EXTRANS GLOBAL - Air Freight News - Week 41 2024

1)  The peak of the air cargo season is expected to be high this year

• As of last September, global air cargo demand increased by 9% compared to the same period last year. However, the growth rate has somewhat slowed after more than ten months of double-digit increases.
• According to Eneta's analysis, the air cargo market is expected to remain strong for the time being due to the ongoing port strikes in North America.
• Despite the increase in air cargo demand, supply capacity has only expanded by 3%, marking the lowest growth rate of supply capacity this year. This is because the expansion of supply capacity has already reached its limits. As a result, the average cargo load factor for air freight is reported at 60%.
• The average global air freight rate has also risen to $271/kg, a 26% increase compared to the same period last year.
• Recent driving forces behind the air cargo market include the increase in e-commerce demand, a shift from maritime transport to air freight, typhoons, and China’s Golden Week (October 1-7). Furthermore, if the port situation in North America continues for an extended period, it is likely to create significant upward momentum in line with the air cargo peak season.
• Moreover, there are considerable limitations to expanding supply at present. Eneta predicts that due to reduced passenger belly capacity on transatlantic routes, supply capacity will decrease by about 20% during this winter schedule.
• Overall, it is expected that the peak of the air cargo season this year will be quite high.

2)  Korean Air and Asiana Merger in Sight - The Launch of a Mega Carrier is Imminent

• The merger between Korean Air and Asiana Airlines is now in sight. The final approval from the European Union (EU) and U.S. competition authorities, which is the last piece of the puzzle for the merger, is expected to be announced this month. The launch of a "mega carrier," one of the top 10 airlines in the world, is imminent.
• According to the aviation industry on the 5th, the U.S. Department of Justice (DOJ) is expected to make a decision regarding the merger between Korean Air and Asiana Airlines this month. Unlike other competitive countries, in the U.S., if the DOJ does not file a separate lawsuit against the merger, the review automatically concludes and the merger is approved.
• The industry expects that, barring any surprises, U.S. approval will be granted. Hanjin Group Chairman Cho Won-tae stated in a June interview with foreign media that he expects to receive approval for the Asiana merger from the U.S. by the end of October.
• The final approval from the European Commission (EC) is also expected to be announced this month. In February, the EC approved the merger with two conditions: the transfer of overlapping routes in Europe and the sale of Asiana Airlines' cargo division.
• In response, Korean Air has transferred its routes to four major European cities (Paris, Rome, Barcelona, Frankfurt) to T’way Air. The transfer process was completed when T’way Air officially launched the Frankfurt route, the last European route transferred from Korean Air on the 3rd of this month.
• The sale of Asiana Airlines' cargo division is in the final stages. In June, Korean Air selected Air Incheon as the preferred negotiation partner for the sale of Asiana Airlines' cargo division and signed a memorandum of agreement (MA). With Korean Air expected to fulfill all corrective actions required for conditional approval, a final decision from the EC is anticipated.
• Once the approval procedures from the European and U.S. competition authorities are complete, Korean Air will finally finish the foundational procedures for acquiring Asiana Airlines after four long years. Korean Air expressed its intent to acquire Asiana Airlines in November 2020 and reported the merger to 14 countries on January 14, 2021.
• Korean Air plans to participate in Asiana Airlines' third-party capital increase within the year to secure a 63.9% stake and become the largest shareholder. After that, Korean Air intends to operate Asiana Airlines as a subsidiary for two years while undergoing integration. Until then, Korean Air and Asiana Airlines will operate independently, after which "Integrated Korean Air" will be launched.
• However, there are still unresolved issues, such as the integration of mileage programs. As of the first half of this year, the deferred revenue from mileage for Korean Air and Asiana Airlines was approximately 2.5278 trillion won and 975.8 billion won, respectively, totaling about 3.5 trillion won.
• To integrate the mileage programs, Asiana Airlines’ mileage must be transferred to Korean Air, and the valuation of the mileage for both airlines will be crucial. Generally, Korean Air’s mileage is assessed to be more valuable than Asiana Airlines’, which may lead to consumer dissatisfaction during the integration process.
• The government is also paying attention to the mileage integration process. President Yoon Suk-yeol stated at a March public discussion that "the government will manage the merger process to ensure that not a single mile of mileage loss occurs."

3)  Denmark's DSV Acquires Germany's DB Schenker - Birth of the World's Largest Logistics Company

• Global logistics company DSV announced on September 13th that it has agreed to acquire DB Schenker, the logistics subsidiary of Germany's state-owned railway company Deutsche Bahn (DB). The acquisition amount is €14.3 billion (approximately 21.17 trillion won), making it the largest deal in the logistics industry to date.
• DB has been in the process of selling its subsidiaries since the end of last year to reduce debt, and it selected DSV and the investment firm CVC consortium as the final candidates. According to foreign reports, DSV proposed an "earn-out" clause, where the acquirer would pay the seller additional amounts based on future performance, which DB accepted.
• The two companies plan to complete the acquisition in the second quarter of next year, pending regulatory approval. DSV intends to operate Schenker independently initially and then merge later.
• With this deal, DSV aims to become the world's largest logistics company. It plans to strengthen its logistics competitiveness in Germany by adding Schenker's capabilities and expertise to its existing network. DSV announced it plans to invest €1 billion in Germany over the next 3 to 5 years.
• The integration of DSV and DB Schenker will create the largest company in the international logistics (forwarding) market. As of last year, the combined revenue of the two companies was approximately €39.3 billion (around 58.17 trillion won), surpassing the logistics division of Germany's DHL, which recorded revenues of €36.26 billion as the highest-grossing forwarding company last year.
• Their international cargo transport volumes are also among the highest in the world. According to the U.S. logistics research firm Armstrong Associates, last year DSV and DB Schenker recorded maritime cargo volumes of 2.51 million TEU and 1.74 million TEU, respectively, and air cargo volumes of 1.3 million tons and 1.36 million tons. When simply combined, they are close to the maritime transport performance of Kuehne + Nagel, which ranked first in maritime and air cargo with 4.33 million TEU and 1.98 million tons, respectively.
• Since its establishment as a land transportation company in 1976, DSV has expanded its business scale through mergers and acquisitions (M&A). Since the late 2010s, it has executed major contracts by acquiring companies including the U.S. UTi, Switzerland's Panalpina, and the integrated logistics division of Agility in the Middle East.

4)  Increased Demand for Charter Flights Due to Various Supply Chain Disruptions

• The news of the U.S. port strike coming to an end will provide significant relief to shippers, but requests for charter flights have surged this week for various reasons.
• This demand is emerging not only from shippers affected by the strike but also from those fearing logistics delays ahead of Christmas. Additionally, there is increased activity among those looking to handle humanitarian and crisis-related cargo following the damage caused by Hurricane Helen.
• John Cobey, EVP of Group Charter and Cargo at Air Partner, stated in an interview with The Loadstar that "the threat of port strikes and the actual strike have significantly increased demand for air cargo and freight transport."
• The demand for medicine deliveries has already been high due to natural disasters and global geopolitical instability, and this increase is adding to the existing high demand.
• Dan Morgan-Evans from Air Charter Service noted that the surge in demand has impacted available capacity.
• While the port strikes in the Americas have stopped, inquiries have surged as a precautionary measure, which could significantly affect freight rates and also impact capacity.
• Due to the increase in demand, charter prices have skyrocketed, and in reality, prices are nearing the very high levels seen during the COVID-19 pandemic.
• The price increases at that time were primarily due to supply chain issues and a reduction in cargo transport capacity caused by decreased passenger flights. Currently, however, a combination of global disruption factors beyond the strikes is driving prices up, which is occurring at the worst possible time for shippers as they enter the peak season.
• Requests for charter flights related to the port strike are expected to decrease now, but additional demand continues in the Middle East, where passenger aircraft are being deployed for evacuation purposes.
• It is anticipated that air charter freight rates will remain high for the remainder of the year.