Owing to an excess of passenger flights, some pundits have referred to the North Atlantic as a graveyard for freighters, particularly on the routes linking major cities. Undeterred by this, CAL, an Israeli cargo airline whose European base is in Brussels, launched Boeing 747-400 freighter flights from the Belgian city of Liege to New York and Atlanta in September 2015. Management had originally intended to deploy the aircraft between Europe and China, but declining traffic and yields on that sector prompted it to target the transatlantic market instead.
The strong dollar and economic weakness in much of Europe has seen freighter operators struggle to fill their eastbound flights in this market, especially during the summer season, when airlines ramp up their transatlantic flights to serve more second- and third-tier destinations.
For many shippers, however, direct services are of limited appeal. For one thing, frequencies to smaller points are usually not daily, remarks Tim Robertson, head of Marketing and Sales of DHL Global Forwarding (DGF).
Moreover, there is usually a premium on direct flights to reflect the faster transit time, albeit less than the charges for express services. In the main, the latter are used for emergencies.
“There are many more flights to Frankfurt than to Warsaw,” notes Brian Bourke, vice president of Marketing at SEKO Logistics. “You can fly to Frankfurt and truck from there, but if your plant in Warsaw is down, you go direct.”
Forwarders make use of an array of options when transit windows are tight. DGF has space on dedicated daily freighter flights from Cincinnati, the DHL Express hub in North America, to Brussels and Liege. In addition, the company can utilize various routings on commercial carriers, using different combinations of departure and arrival points and connections as well as various final-leg options, from truckload or LTL to express parcel modes.
The lion’s share of expedited traffic moves in consolidations, which allow forwarders to leverage their traffic volumes to obtain lower rates from the airlines. Typically, they use a small number of preferred airlines from major gateways.
“Direct flights are there, but in most cases forwarders use consolidations,” confirms Willie Scholz, director, Business Development USA at forwarder Cargomind.
The spread between direct rates and consolidation pricing varies, depending on the lane. “From Chicago to London you see discounts, but you may see more discounts from Chicago to Frankfurt,” says Bourke. “In some lanes the savings can be 20 percent, in some lanes they can be 40 percent. Airfreight is very cyclical and volatile. Discounts vary a lot.”
In the United States, traditionally the main gateways for transatlantic airfreight have been New York, Chicago and Los Angeles.
“We also use Atlanta, which has a lot of flights to Europe. Dallas and Houston are also gateways, but to Europe the three chief ones are New York, Chicago and Los Angeles,” says Scholz.
In addition to the established hubs, DGF has built up gateway operations at Raleigh-Durham and Washington-Dulles. The former has a strong base of shippers from the pharmaceutical, bio-technology and high-tech sectors, while the D.C. area moves a lot of government material and traffic from the publishing industry, according to Robertson.
At the European end, Brussels and Amsterdam are major gateways. In addition to their strong trucking services all over Europe, they also offer the benefit of deferment of value-added tax. London is also a major gateway, but trucking links to continental destinations are longer.
“It is not one size fits all,” comments Robertson. “For the automotive sector, a lot of manufacturing is in Germany and also in Eastern Europe, so Frankfurt becomes an extremely critical hub. We have multiple daily consolidation services to Frankfurt and unique line hauls from Frankfurt to European points like Vienna or Bucharest.”
Cargomind, whose home base is in Austria, funnels much traffic through Vienna. A considerable portion of this continues to destinations in Eastern Europe. “Tariffs through Vienna are more advantageous from the U.S. than direct to Bucharest,” says Scholz.
He adds that big U.S. firms tend to prefer using the Benelux countries for their pan-European distribution. For smaller exporters, a single distribution point for Europe usually works better than multiple locations, remarks Bourke.
Again this favors the large European gateways like Amsterdam, Frankfurt, Paris and London with their connectivity and well-developed trucking links. However, Robertson notes that sometimes the airfreight link may not really be necessary. DHL recently conducted some closer analyses of customers’ supply chains that produced interesting results, he reports.
“Some customers thought that they needed an expedited offering, but we found there was a two-to-three-week period before that product was actually used,” he says.
DGF recently launched an 11-day, less-than-container (LCL) service from New York to Antwerp. This is slower and cheaper than deferred airfreight offerings but faster than conventional LCL products, according to Robertson.
“Shippers look for more cost-effective solutions,” he says, citing increasingly competitive pressure on them. Hence the mode shift that kicked off in response to the financial downturn of 2008/2009 is still going on and will continue, he predicts.
This implies a diminished reliance on air wherever possible. With product launches, one strategy uses airfreight in the opening phase to ensure items get to market quickly and are available at outlets in sufficient numbers, but subsequent stages see a shift to ocean transportation, Robertson says.
Even in the pharmaceutical sector, which traditionally has shipped most of its traffic by air, there are pressures to migrate some cargo to ocean vessel. “Once a product comes off a patent, there is tremendous competitive pressure from generic manufacturers,” Robertson says.
Still, airfreight remains a strategic choice for a number of industry verticals. “Airfreight to Europe is significant as it relates to the retail sector,” remarks Bourke, adding the medical and pharmaceutical industries, the aerospace and the high-tech sectors.
“A lot of shippers have migrated to ocean transportation, which has been a smart move for many companies, but with higher value items, being able to turn these faster can have better results to a company’s bottom line than putting them on the water. Shipping by air may be more costly on a per-kilo basis, but you can sell faster,” Bourke says.
“When it comes to goods of significant value, air should be a strategic mode for any U.S. manufacturer,” he adds.
At DGF, the development of faster offerings involving marine transportation will be a major focus in 2016. “We will be bringing more multimodal solutions on the ocean freight side to market,” says Robertson.