Episode Transcript
[00:00:00] Speaker A: For the first time in history, we actually have two really good platforms competing with each other.
[00:00:04] Speaker B: And honestly, I'm surprised that we aren't down more.
[00:00:07] Speaker C: And I think this is the big one for anyone in the E Commerce game at the moment.
[00:00:10] Speaker D: You also have continuing strength on Transpac, maybe not so much direct China.
[00:00:15] Speaker A: US Airline is very strong into Africa, of course, on the Asia to Europe market segment as well. And that's where Atlas of course has less coverage.
[00:00:23] Speaker B: Volumes drop to the U.S. but you're right, they flowed to Latin America and you just saw it.
[00:00:28] Speaker A: I think forecasts are generally almost always wrong.
[00:00:39] Speaker C: Hello and welcome to Air Cargo Unpacked, a Freight Buyers Club production brought to you by Ontegos Cloud, the freight forwarder profitability specialist. I'm Mike King and with me, as always, is Neil Jones Shaw.
[00:00:54] Speaker B: Thanks, Mike. Coming up, we've got the best rates analysis in the game from Neil Wilson at Tacindex. We're going to be looking in depth at the charter market business out of China and some very mixed demand signals.
[00:01:08] Speaker C: But in a break from tradition, we'll be discussing all these stories with our guest today who works for a company that operates 113 wide body freighters across more than 300 destinations in 90 countries, accounting for approximately 13% of the global widebody freighter fleet. He's chief Commercial officer and head of sustainability at Atlas Air. Richard Brookman, welcome to the Freight Buyers Club.
[00:01:33] Speaker A: Thank you, Mike. And thank you, Neil. Really pleasure to be here. A lot of things to talk about. It's been an interesting year. It's been actually interesting many years already. And the challenges keep, keep coming. It's a, it's a bit of a rollercoaster in the market, but a lot of good developments as well. So looking forward to discussing that.
[00:01:50] Speaker C: Yeah, we're looking forward to going through it with you, Richard.
Let's a good starting place. Our first story today. IATA has just published its June Global Outlook app. It's sort of a sobering read. On demand cargo growth is now expected to be just 0.7% this year. It was down from 2.6% forecast in December. But maybe the more interesting story is in this table. Those who are watching can see freight rates are forecast to rise 6.5% and load factors are climbing. I want to hear if that matches what you're seeing, Richard, in a moment, but Neil, to you first. Anything grab your attention? And how seriously does the industry actually take these IATA forecasts?
[00:02:33] Speaker B: I don't think these headline numbers are surprising at all. We've been in the middle of a pretty serious conflict for the past three and a half months. So for demand to come down a bit from the forecast in December is expected and inflation has spiked and honestly I'm surprised that we aren't down more. I mean, you know, this really highlights, you know, the resilience of the global consumer. And remember, we're also comparing this market year over year and 2025 was a very strong year. So to be up only 0.7% over 2025 is, is actually no big deal to me and no cause for, for, for panic or concern. The data showing that, you know, APAC growth engine, but that's not really a surprise, right? I mean, you know, APAC has always been the growth engine, but I think the dynamics are changing a little bit. And I, I know we're going to hear from Richard on this in a second, but you know, if you look at China, right, And we, we. A lot of statistics were presented at the TIAKA conference in Warsaw a couple weeks ago. But you know, you see a big shift. You see Vietnam up plus 30, Thailand up plus 30, Taiwan up over a hundred, right. You know, due to the hyperscalers and China is down a little bit year in the Transpac market, you know, I'm talking about. So, so, you know, overall air cargo reacts to what's going on in the world. And, and as a result, oftentimes forecasts are wrong. Right? I mean, if you put a forecast out, things change.
The forest forecast is going to change. And directionally, I think forecasts are really useful tools and I'm by no means picking on IATA here and it's good to study and be aware of all of the forecasts. But you know, I think directionally they're great tools, but, but they're, they're never going to be, you know, dead right. But you know, over to you, Richard. You know, what are you guys seeing? You're, you're in the middle of everything that's going on globally with air cargo. I'd love to get your views on what you're seeing on a macro basis.
[00:04:36] Speaker A: Sure, Neil. Look, I think I'm, I'm with you. I think forecasts are generally, almost always wrong. So that's, that's one, I think the, that they change, I think is more interesting. The change of the, of their adjustment, the direction of the adjustment. Of course, with all the things that are going on in the world with the conflict in the Middle east, that there is a, that there's impact on the air freight and there's a Bit of a reduced amount or might be a little bit of a little slowdown. That's not surprising. We had some time, their capacity was gone as well. Quite some substantial capacity. About 15% of the capacity worldwide was grounded for about a month and of course freighters in the Middle east have come back since. Passenger flying is still a bit lower, so belly capacity is still less in that area.
But overall I think the market is very strong. I do expect we're going to end up higher than what I had a forecast. That's just my own prediction and just seeing what I hear from customers, seeing also demand signals going into June, into the rest of the year, they're quite strong continuously. E Commerce is a big driver right out of China. While there has been a lot of headwinds there last year in the us this year in Europe as well. Overall it has proven to be really resilient and come back after a while and find different markets and continues to grow as well.
General freight will continue. The other part is of course that there's a massive increase in demand from hyperscalers which is just mind boggling and if you hear the investments out there, that's probably going to continue. So overall I think regionally you'll see some impact and you'll see some changes here and there but I think the general direction the market is positive. Capacity remains very, very tight.
So overall market vibe will remain quite buoyant for the whole year and beyond.
[00:06:22] Speaker C: One part of the market that Certainly isn't flat, US high tech imports in Q1 were flying. According to Martin Wormer, head of consulting at Avian, those watching on Spotify and YouTube can see that computer and server imports were up six fold year on year. Networking equipment up threefold, computers and tablets also presumably flying off the shelves. Richard, this is your home market, is this what you're seeing as well?
[00:06:45] Speaker A: Absolutely. So this is just, it's incredible, right, the demand from hyperscalers that's suddenly coming into the market. Of course it's not completely sudden. There was demand last year, there was demand early in the year but you can see it ramping up very quickly and in the end it's not surprising to see how if you follow the news in the system that the numbers of around capex that are being announced by the different hyperscales as they race towards building out as fast as possible, building out as much infrastructure as possible as quickly as possible, you can kind of see that those announcements lead to air freight in the future. And with that I also think this is a trend that's not just going to go away. Will it be here forever? Who knows. But in the next couple of years it's very likely that this trend will continue just based on the investments out there.
Interestingly enough, of course this is the traditional airframe market. The Trans Pacific is definitely benefiting very, very strong with some sourcing in new origins. Right. It's not all coming from China anymore. A lot of coming is coming from Taiwan, Vietnam, Thailand, et cetera. But there's a secondary stream as well that is not coming out of Asia, it's actually coming out coming from the US and from Europe.
As these infrastructure is being built and configured they find their way out again and entire server racks are being shipped out of the US to Middle east to Europe, to Australia as well, which is a secondary flow that's very interesting for air freight as well.
[00:08:16] Speaker C: Yeah, that is an interesting secondary flow for sure. I wonder if it's coming up in rates. We'll be hearing our rate movements a little bit more when we talk to Neil Wilson Attack index in a moment. But first one more story and I think this is the big one for anyone in the e commerce game at the moment. From July 1st the EU removes its €150 duty free de minimis threshold. Every low value parcel entering the block will pay a flat €3 customs fee ahead of full tariff rates coming in from 2028. This follows the ending of de minimis exemptions in the US last year.
Forwarders have been warning for some time of a pre deadline surge in Asia Europe volumes. And if you look at this from from Avian again Chinese E commerce air volumes recovered in April up 8% year and year. But look at the regional split. Europe's up 17%.
Is this front loading already underway? Neil, you were at the Tiaka summit recently and you sit on the board very much your turf. What was July the first all anyone could talk about over there in Warsaw or is the industry ready?
[00:09:19] Speaker B: Yeah, it was certainly a topic of conversation in, in Warsaw but it wasn't all that you know, folks could talk about. And I would say that the summit overall it was the executive summit for teaca, was actually really well attended. I mean you know day one was packed house, standing room only, a lot of great speakers, good program. You know it falls off on day two as well. But I was actually surprised by just the sheer number of folks who were there, which was good. That all was singles enthusiasm.
[00:09:47] Speaker D: Right?
[00:09:48] Speaker B: You know people want to learn, people have a lot to say. So July 1st was definitely on people's Mind, you know, in terms of how the implementation was going to go, were the regulators ready to sort of collect in the right way? Questions about if you have, you know, multiple, you know, house airway bills inside a master, you know, how is all of this going to be, you know, handled right. And is it going to be fair? I mean, it seems like a pretty regressive sort of tax right to have a flat $3 on these low value products. But at the end of the day, I think the overall theme out of the TIACA conference wasn't this overwhelming sort of conversation on July 4th. I think it was about the industry in general.
[00:10:31] Speaker D: Right.
[00:10:32] Speaker B: And how we have been coping with the war in Iran, what it was going to look like as peace breaks out and breaking news. Right. We actually do have a peace deal now that's supposedly going to be signed on Friday in Geneva.
So that's, I think extremely good news for the industry. I think it will take some of the pressure certainly out of the speculative fuel prices and all that we've been seeing.
But overall the TIAKA conference, the mood was quite buoyant.
I think people were enthusiastic about the back half of the year.
Certainly data center, the hyperscaler build out is something everybody's excited about and finding a way to participate in that is clearly a goal of almost every airline and forwarder out there. Because, you know, this is not a fad. This isn't going anywhere. Right. The AI boom, as Richard said, you know, is something that, that's going to be here at least through the medium term, if not longer. And heck, you know, SpaceX is going to put data centers in space now. Right. So, you know, I don't know what the rates are going to be to space, but maybe, you know, Richard can, can, can give us a clue as to what they might be.
[00:11:49] Speaker C: Yeah, I think we'll come back to Richard. I want to get his take on, on de minimis or these European change.
But I just want to timestamp this for anyone listening because as Neil brought up peace, I think It'll be the 40th time peace has been declared in just over 100 days. I think the, the latest count, this one does look like it's, it's going to stick. But we are talking on June 15th so please don't hold it against us if somehow it falls apart again. But this one does look a little bit more realistic and hopefully that proves to be true.
We'll come back to you in a moment, Richard. But first, rates. I caught up with Neil Wilson, editor of TAC Index, the price reporting agency on air freight rates and the calculating agent for the Baltic air freight indices.
Price fluctuations have been dramatic this year. So I asked Neil what's been happening over the last month and how today compares historically.
[00:12:46] Speaker D: Hi Mike, great to be on the show again and give you our perspective on what the numbers are showing and what we're doing. Hear about what's behind that.
After the start of the Iran war, we had that big spike in March and rates stayed very high through April. I think the picture for May overall was that the pressure eased a bit. The overall index, our Baio chart, which is the global composite, if you like, of all lanes and all outbound, that was down a tad. It was down a tad, but not much, couple of percent over the month.
And from a historical perspective, I think the thing to bear in mind about that is that it's still at very high levels. It's still higher than any of the recent peaks. If you look back at 2025, 2024 and 2023.
Indeed, you have to go all the way back really to the period of the COVID pandemic and its kind of aftermath to see when rates were higher. They were very escalated then because the market was very distorted. Obviously in the pandemic, a lot of passenger belly hold capacity disappeared and the market, as you know, is about 50, 50 dedicated freighters and dedicated and belly hold varying by lane, of course. And when that disappeared, there was big loss of capacity, huge spike in rates. So you have to go back to that period to see when it was higher.
[00:14:10] Speaker C: Yeah, massive spike there for Covid, obviously the biggest spike that I know and I've been covering this for about 25 years, so I mean that gives some perspective about where we are now in terms of now. Neil, how much of this is basic demand?
[00:14:25] Speaker D: Yeah, I think the demand is still pretty strong and I think you probably get this corroborated by other sources you talked to for the podcast.
And so why is it still pretty firm? And I think there's various individual factors. One thing is the upcoming the end of de minimis rules into the EU, which takes effect on 1 July. So we see some shippers rushing to move things ahead of that date. There's obviously some movement of things from other modes to air to get there in time. You also have continuing strength on transpac, maybe not so much direct China, US but other ways we will come back onto that and some other lanes like Inter America also looking strong. And underlying that, I think is the continuing strength of the AI theme in markets. The AI theme, you see it in equity markets being driven higher, not just in the US but also in other places like in South Korea and Taiwan, for instance, where you have some very big semiconductor manufacturers. And the growth of those markets has driven them in the last month to be the 6th and 7th biggest equity markets in the world, overtaking all the markets in Europe, the uk, France and Germany, which is a pretty significant effect. I mean, obviously we have to see if it maintains itself that the AI theme plays out.
But we see that at the moment reflected very strongly in the air freight rates out of places like Seoul and Taiwan, where they're very, very highly up year on year, both to Europe and the us.
[00:15:52] Speaker C: Now, let's look at some of those key markets. Then the spot rate picture from key Asian hubs, you mentioned it already. How are rates behaving there? Are we seeing that same leveling off that we saw on the overall index in some of these key markets or not?
[00:16:08] Speaker D: That's a very, very good question, Mark. Obviously, the reason why we introduced the spot rates is that the market, it has various different segments and our overall indices, the outbounds and the individual lanes, the TAC freight lanes, they're based on actual airway bill prices. So from those actual airway bills, you can't tell whether the contract was negotiated months ago and it's a forward contract or whether it's a spot transaction that was negotiated last week or for today. So the spot rates effectively show you the marginal price, the price for moving something today or tomorrow. And if you look at those, out of these key Asian hubs, we have three currently we're going to be adding more. Korea, you can see it was rising, There was a delayed effect there. After the big jump in March, it was rising in April, it sort of flattened out recently and no longer going up. Obviously there's intraday variation. If you look at India, the India spot rates, the Bai spot from India, there was a huge jump after.
That's a very belly hold market and it was flat for a long time. A huge jump when the war happened in Iran because that disrupted the flow of goods enormously there in March. That started to fall in April a little bit and it's gone down a bit further in May. That's what we've seen with India.
If you go into Hong Kong, which is the biggest cargo airport in the world by volume, the interesting thing there is that it had been flattening out last month and more recently, particularly in the last week or so going into the first Week of June it's been firming up again, reflecting those things I think that we were saying about the strength of demand.
[00:17:44] Speaker C: On the previous point, Neil, obviously war in the Middle east has been a major factor in terms of rate rise in obviously tied to that has been fuel price increases which we've seen across modes, not just in air cargo. Where are those jet fuel prices at the moment?
[00:18:01] Speaker D: Again, really good question. So what's underlying this? Why did rates ease a bit in May? And I think one of the key factors was the jet fuel rates which had escalated dramatically as I think we talked on the previous call in March and in April.
If you look at the IATA Jet Fuel Price Monitor, which reflects the Platts data, you'll see the jet fuel prices dropped every week in May a little bit, cumulatively more than 24%.
So they're still up 60% year on year more than crude oil. But it's interesting why that's the case. They are firming up again, I should add, in June, as I think you can see from that same table.
So why is that? I think we mentioned this last time. There were a lot of flight cancellations in May which may have eased demand a bit. There were 12,000 plus at least an hour announced, led by Lufthansa, Turkish, China, Eastern, various other airlines. There was also the release of strategic reserves by the US and by others to add supply to the market.
And the other thing that was happening, I think we noted on the call last month, was that China, which had stopped exporting jet fuel initially when the Iran war started, had started again, which again eases supply, particularly to its neighboring countries in Asia, which royal China for a lot of those supplies. The final thing I suppose is that there's been expectations that there will be a deal between the US and Iran to end the conflict and that there will be a reopening of the Strait of Hormuz, which is something that is going to be needed.
So markets continue to be quite sanguine and optimistic that that's going to actually happen.
As of the call today, it may be different. By the time you put this out, it still hadn't quite happened yet. So.
And in the meantime, those inventories of jet fuel and of crude are continuing to go down. So they can't go down forever.
[00:19:48] Speaker C: Thanks for that, Neil. Now, just a little announcement for everybody. The Freight Buyers Club will be attending Air Cargo China at the end of June. In fact, we'll be doing some interviews I think at the TAC Index stand if anyone wants to come along and Say hello. Details on screen now, Neil, what else have you guys got going on?
[00:20:05] Speaker D: Well, we're working on various things. I don't know whether I'm allowed to say too much about them. One of the things is we have this additional tool called TAC Explorer where in addition to the lanes where we produce indices, we're adding guidance on about 800 more lanes where we have data. We have some data but we don't have indices yet. But they'll give users a lot more guidance on some of those smaller lanes around the world. We're also adding AI tools to the data so you can explore further the characteristics of each lane. And going onto the Air Cargo China, I won't be there but my colleagues, our founder and leader John Payton Burnett and our head of research who runs the data team, Chris Taylor, plus our head of sales and Asia Alamber. They'll all be there, hopefully seeing you on that stand in Shanghai.
[00:20:55] Speaker C: Welcome back to Air Cargo Unpacked where Neil and I are joined by Richard Brookman, Chief Commercial Officer and head of Sustainability at Atlas.
Richard, you've just heard Neil Wilson telling us rates are at levels we haven't seen since the COVID crisis.
Now I imagine that's not entirely unwelcome news in the CCO's office.
But seriously, when rates are running this hot, how does it actually change the conversations you're having with customers? Are shippers looking to lock in long term? Are they holding their breath riding the spot market? How are you managing this and how are your customers looking at it?
[00:21:29] Speaker B: Sure.
[00:21:30] Speaker A: Now look, of course increased yields are not something that I ever are opposed against. It helps us, but in the end it really doesn't change. It doesn't change our approach, it doesn't change what we have been doing over the past many, many years.
Indeed, it really underscores how important it is for customers, for big logistics companies, shippers, et cetera, to have more control of capacity, to actually have some of your capacities locked in on long term agreements like we do. So it really just proves the value of having these arrangements. And we always go through cycles though, right? In any contract cycle there's always a year that is just not as great.
And you may say, hey, the rates are a bit lower and my long term rates may be at this point slightly higher than the market but over time it proves to be a really good setup with stability, control of your destiny. And I think this is just the next spike that proved it. And to me the biggest surprise is actually that there's still a few really big shippers and a few really big logistics companies that have not embraced us yet. And maybe this next runoff in fuel oil cost will actually get them over the line and change their view.
[00:22:47] Speaker C: Why are they not embracing that, Richard?
I think they've been historically given to you.
[00:22:51] Speaker A: Yeah, they've been historically able to find the capacity they need or feel that being constantly able to play this procurement game and always pressure rates down there is very beneficial. But in the short term, sometimes there really is. Right. But I think in the long term they'll see that there's a real benefit of having a mix, some control and some, of course, capacity could need.
They can buy on an as needed basis or whether it's spot or whether it's seasonal, etc.
[00:23:23] Speaker C: Neil, is that putting your forwarder hat on? Is that the sort of gamble you might recognize from your previous incarnations?
[00:23:29] Speaker B: Yeah, I mean, no, I think what Richard's saying makes a lot of sense. I mean, it's exactly the strategy that we pursued at Flexport.
[00:23:36] Speaker D: Right.
[00:23:37] Speaker B: I mean, I was Richard's customer back then and we tried to balance, you know, our capacity needs. You know, it was a very volatile time and you know, creating that certainty. Right.
Albeit at potentially elevated costs, you know, but over a long period of time, it proved to be extremely sustainable and really shielded us from the volatility of the market for a good chunk of our capacity needs. But one, one more quick question, you know, for you, Richard, before we move on, is that, you know, when rates do get this high, it can cut both ways and some cargo get priced off the aircraft. I'm curious right now, are you seeing any of that, Is there any sector, are there any customers in particular industries that are just getting priced off the aircraft and therefore you're seeing some demand destruction at the margins?
[00:24:30] Speaker A: Look, I think a little bit of it has been happening for the last couple years ever since COVID with a big increase in demand from E Commerce and initial other goods as well.
Capacity is limited and it continues to be limited. So some, some goods will have not been able to make it on the aircraft. However, at the same time, air freight is very resilient to, to price fluctuations. It's not very price sensitive because if there's an alternative mode, it's going to be a lot cheaper. Right. If you send something by ocean is often a factor 10 cheaper. So if you can do that, you already, you're already doing that. So there's an inherent need for air freight and that's why it's so.
So, yeah, so resilient to price fluctuations at the same time because capacity limited. Something's got to give, right? E Commerce and now data centers taking so much of capacity, something else will struggle more to get capacity. So we'll see a bit of a
[00:25:23] Speaker C: shift again just on that. Well, it's E commerce really, isn't it? Let's come back to the de minimis changes. When the US scrapped its de minimis exemptions last summer just came a few months after we had the Liberation Day tariffs. Obviously our atlas is right in the middle of all this. Your CEO described platforms shutting down sales overnight and it wasn't really because of higher cost, but because of lack of procedures, rates changing day to day, freight stuck at customs, bookings cancelled. What actually happened to your network then? And does this tell us anything about Europe on July 1? Or is there not really a comparison there?
[00:26:02] Speaker A: Sure.
So first of all I think the two events are different, so I'll get to that. But what happened last year when de minimis was.
It was eliminated after Liberation Day we saw these big giant e commerce companies in Asia, in China specifically, they were able to pivot extremely quickly. It was not necessarily a matter of the issue of pain for the tariffs. It was a matter of data captured. And especially some of the platforms that link manufacturing one side and customers worldwide on the other side, they struggled for a bit to get the right data and get through the right processes. So you saw a big dip in US bound E commerce at the same time overnight they were able to change their advertising algorithms. You saw the spend on Google, you could track it, you could saw it plummeted by 95% at the same time Brazil spend went up and release when spend went up and the flows just moved with that.
So we were able to change our network very quickly for these customers, the ones that were controlling capacity and all the capacity we had on contracts with these, nothing was canceled, which was really surprising.
Nothing was canceled.
They just moved it to different markets, opened up Peru, aim more for Brazil. A lot of focus on South America ever since then. So that was a great way to again show that if you have the capacity as you control it, you can deploy it where you need it. I do think this one is a bit different. First of all, the European Union has taken a bit longer to actually put this in place first they need to take inherently they need to get consensus with all their stuff member states so you have more notice. And I think E commerce companies will be prepared now at the same time, of course an increase in price will have some impact on demand. And the expectation is that over the summer volumes will slow down a bit. But we've seen this in other markets. Brazil implemented a tariff a couple two years ago in the summer saw a 20, 30% drop off, but within a few months it had recovered.
So I do think in Europe things will recover pretty quickly as well.
[00:28:10] Speaker B: Richard, thank you for that perspective and I agree with you 100%. What we saw after Liberation Day last year is volumes dropped to the U.S. but you're right, they flowed to Latin America and you just saw it, just the numbers and the capacity just moved along with it as those advertising dollars and promotional dollars move south in the latam. And I agree with you, I don't think Europe is going to be much different in the sense that there will be an initial drop but then they tend to recover. Right. We even saw that in the US where volumes have largely recovered, not fully, but have largely recovered. And I think it's going to be the same thing from a Europe perspective. But if I could just go back really quickly.
At the TIACA summit, Richard, your colleague and Atlas's chief strategy and transformation officer Martin Drew said we're moving into an era of compliance, that the low data, low accountability era is over and companies need to step up with technology delivering better quality data.
So from the Atlas Air commercial seat, what does stepping up actually look like?
[00:29:27] Speaker A: So look for stepping up, it's really the shippers and the players there that need to provide the data, right? We of course, as the airline, we, we assist with this, we supply for that, we will submit all the data to customs.
So it's really important for us the data is good, the quality is right, that all the information is there. Because as you land in the US especially if it's not, it will lead to delays, it will lead to delayed in clearances. We may have to offload pallets to have more packages inspected. So that compliance I think is a good thing. Also I think for E Commerce as an industry, they had this cross border in which I think it's a good thing as well.
In the end it was a bit of a loophole known in the minimus, right? There was taxes on other imports. We put it by boat and fulfilled from the US and not in the direct mode.
The model itself does not rely necessarily on that loophole. I think the model relies on the choice that it provides. The ability to not hold a lot of inventory in stock, to not make a big gamble on the things you think you're going to sell next month. They get to pre Order by delivering everything directly from China. I think there's an inherent model for them and that's not going to change. So it will just make them more grown up, more compliant and in the end the quality will probably come up as well of the products that they ship.
[00:30:49] Speaker B: No, I think, Richard, I think that's great. I think you're right. I mean compliance and accountability are not bad things.
And bringing more structure to the way this vertical does business, I agree with you, is overall a win, win over, over the long term.
So thank you for that.
Just really quickly, just beyond de minimis and beyond all of these big macro driven fluctuations that we could see in the E commerce business, do you see the demand mix out of China changing? China's always been the engine we just mentioned. Both of us had mentioned during this conversation that Thailand, Vietnam, Taiwan, et cetera are growing at double digit rates in terms of their exports. Given the industries that they're focused on. Focused on. Do you see a big shift happening? You know, let's go back to China in terms of Chinese exports and what are the implications right for Atlas, right where you had most of your capacity parked in China. Do you see how these demand flows are changing, changing that over the short and medium term?
[00:31:58] Speaker A: Sure. So, so I think of course the mix, the mix always changed a little bit and that the airframe mix has changed over the last couple of years with of course a big push into E commerce. And now we see a new, a new kid on the block with data center equipment where the volumes are increasing so quickly. So yes, of course a total mix will change a little bit out of China itself. I don't think it will change materially. Maybe a little bit less E commerce as there's demand, very strong demand for components for data centers, et cetera. You of course see this, see the geographical shift. Some of the production went out of China into Thailand, Vietnam and Taiwan of course. So that is structural we see to continue. But in the end it's pretty much just as far to either one of these countries from the US as it is to Maine and China. And we are able to move our capacity with those flows. At the same time, it also underscores how important it is to have a big variety of customers in your portfolio. None of our customers has more than 8% of our block hours. So that diversification is really good and it allows us to serve all the different parts of the industry, the growing ones, the stable ones alike.
[00:33:07] Speaker C: Thank you, Richard. I just want to just have a quick look at what's happened in the Middle east this year. Obviously we might now have peace, but it's been very disruptive.
AVM's data shows charter capacity jumped 31% as the conflict began and it's up 39% on a year ago.
Richard, how have war and fuel availability, how have they affected your scheduling this year? Routings, fuel uplift, crew planning? And is that charter search, is that something that you've really seen in the past?
[00:33:38] Speaker A: Yeah, so we've seen it. Of course, when the war broke out, without notice or not real notice, it was quite disruptive. We had a few aircraft in the Middle east that were stuck for a while. We had to get them out. We were able to do that safely after a few days.
And of course the first month, especially the local, the real Middle Eastern airports like in UAE, etc. And even in Saudi Arabia were materially impacted at the same time. Air freight does generally not go out of the way of a crisis. Crisis typically helps air freight and especially on the charter demand. So initially you did indeed see a bit of a, a spike in chartered amount to backfill the capacity that was lost with the grounding of some of the Middle Eastern capacity. So to help on the Asia to Europe trade lane, but also other trade lines solid as well. Going further, we see a lot of charter demand increasing again driven by data centers that those big flows and as they struggle to get capacity, charter is a good option. But we also see a lot of of oil and gas coming up, just even chemicals and other things that have to go to the Middle east because supply chains are so disrupted in that region. So yeah, charter demand will go up.
I see it go up in most regions of the world, but with different drivers.
[00:35:03] Speaker B: Richard, thank you for that. And I think your analogy in terms of how air cargo responds in a crisis is exactly the right one. I think like first responders, right.
Air cargo sort of of runs to the crisis because that's where the opportunity is for these businesses.
I am just curious, just as networks begin to normalize, Richard, and we've seen the Middle east carriers, their networks largely normalize now, both on the passenger, on the freighter side, do you expect sort of the intensity of the charters to continue or do you expect that to sort of come back into normal cadence and you get more into sort of, you know, your mix of long term contracts and business. And yes, there is a mix of spot business in there as well. I'm just curious how you're going to see that play out over the next few months.
[00:35:59] Speaker A: Yeah, no, obviously the Demand for replacement charters, that is of course going to go away or that's going to be less. But I do think demand for charters will continue to be quite strong. And that's really just again a function of capacity shortages and at the same time a really strong uptick in demand in certain regions and for certain flows. Hyperscalers predominantly. So as capacity becomes tighter, you always see more demand for charters as companies or products struggle to get the right lift. A charter is always the right option or a good option to try to secure that capacity. So I do think charters will remain pretty strong, had maybe a little bit less strong than we saw right after the conflict.
[00:36:42] Speaker C: Thank you, Richard. Let's turn to the fleet. In March, Atlas plays what's being described as potentially the largest wide body freighter order in history. 20 Airbus A350 freighters with options, 20 more, making you Airbus biggest customer for the program.
For a company so historically associated with the Boeing 747, it's quite a statement.
Can you walk us through the thinking? Why the A350F and why now?
[00:37:08] Speaker A: So look, it all starts first of all with confidence in the market, right? The world has a very much of an aging freighter fleet. Capacity additions has been fairly limited and they will continue to be quite limited for the next few years as we ramp up towards the next generation aircraft coming online.
So we believe that its capacity shortage remains. So making a large order like this makes a lot of sense. Sense. Now for the first time in history, we actually have two really good platforms competing with each other. Both the A350 and the 777 8F. They're both great aircraft. Slightly different uses, slightly different fit for specific customers or specific markets, but both are excellent. So we decided to go with the A350. Great airplane, but it doesn't preclude us from in the future.
Maybe also doing in order with Boeing. Look at the passenger side. Most passenger airlines operate a mixed fleet with both manufacturers and that can definitely happen on the cargo side as well. So really excited about it.
The A350 will be coming on the market a little bit earlier than the Boeing. That is also of course a contributing factor here. But it will be great to see two really good platforms competing for the next decade and beyond.
[00:38:30] Speaker B: Thanks Richard, for that. The A350 order was really a momentous occasion, really a nice validation for that platform and it's good to see that the 777X could still potentially have a home at Atlas over the long term.
I want to move on really quickly. And talk about the Air Atlanta investment.
You know, it seems like, you know, the big, big announcements are coming from Atlas every, every 30 to 45 days. So it was fun to see that Air Atlanta investment. I believe you've taken a 49% ownership stake in them. I think it's probably the maximum that's allowed by, you know, European law.
Tell us a little bit more about the thinking behind that investment, the strategy that's there. We know that that Air Atlanta is a great operator.
They do a really good job keeping older aircraft up in the sky and generating revenue. Perhaps there's something to learn from them there. But I'm curious, in your words, what was the strategic rationale for this investment?
[00:39:40] Speaker A: So you kind of touched on some of the points already. First of all, it's a great operator. Airland is a fantastic airline doing a great job operating a good size fleet. That's very complementary to Atlas. I think the other part, which is really important, if you look at the route map of Air Atlanta and the route map of Atlas and you lay them over each other, they're perfectly complementary. Air Atlanta is very strong into Africa, of course, on the Asia to Europe market segment as well. And that's where Atlas, of course, has less coverage. And it's just not as good of a place to offer our customers solutions. So by this strategic partnership, we're able to offer the large customer base that we have even more solutions also in the market where we may not always be the best operator ourselves or the most efficient operator, or we may not have the traffic rights. So very complimentary and super exciting.
[00:40:34] Speaker C: Richard, to finish, let's swap hats because you're also Atlas Air's head of sustainability. That IATA outlook puts SAF production at just 0.8% of jet fuel consumption this year. And IATA calls the current policy framework wholly inadequate. Piecemeal policies that will fail. So how does an operator like Atlas decarbonize when the fuel simply isn't there? And do you share that frustration that the policymakers have been talking about?
[00:40:58] Speaker D: No.
[00:40:59] Speaker A: Absolutely. Of course, the biggest challenge is indeed.
Well, the biggest challenge is cost, to be honest. In the short run, supply is doing okay, but that's more a function of demand being suppressed because cost is really, really high. So I think the cost is the biggest concern for SAF overall.
I think some policies seem to be working better to promote saf, like the US has taken with the Inflation Reduction Act. That really showed the US taking a lead in SAF production while the STICK approach refuel U on the European side.
I understand the logic, but I don't think that's the best option. Right. In the end, policy needs the help of making a SAV more affordable.
You get that by potentially subsidizing, by making it easier to invest in facilities and creating incentives to use it and to make it as economical as possible.
So, yes, I share the frustration. We'd like to do more. We were able to grow our staff volume tenfold last year from LV to quite a low base, and we continue to do this.
We see SAF also as something we can help our customers with. Right. We sell dedicated capacity. What we do here is to help them decarbonize or lower the carbon footprint of the dedicated capacity that we offer to our customers. So we see ourselves as a party to help them obtain SAF and other technologies to reduce carbon as a value added service.
[00:42:29] Speaker B: Yeah, Richard, thank you for that. And I agree with you. I think that the carrot approach here is going to be much, much more effective than mandating it because you still have an enormous price gap. And we know that just like we had this crisis recently with the war in Iran, as other costs get out of control, airlines have a heck of a lot less money to invest in SAF and sustainability. And in fact, over the past recent quarters, we've seen a number of airlines actually reduce their sustainability targets. Right. Or push them out even further. These are big passenger carriers who know they need to spread that out over a longer period of time simply because the dollars and cents don't add up. Just. Do you think we need a completely new sort of. Does a new SAF technology need to emerge here to get the price to a point where it becomes affordable, where people can actually make a realistic decision to switch over for a good percentage of their cost? Do you think we have the right technology at the moment?
[00:43:37] Speaker A: Look, SAF is. SAF is very different from jetflue. Right. There are so many different safs out there with different specifications. So more technology and innovative new ways of producing is absolutely, really important. Price is very, very important. At the same time, the cost of SAF in itself is not necessarily the issue. Look at where the fuel price is. In May, it was $5 a gallon, right? Give or take a little bit. A year ago it was 220 a gallon or 240 a gallon. A year ago you were paying $5 a gallon for SAF.
Right. It's not that air freight cannot sustain that kind of a cost. It's the competitive pressure between the alternative. Right. That really drives us to have to use jet fuel because obviously everyone else is doing that as well. So more technologies need to be there.
We need to get the gap between the two smaller. Then I think we'll see more uptick and I think our customers definitely in certain regions are quite interested in furthering this that will increase demand over time.
[00:44:39] Speaker B: Thank you, Richard. It was great getting your perspective on all these topics this week and really appreciate you joining us for this edition of Air Cargo Unpacked.
[00:44:49] Speaker A: Thanks, Neil. And thanks, Mike. I think it was very enjoyable. I love the conversation and a very interesting topic. So thanks for having me.
[00:44:56] Speaker C: Thank you, Richard. And that's it for this episode. Thanks as always to Neil Wilson and Tacindex, calculating agent for the Baltic air freight indices. And to our sponsor on Tegos Cloud, the Freight Forwarder profitability specialists. For more from the Freight Buyers Club, subscribe wherever you get your podcasts and follow us on LinkedIn and YouTube. I'm Mike King.
[00:45:17] Speaker B: And I'm Neil Jones Shaw. See you next month.
[00:45:22] Speaker A: La.
