Tight capacity constraints out of China have forced Flexport to charter a Boeing freighter from Hong Kong to Los Angeles on Nov. 19, but it will also be the first step by the digital forwarder towards establishing a weekly charter schedule in 2018.
The Atlas Air Boeing 747-400 freighter will leave Hong Kong on Sunday, Nov. 19, carrying 126 tons of cargo in 375 pallets from China to the United States, an emergency shipment necessitated by the intense demand for air freight as the peak season picks up.
“The market is extremely tight out of Asia, and especially Hong Kong, so there was a need to bring in this freighter to protect our customers,” said Flexport global head of air freight and senior vice-president Neel Shah.
“Given the intensity of the market in 2017 we felt that getting space on airplanes in the peak season made a lot of sense. We never planned for this, it came out of necessity, and we will be doing a couple of peak season charters to alleviate the growing backlogs in Hong Kong.”
A robust recovery in air cargo demand this year is being largely driven by fast rising e-commerce demand coupled with new product launches. Apple’s latest iPhone was released in November as opposed to a typical September release, resulting in serious space constraints at major China hubs.
Waiting until room frees up is not an option for most companies, and a regular need for air cargo capacity to meet space requirements of a growing customer base will be reflected in Flexport’s business model during 2018 when the company will set up a weekly freighter schedule.
“We will be very involved in the air charter market in 2018 and are looking at several flights a week to the United States. A lot of our customers are growing, and we will invest in capacity to take care of that business,” Shah said.
Flexport recently closed on $110 million in funding, and Shah said this gave the company the financial liquidity that made it possible to commit to developing a charter schedule. Shah would not comment on the prices and neither would Atlas Air, but chartering a Boeing freighter is not a cheap undertaking. Charters across the Pacific will cost $750,000 to $1 million, depending on the length of the segment. Customers also pay that price for a one-way ticket with no access to any back-haul space, making it an expensive alternative to even regular air freight.
Regardless of the high cost of air cargo, it is a mode many shippers are regularly exposed to, usually as a result of something going wrong in their supply chains. Kuehne + Nagel head of sea freight Otto Schacht recently estimated in a LinkedIn interview that half of all air freight comprised emergency shipments.
Shippers relying on the spot air freight market to move their cargo out of Asia are being hit in the pocket. Data from Freightos Marketplace show over the past three months that Shanghai-New York air rates have shot up by 70 percent, while air freight prices from Shanghai to Frankfurt in the past two months have doubled. In September, the rate was $2.5 per kilogram, rising to $3.7 per kilogram in October and in November hit $5 per kilogram.
The backlogs building at Hong Kong International Airport are hardly surprising considering the volume of tonnage pouring through the South China hub. The airport’s largest independent cargo handler Hong Kong Air Cargo Terminals Limited, or Hactl, has been breaking records in November. In the first week of the month, exports reached a record 35,000 tons with the overall total reaching 47,000 tons.
Hactl chief executive Mark Whitehead said, “2016 was a year of records for Hactl, largely fuelled by the boom in [the fourth quarter] resulting from the collapse of Hanjin. We have had no such extraordinary event to boost volumes in 2017, yet our 100 client carriers are all performing strongly and helping us to set new records. Our work on developing e-commerce export traffic via Hong Kong is clearly playing a part in the overall picture.”
Hong Kong-based Cathay Pacific is also enjoying strong growth that continued through October and into the peak season, with robust demand for new information technology products and perishables, said Cathay Pacific director for commercial and cargo Ronald Lam.
“We deployed additional freighter capacity on trans-Pacific, India, and mainland China routes, while our load factor and yields continued to climb,” he said.