Forwarders find capacity gains with global grounding of 737 MAX

( Photo: Boeing )

(Photo: Boeing)

Scott Case grew up in and around the air cargo business – literally. His father opened a customs brokerage and freight forwarding firm in 1977 and as a boy Scott would accompany him to Chicago’s O'Hare International Airport late on Saturday nights to clear automobiles arriving from Japan on Flying Tigers’ Flight 0078. He would drink hot chocolate, watch weights and balances calculated on desk calendar-sized tablets and stand inside empty 747s that seemed as big as Soldier Field.

Fast forward to today. Case has been a practicing customs broker and freight forwarder for more than 20 years, while concurrently spending seven years on the national and global stage as the National Customs Brokers & Forwarders Association of America, Inc.’s air freight committee chair. He founded Position: Global, a marketing and branding company focused on the unique needs, vocabulary and issues facing logistics companies. Case remains a licensed customs broker and serves as the elected President of the International Air Cargo Association of Chicago.

As first one country and then another grounded Boeing’s troubled 737 MAX, airlines scrambled to allocate aircraft across a number of lanes that the narrow body workhorse was serving. In some cases, the replacement aircraft brought into service were either larger single-aisle or even larger wide-body aircraft, giving forwarders access to capacity that both relieved backlogs and increased supply. For shippers looking to move cargo on lanes with limited bulk-loading capacity, this has opened up opportunities to get more goods to market.

Two such lanes benefiting from this aircraft change are those between Hawai’i and the West Coast of Canada and the North American East Coast and some western European destinations.

Based in Hawai’i and Los Angeles, Commodity Forwarders is a Kuehne + Nagel company that specializes in perishables. It operates 14 offices; five are in cities across the Hawaiian Islands, where it opened its first office in 1981.

photo courtesy of boeing

photo courtesy of boeing

Ryan Owens, Business Development Manager for the company, shares what the grounding of the 737 MAX has meant so far to the Aloha State. “Airlines are continuing to shift to narrow-body aircraft from wide-body aircraft due to passenger demand and fuel efficiency for domestic travel within North America. While passengers are happy with these changes, freight forwarders in the business of moving large volumes of cargo, particularly in ULDs [unit load devices], are challenged by this downsizing.” (A unit load device is a pallet or container used to load luggage, freight and mail on wide-body aircraft and specific narrow-body aircraft. It allows a large quantity of cargo to be bundled into a single unit.)

Owens cited Air Canada’s restoration of wide-bodies as a near-term boon. “Air Canada put 737-800’s and 737 MAX aircraft in markets that have utilized wide-bodies for decades. This caused an extremely large disruption on the Vancouver-Honolulu-Vancouver routes, causing the perishables industry in particular to change to inefficient connection routing and limited space options.”

Since the Canadian government grounded its MAX aircraft, Air Canada has substituted 787s, offering Hawaiian exporters shipping to Canada and then into the United States by truck a significant boost.

Tim Strauss, Vice President, Air Canada Cargo, acknowledges what is happening in Hawai’i as well as going eastward to Europe.

“We’ve seen additional [cargo] capacity to Hawai’i and to and from our eastern seaboard to nearby European destinations like Dublin. System-wide, we’re deploying 787s, 777s and 767s on routes previously served by the MAX. We’ll also see some increases in North America as we change the gauge on some lanes where we weren’t operating a B737. But as we’ve quickly contracted short-term lift [increase in capacity] in the market we’ve seen some re-alignment of routes.”

Strauss predicts it will represent a short-term impact of between 1 to 1.5 percent in lift capacity.

photo courtesy of boeing

photo courtesy of boeing

Regardless of the changes in equipment, the service performance by airlines that needed to replace the MAX recently peaked in the eyes of one forwarder. Hassett Express is a major customer of many U.S. domestic airlines. Don Prentice, Vice President of Network Services for Hassett Express, said that airlines worked furiously to realign and cover flights in the first week after 737 MAX aircraft were grounded. “Last week was the best performing week year-to-date in the network of carriers we monitor and use,” Prentice said.

Prentice explained that only 1 percent of the domestic fleets of Delta, American, United, Southwest and Alaska are MAX aircraft. “The change in aircraft has more impact on the traveling public, but when we’re identifying flights to book cargo at Hassett, we’re focused first on flights that are operational.”

No one is happy when a type of aircraft is grounded. Boeing is particularly impacted of course; it went through a similar issue six years ago when the FAA grounded the Boeing 787 for three months because of battery problems. While forwarders are enjoying extra lift because of the space in the bellies, airline executives are bemoaning the unfilled seats upstairs.

Let’s face it; airlines that closely monitor route profitability are having to alter their load formulas. Reuters reports that at United Airlines, President Scott Kirby sent a letter to employees on April 8th stating that having to make a move to larger aircraft such as the 777 and 787 is costing the company money in the short-term because of unfilled seats. Several of United’s transcontinental flights, such as those between the airline coastal hubs of Los Angeles and San Francisco, have seen the upsized aircraft deployed.

photo courtesy of boeing

photo courtesy of boeing

With American Airlines announcing that its 737 MAX aircraft will remain grounded until at least June 5th and the FAA moving deliberately and methodically on the proposed software update, including working jointly with NASA to review the MAX, the aircraft’s return to the skies in the near-term remains in doubt.

Airlines don’t have spare aircraft inventory for emergencies such as this, so they are having to make changes and accommodations throughout their systems. For shippers that rely on air cargo as a means to get their goods to market, they are leveraging the short-term and temporary gains to their benefit.