Flying the big loads

More shippers consider air transport for oversize cargoes in logistics equation.

By Jon Ross

   As with most aspects of transportation, project cargo, or the shipment of oversize goods on large, hulking aircraft, generally comes down to fuel.
   The oil and gas industry is currently a major driver of the oversize cargo industry.
   Large pipeline components, valves and other unwieldy equipment can seem better suited for transportation on vessels. But when oil production becomes stalled and companies are
   losing hundreds of thousands of dollars an hour, the extra speed of air cargo can outweigh the cost of this expedited transport.
   Richard Zablocki, CEVA’s vice president of air products, sees an abundance of oil and gas parts radiating from Houston to the Middle East, West Africa and even Singapore as a connector for the rest of Asia.
   “The business normally wants to move by ocean. In terms of all cargo movements, ocean is king,” he said. “But when you have a rig down, and when oil is running at $130-plus a barrel, the cost of air freight is no longer the significant issue.”
   However, the current price of crude is much lower than the highs it reached in previous years. According to the Energy Information Administration, on July 1, West Texas Intermediate crude oil sat at a spot price of $97.94 per barrel, with Brent crude out in Europe commanding a per-barrel price of $103.19. Prices had risen to $103.46 and $107.90, respectively, by July 9, but these still paled in comparison to the recent past. This lower cost of crude has dampened some demand for oversize air cargo moves.
   Exploration, and with it, oversize air cargo activity, follows prices, Zablocki said. Oil exploration was at its most recent peak in 2011, and a variety of factors have led to a cooling off in the industry since then. While that doesn’t mean shippers aren’t pursuing large freight moves, heavyweight ocean cargo transport has picked up, leaving an increased supply of capacity in the air cargo heavyweight industry.
   “We’ve just gone through a period earlier this year where prices were fairly stable and not particularly attractive as far as the energy guys were concerned,” Zablocki said. “When it’s down at about $85 a barrel, that’s nothing exciting. They can wait, and they’ll run ocean. But when it goes up… they start to get itchy.”
   In addition to slower oil and gas industry, capacity has also kept oversize air cargo prices stable, but Zablocki sees a cloud on the horizon that could push prices up and may have a significant impact on the movement of cargo by air. A large portion of heavyweight cargo flies on Boeing 747 freighters, and he said one large area of freighter concentration is the Asian carriers. A few carriers in the region have already removed capacity from the market, and continued changes might impact the availability for future large cargo moves, he explained.
   “If the second half of this year really does poorly, there’s concern about whether or not some of those carriers will start to make big reductions in capacity,” he said. “But I’m somewhat of an optimist. I think these carriers will continue to operate as much as they can. They’re in markets where they’re getting a reasonable return on their investment.”
  
Keeping Oil Flowing. The largest air cargo moves — this is where those large oil rigs come into play — are put into the air on cavernous freighters made by the Antonov company. These planes exist solely to transport massive cargoes, and so the airlines that fly them can charge a premium for their use. Industries using these large planes run the gamut from aerospace to anything requiring the use of large equipment, but oil and gas work is the classic example of an oversize air cargo industry.
   Volga-Dnepr is one of the main carriers operating Antonovs and the carrier’s Fayçal Boumerkhoufa has a lot of experience moving large projects to remote areas of the world. These moves are not always energy-related, but an emerging industry is directly tied to the oil and gas work that has traditionally driven heavyweight activity.
   Liquid natural gas projects are increasingly coming across Boumerkhoufa’s desk, and he sees them as a big growth prospect moving forward. He said these moves will likely require significant advance planning and be routed on a project basis, so shippers won’t come to Volga-Dnepr asking for ad hoc flights only in an emergency. For the last three years, for example, the carrier has worked on a project for Exxon Mobil in the highlands of Papua, New Guinea, flying components into the area for a liquid natural gas facility.
   To stress the carrier is much more than an Antonov fleet, Boumerkhoufa recounted how they had to go to the region and analyze the environment, figure out where to build a sufficient airfield and walk Exxon Mobil officials through that end of the project. When it came time to begin manufacturing the LNG parts, Volga and Exxon officials consulted with each other as to what specifications would make for easier loadings and unloadings on an Antonov 124 plane.
   Boumerkhoufa said many shippers don’t know how in-depth Volga-Dnepr officials are able to get into a project.
   “Although a lot of shippers are familiar with the name Antonov and the big aircraft, they’re not very familiar with the scope of service that we offer and that we are experienced in, and I’m talking specifically about project work,” he said. “It is not only the flying. There is an engineering and logistics planning department behind it.”
   Still, he said, most of Volga-Dnepr’s heavyweight flights are chartered on an emergency, ad hoc basis. This business generally comes from frequent shippers, but they may only have to move a specific part a few times a year. On the contractual side, a big aspect of the airline’s project business — that’s currently winding down — comes from the military. However, Boumerkhoufa said the reduction military traffic hasn’t created more capacity in the Antonov market because commercial moves have increasingly moved to the front of the line.
   “When the military market started to pick up and take over the majority of the flights, it created a shortage for the commercial market,” he said. “In that sense, it balances it out.”
   Right now, he characterizes Volga-Dnepr’s Antonov fleet as busy, but noted the summer is a traditionally low-volume time for the carrier. So far this year, there have been fewer flights than in 2012 and 2011, but Boumerkhoufa said those were “stellar” years.
   “Today we’re flying a fair share of the market because a big part of the oversize cargo moves on Antonovs as emergency service,” he said. “That will never disappear.”
   Justin Lancaster, cargo sales manager at Air Charter Service, has seen a solid first half of 2013 for oversize cargo, but said it is hard to predict how the market will hold up for the rest of the year. He has sent out quotes for moves to his customers for later in the year, but even if it is known what projects are likely to require air moves, it’s impossible to figure out if they will actually fly or be loaded onto vessels.
  
More Shipper Interest. One change in the industry that might drive more heavy air freight activity is the amount of hypothetical quotes Lancaster might give out to customers. If a company is planning a large facility a few years down the road, it may want to know how much an air charter would cost should the need arise. This is a relatively new, but important, trend, he noted.
   “They are now factoring the cost of charters at the initial stages of a project,” he said. “A few customers say, ‘this is two years off, but what would we be looking at if we had to charter an Antonov.’”
   These shippers are sometimes surprised to learn that chartering an aircraft can sometimes cost less than chartering a vessel, which seems a bit counterintuitive. However, recent increased competition from ocean carriers for oversize moves may actually be driving the cost of heavyweight transport down even further.
   Lancaster noted pricing for Boeing 747 charters has remained stable over the past few years due to some oversupply, so for smaller oversize moves, shippers might do better with air freight. The pricing for Antonovs, though, has gone up “four-fold” because of the relatively tighter capacity for these planes.
   “They charge a premium for the Antonov because they know they’re in that niche market, and there’s not a lot of competition,” he said.
   Lancaster added he doesn’t believe the lack of military work will have much effect on prices because of increasing commercial work. Airlines might have to price a little more aggressively for the smaller planes to attract customers, but he thinks pricing will remain somewhat stable in the short term.
   One factor working against shippers is the relative age of freighters, especially the Antonovs. There was a push a few years ago to manufacture more of these heavy-lift planes, but the urgency has since died away when the market softened. Now, shippers are facing the reality of planes coming out of service with, perhaps, no new aircraft to replace them. “Some aircraft are probably going to retire, so supply is slowly going to drop,” Lancaster said.
   Even when shippers are itching to fly oversize cargo, the sheer expense of chartering these planes can dissuade them at the last minute. CEVA’s Zablocki recently fielded two air cargo emergencies, one of which went off without a hitch. With the other order, his team went through all the numbers and made the bookings work for the customer, only to have the shipper reconsider a cheaper option.
   “That’s just part of the game,” he said. “You’ve got to be on the spot, providing information and giving these guys the options.”