(Updated 1:43 p.m. ET)
Rapidly growing freight forwarder Flexport said Tuesday it has signed a multiyear contract for dedicated transport with Eastern Air, a new entrant that intends to deploy light-duty 777 freighters focused on e-commerce shipments with a quick-to-market, low-cost strategy to fill a persistent gap for available airlift.
Privately held Eastern Air Holdings has purchased 35 Boeing 777 passenger jets and is retrofitting them itself by removing the seats, bins and galleys — work that is usually outsourced to third-party specialists.
The company, headquartered in Wayne, Pennsylvania, went with a freighter-light model because it is focusing on low-density freight such as apparel, cosmetics, protective medical equipment and electronics often ordered from online platforms and manufactured in Asia. The 777 has plenty of volumetric space without going through a time-consuming, expensive overhaul that would slow time to market, officials say.
The deal calls for subsidiary Eastern Airlines to initially provide twice-weekly service between Hong Kong and Chicago O’Hare International Airport as well as between Ho Chi Minh City, Vietnam, and Chicago once the Federal Aviation Administration approves the design for retrofitting the used passenger aircraft to carry cargo on the main deck.
The first 777-200 Extended Range aircraft has almost completed the conversion process and Eastern is in the final stages of validation and test flying. FAA certification is expected soon after, according to Eastern Air Cargo.
Flexport has a stable of global brands and e-commerce retail customers eager for more options to move freight amid a shortage in international air cargo capacity attributed to reduced passenger flying and ocean shipping bottlenecks that are chasing more shipments to air. The San Francisco-based forwarder has been on a crusade since the pandemic to secure direct capacity by engaging in short-term rentals and long-term charter agreements for entire aircraft it can control rather than fighting for shared space with airlines that dictate the schedule and performance. Last year it relied on main-deck freighters for 85% to 90% of its capacity.
Insider Intelligence and eMarketer estimate U.S. e-commerce sales will grow 16% in 2022, topping $1 trillion for the first time and two years ahead of earlier forecasts. Worldwide online sales are projected to hit $6 trillion in 2024.
Flexport said Eastern Air is delivering a timely, creative solution to address the global airfreight capacity crisis.
“This is not a passenger freighter. This is not some stripped-down version to dump boxes on the cabin floor. This has all of the dangerous-good carrying capabilities of a Class E freighter. It just doesn’t have a big main deck,” Neel Jones Shah, executive vice president and global head of airfreight at Flexport, told FreightWaves. “Yeah, you can’t carry super-heavy cargo on the main deck, but we’re getting these aircraft to market very, very fast. Right now this world needs incremental capacity to solve the supply chain crisis. And these innovations allow us to start to make a dent in that.
“One of the things that really drew us to Eastern is that it actually is a freighter just like any other freighter out there. So we have a lot of flexibility in the types of cargo, we just can’t put 100 tons on the airplane. But it’s OK because out of the markets were flying in there’s lots of volumetric cargo. If you want to fly gold bricks around this might not be the airplane for you. For 99% of the other cargo we think this is going to work pretty well.”
In a joint interview, Eastern CEO Stephen Harfst said the plane is designed around e-commerce flows.
“We’re not selling weight. Our aircraft provides volume. If you have e-commerce driven goods that are 5 to 7 pounds per cubic foot, the aircraft has structural payload to fill that volume up so why spend all the time, effort and money to redesign and rebuild the airplane,” he said.
Client demand for airfreight has roughly doubled while global capacity has remained about 10% below pre-pandemic levels. Flexport, which is in very high growth mode, likely will double its volumes again in 2022, Jones Shah said.
Jones Shah said the Eastern planes can likely do another rotation per week, but the companies are being cautious at the start to ensure reliability while starting ultra long-haul operations. Over time, Flexport will expand the service beyond Chicago, he added.
In late January, Flexport said it will add a third Boeing 747-400 to its in-house airline operated by Atlas Air (NASDAQ: AAWW) starting in September. Atlas currently operates flights six to seven times a week for Flexport from Asia to Los Angeles and Miami. The long-term charter arrangement increases cargo capacity by 50% and allows for increased schedule flexibility as new origins and destinations are added this year. Flexport said it plans to add Chicago O’Hare as a destination for its Atlas network this year.
The logistics provider has also increased its use of block space agreements with other carriers to protect customers and keep their goods flowing.
Last week, Flexport signed a nonbinding letter of intent to purchase up to three robot cargo jets designed to carry a 100-ton payload, a move that fits a company built on a culture of innovation that combines logistics execution with a tech-enabled platform executives envision as the operating system for global trade that can improve the customer experience.
Funding support for new technology and expansion of the private air network comes in part from investors that like Flexport’s growth trajectory and are ready to close a $935 million funding round that values the company at $8 billion.
Flexport manages air shipments through its cloud-based booking and collaboration platform while using its airport transfer stations and trucking network to provide customers end-to-end control of their shipments and continuous visibility for each step along the journey. Cargo owners can use Flexport’s system to determine high-value items that should be prioritized for speedier airfreight to control costs. The company recommends shippers split off the 10 to 15 highest-selling stock-keeping units to air and send the rest by vessel. But doing that requires a system like Flexport’s that can go upstream into the order management system at the factory and help make those determinations.
Eastern Air innovation
Eastern Air acquired the aircraft – 12 B777-200s; 15 777-200 Extended Range; six 777-300s; and two 777-300ER – aircraft from an undisclosed seller in Asia. Twenty-six of the aircraft are in the U.S. and the remaining nine will be delivered in the next month, Harfst said.
Eastern Air’s all-cargo business model goes against the grain on several fronts. For starters, it is a scheduled passenger airline that began flying U.S.-South America routes under new ownership in 2020 after a troubled transition from its predecessor’s heyday 50 years ago. It also owns an aviation engineering firm, Foxtrot Aero, that designed the passenger-to-freight modification and a repair station in Kansas City, Missouri, that will do the assembly work.
The company is not making any structural changes to the aircraft, such as increasing the weight-bearing strength of the main deck, cutting in a wide cargo door or adding wing boxes. After stripping the interior it is installing the cockpit rigid barrier, a smoke barrier and liners on the walls and ceilings to make it a Class E cargo compartment with the ability to operate without limitation beyond expiring emergency aviation exemptions for cargo in the cabin.
The lack of structural reinforcement reduces the operating weight of the aircraft and gives Eastern Air Cargo additional payload capability.
Many cargo-only aircraft at passenger airlines have gone back to regular service as travel business rebounds. Passenger airlines introduced the novel concept of repurposing idle aircraft grounded by pandemic travel restrictions for dedicated cargo service. Some implemented measures to put cargo in seats and overhead bins or, in some cases, temporarily remove the seats to enable maximum use of the cabin space for stacks of lightweight boxes with personal protective equipment and other goods. Air Canada, for example, will gradually reinstall seats in 11 widebody aircraft temporarily used as cabin freighters as passenger service is restored in the coming months.
Some airports and ground handlers coping with labor shortages have declined to service mini-freighters that store cargo in the cabin because of the large amount of extra personnel required to handload through the narrow door, compared to mechanized loading of large containers on a pure freighter.
Skeptics say the economics of passenger freighters, or preighters, don’t pencil out well with high fuel prices because they already need a high yield of $10 to $11 per kilo to break even since the planes lack the utilization level of a pure freighter. Oil is now over $100 per barrel.
Harfst said the Eastern Air Class E certified freighters can carry three times as much upper-deck cargo than a temporary passenger-freighter because every passenger feature will be removed.
Class E freighters have smoke and fire detection. Class F freighters include fire suppression.
“This is a different animal. It’s stripped down on the main deck, it has pallet positions locked in place with nets and gear already on the airplane. So our ability to build cargo for this aircraft is significantly different from the traditional passenger-freighter model,” Flexport’s Jones Shah said in the interview. “We anticipate getting 75 tons of chargeable weight on each of these aircraft. If you have fluffier cargo, you can take advantage of the cubic footprint. We’re bullish on the plane.”
The first tranche of aircraft will be bulk loaded into 21 pallets affixed to the passenger floor. A second version under development would replace the pallets with a standard cargo floor on the main deck. Also under consideration is the use of modular containers that can fit through the passenger door and be easily moved on the cargo floor, Eastern’s Harfst explained.
And the manpower issue is expected to be very manageable, he explained. The Eastern planes will require an eight-to-10 person crew to load compared to a pure freighter with a three-person team using upper-and-lower deck mechanized loaders, but Flexport has figured out an efficient process for Hong Kong and Ho Chi Minh City and is in discussions for a ground handler that can meets its requirements in Chicago.
“We would attack the aircraft through four doors and we believe we can get a reasonable turnaround time with that strategy,” the Flexport airfreight chief said.
The logistics provider doesn’t plan to load the upper deck in Chicago with export cargo to Hong Kong – only the belly – because it wants a quicker turnaround in the Chinese city to avoid strict COVID restrictions for pilots that cycle off duty and would curtail operations. Eastern Air Cargo jets will stay on the ground in Ho Chi Minh City for 14 hours so the crew can rest and Flexport will try to fill the planes as much as possible with U.S. consumer products, which are in high demand in Vietnam, Jones Shah said.
Controlling the conversion process allows Eastern Air Cargo to quickly get planes into service because there isn’t a long backlog for production slots and changeovers can be completed in two weeks compared to four months for a full 777 conversion.
Another company making a permanent commitment to the passenger freighter is AELF FlightService, a leasing and charter company that plans to change out 10 Airbus A330-200 aircraft for floor-loading cargo.
(Correction: An earlier version of this story incorrectly stated that Flexport would offer twice daily service. It is flying sectors twice weekly.)