Like most freight agents and logistics managers, Crane Worldwide Logistics doesn’t want to own aircraft, vessels or warehouses. The non-asset-based model promotes flexibility and higher margins. But the calculus changes when there isn’t enough transportation space to efficiently move customers’ goods.
International passenger flying is still half of what it was two years ago, before the pandemic, and all-cargo aircraft are mostly booked on major trade lanes. Waiting to reserve space close to the desired departure date is a recipe for delay.
To lock up dedicated cargo capacity, and bypass congested U.S. gateways, Crane Worldwide recently launched a major air charter program, buying 82 entire flights from Baku, Azerbaijan-based Silk Way West Airlines and routing them to less-crowded Cincinnati/Northern Kentucky International Airport (CVG).
Crane is basically acting as a quasi airline, managing every aspect of air transport from sales to door delivery except flying the aircraft. Renting full plane loads for long periods is trending in air cargo because cross-border trade is strong, ocean freight is spilling over to avoid port delays and airlift capacity is still 10% below 2019 levels.
Prior to the pandemic, the third-party logistics provider limited itself to prepurchasing blocks of space with airlines on popular shipping lanes “and that’s really impossible today,” said Chad Taylor, Crane’s executive vice president of global operations, in an interview.
“There’s just not enough capacity out there. If you don’t do some sort of program with these freighters, then you just have to get out of the airfreight market, especially from Asia. It’s just too difficult to get reliable service” with passenger or scheduled cargo airlines.
With freight forwarders waiting up to a week to recover shipments at Chicago O’Hare International Airport because short-staffed cargo terminals are flooded by all-cargo aircraft, and excessively high trucking rates, Crane opted for a centrally located secondary airport where cargo would get priority attention at a better cost.
The third-party logistics provider hired Silk Way to operate the cargo flights utilizing Boeing 747-400 or 747-8 freighters from Bangkok to CVG and on to Luxembourg through the remainder of the year. Planes are landing once a week at CVG until May, when Crane will start a weekly service from Hong Kong to Cincinnati/Northern Kentucky via Luxembourg. Both planes return to Luxembourg and then feed back into Silk Way’s network in Baku.
Bangkok is a major export center for automotive and high-tech goods. Taylor said Crane Worldwide also trucks freight from Saigon, Malaysia and Singapore to the Thai capital to fill up the 747s.
Leasing an entire aircraft and crew for short periods can cost $1 million or more per flight these days, depending on the aircraft, city pairs and frequency – even more for ad hoc charters, logistics sources say. But retailers, manufacturers and food suppliers are increasingly willing to pay the freight rate — it’s cheaper than losing customers because items are out of stock or a production line has to shut for lack of a part.
CVG’s cargo appeal
CVG has rapidly expanded its cargo footprint as Amazon Air (NASDAQ: AMZN) and DHL Express have turned their facilities into superhubs. Last year, cargo tonnage grew 18% over 2020 to 1.7 million tons and has more than doubled during the past five years. The air express component grew 7%, but heavy freight soared 263%, according to the airport authority. With four runways, short distances to terminal ramps and a huge portion of the U.S. population within a one- to two-day truck drive, CVG is an attractive location for air cargo operations.
Silk Way West operates scheduled flights to Chicago O’Hare three times per week for multiple customers and a year ago began serving cargo-focused Rickenbacker International Airport in Columbus, Ohio, on behalf of another logistics client. Soon after the Russian invasion of Ukraine in late February, the airline repossessed two 747-400s leased to Sky Gates Airlines, according to aviation news site ch-aviation, bringing its fleet to 14 jumbo jets. Last April, it placed an order with Boeing (NYSE: BA) for five 777-200 freighters.
Crane Worldwide, founded in 2008 by Houston Astros owner Jim Crane and former colleagues at Eagle Global Logistics, is also finalizing a deal to rent the use of a large freighter that will operate from Shanghai to CVG, Taylor told FreightWaves.
CVG is also a good fit because Crane has a 1 million-square-foot distribution center about two miles from the airport and is building another 600,000-square-foot facility close by, he explained.
The facility is a certified container freight station where import and export shipments are consolidated and de-consolidated. Crane uses Trego Dugan Aviation, a small aviation services company that already has a presence at the airport, to unload containers from the cargo jet and put them on dollies. Delta Cargo (NYSE: DAL) partner Unifi brings shipments to the terminal and pushes them straight through to Crane trucks for delivery to the warehouse or the final customer destination.
Meanwhile, Crane Worldwide also manages ground handling for Silk Way on the 82 outbound flights, which carry cargo for Silk Way’s direct customers, including Crane.
The danger with using alternative gateways for an all-cargo operator like Silk Way West, Taylor said, is that sometimes they can cannibalize the primary market.
“Columbus or Atlanta freight might go to catch a Silk Way flight out of Chicago and if we’re pushing that towards Cincinnati, they have to really watch they’re not stealing freight from their normal Chicago flights. So it’s pretty tricky on how you balance that.
“At the same time we can take a lot of freight off other airlines because of the close proximity to New York and fly it out of Cincinnati,” said Taylor.
Crane is likely to extend the Silk Way West contract well beyond 2022, he predicted, given the supply-demand dynamics in the air cargo market. In fact, the need for a large inventory of dedicated freighters could last until mid-decade.
“We’re looking at two to three years where we’re going to have to have some sort of control ourselves. We have to have more regular flights either between the U.S. and Latin America, U.S.-Europe-Latin America or Asia-Europe-U.S. We just won’t be able to grow and meet our clients’ challenges,” said Taylor.