliznoutsa maintains, but it will also demand additional charter flights for outsize equipment and heavy machinery.

The government isn’t the only player. “The increased demand [for outsize cargo] won’t only be coming from government structures, but from the commercial side as well,” he says.

Last year alone, the demand for outsize cargo from oil and gas companies grew 62 percent — a fact Gliznoutsa attributes to the development of projects in Africa, Australia and Kazakhstan, among other nations. With drilling in Latin America currently ramping up, he anticipates another boom for outsize cargo operations.

Weighing the costs

Justin Lancaster, cargo sales director at Air Charter Service, wants to get one thing straight: Airfreight is not the shipper’s first choice. Moving goods by sea is much more economical than air transportation, he says, and shippers initially look to oceanfreight as a means to transport goods, followed by a hybrid airfreight/seafreight approach. Flying outsize cargo on an Antonov An-124 or Ilyushin Il-76, for example — especially a charter operation — is not only costly, but is usually the most expensive option, Lancaster says. It all comes down to timing, however.

Suppose, for example, that an oil rig has stopped producing and is costing the manufacturer upward of $100,000 a day in this idle position, Lancaster posits. “Yes, they don’t want to charter and, yes, it’s expensive, but it’s cheaper than the alternative, which is sending it via seafreight and it taking two weeks to arrive,” he says.

Lancaster explains that a shipper is also more likely to charter if there are penalties attached to a missed deadline. Healthy economy or not, he says a company will choose to fly if they are late on a project or need goods shipped immediately due to a humanitarian crisis.

Not that they won’t do it begrudgingly, Lancaster says. “Look, companies don’t want to charter in the good times, and they certainly don’t want to charter in the bad times — but, sometimes, they have no choice,” he says. “And that’s certainly true in the outsize market, if not even more so.”

In the case of the oil and gas sector, however, he thinks the complaints are overblown. It’s a bit of a catch-22, Lancaster says. “Customers moan about the fuel prices that are currently going on,” he says. “But in the outsize cargo market, you’ll find that a lot of it is oil and gas equipment. So it’s a bit hard for them to moan too much when, ultimately, I suppose, they’re making more money out of those fuel prices.”

Plus, Lancaster says, the market has largely grown accustomed to the higher costs of flying outsize freight. “Although if somebody walked in three or four years ago, they would probably fall off their seat if they heard the prices people are paying right now,” he says.

Lufthansa Cargo Charter Managing Director Reto Hunziker concurs. “If a special tool, a spare part or an oil rig is needed somewhere in the world, then it has to fly, even though the economy is bad,” he says.

Some companies are even looking to capitalize on this need, Hunziker says, pointing to the influx of new carriers looking to fly heavy freight. Since outsize cargo routes are typically outside of the carrier’s traditional routings, he says new players are interested in serving this niche market. Although Hunziker admits that outsize airfreight has stiff competition from seafreight on long-haul routes from Asia to Europe, he doesn’t envision it affecting the former sector’s profitability.

Patricia Hwang, manager of cargo sales and marketing at Cathay Pacific Airways, begs to differ. Calling attention to the number of freight carriers that have reduced capacity in recent months, she says fleet minimization is a direct byproduct of global economic woes. Hwang admits that Cathay Pacific has also been a victim of this phenomenon, with the carrier postponing delivery of its final two Boeing 747-8Fs from 2012 to 2013. And such actions directly affect outsize cargo operations, she says, since the sector is highly dependent on freighter capacity.

“We’re all aware that many freight-only carriers are posting financial losses right now,” Hwang says. “Airlines are forced to park fuel-inefficient freighters or reduce their capacity, due to high fuel prices coupled with depressed economies.”

Fortunately, it’s not all gloom and doom, she says. Hwang reveals that Cathay’s Expert Lift offering, which caters directly to the outsize cargo sector, performed rather well in 2011. Operations lagged quite a bit at the beginning of 2012, she says, but Hwang is hopeful that they will pick up as business in the Asia-Pacific region stabilizes post-Chinese New Year.

She credits Expert Lift, in which Cathay Pacific personnel study each load’s specific handling requirements and make ensuing recommendations, with streamlining the shipment of heavy cargo. “With Expert Lift, we consult with the shipper about how they can best pack and prepare their shipment to [maximize] airfreight efficiency … and ensure a surprise-free and hassle-free experience,” Hwang says.

The screening factor

Complying with the different security regimens put in place by different governments can be a headache. After all, while the U.S. Transportation Security Administration and the U.S. Customs and Border Protection moves forward with their joint Air Cargo Advance Screening pilot program, the UK requires all unscreened cargo to be made known by an accredited consignor. Staying abreast of such disparate requirements can be difficult enough, but when you add the extra mass of outsize cargo into the mix, the screening process is even more cumbersome, Air Charter Service’s Lancaster says. This is especially true in the UK, he maintains.

“Without a doubt, screening is becoming a hassle,” Lancaster says. “We went through a period about a year or so ago where it was very hard for outsize cargo to become known in the UK. You used to be able to hand-search it, but that has become more difficult now.” Plus, he says, London Heathrow Airport recently shut down its decompression unit, which is where people often took their outsize cargo to make it known. Since this option is no longer viable, Lancaster says he encourages customers in the UK to become known shippers.

“The UK is tougher than most places, which I don’t have a problem with,” he says, “as long as a solution is put forward concerning how people can make [outsize cargo] known at a reasonable cost and as quickly as possible.”

Hunziker agrees that screening outsize cargo can be especially challenging, but maintains that this is just something companies have to accept. “It’s a part of today’s world, and it’s this way for everyone,” he says. Instead of bemoaning its existence, Hunziker says outsize freight carriers and shippers should “find the right partners or the right symmetries within the group” to simplify the screening process for customers. But, again, he says, screening regulations are something all members of the airfreight sector must observe — regardless of the size of the freight.

Lancaster concurs, remarking that such regulations aren’t likely to prevent heavy cargo from flying. Even with the escalating costs of air transportation, he says the outsize market is performing well and expects it to continue to remain profitable in the future.

“Look, the Antonovs are still busy flying; the Ilyushins are busy,” Lancaster says. “It might not be the six-week lead time it once was — it might only be two or three weeks — but the fleet is still flying, so things are still going on in the outsize cargo market.”