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Air cargo boom collides with the rising cost of aviation

Global economic growth and the particular strength of the technology and manufacturing sectors have left the airfreight industry riding high. That said, the sector finds itself uniquely pinched by factors outside its control. Those factors, of course, include runaway fuel prices. But cargo airlines, aircraft lessors and freighter conversion shops are also reeling from the surging expense of acquiring aircraft and engines, and then maintaining those assets. Lease rates for older Boeing 777-300ERs - prime candidates for cargo conversions - have increased $200,000 monthly in the last two years, partly because passenger airlines are holding on to such types, Anna Kopinski, director of asset valuations at mBa Aviation, said last week at the Cargo Facts Symposium in Nashville. Another example: the oldest 777s were worth about $30m at end-2024. "Now, you can't get a half-time aircraft for anything under [$40-45m]," Kopinski adds. "That's a lot of capital." The inflated values come amid a period of strength for airfreight. "Cargo demand is outpacing cargo capacity," Pooja Gardemal, managing director of aircraft appraisal firm BK Associates, said at the event. Airfreight demand increased 4.4% year on year in August, buoyed by a rising manufacturing sector, IATA reported in its most recent monthly air cargo market analysis, with growth concentrated in North America and Asia Pacific. Meanwhile, Airbus predicts airlines over the next 20 years will need 2,670 additional freighters, including 1,140 small, 860 midsize widebody and 670 large widebody jets, according to its 2026 Global Market Forecast, released last week. "It has been a very robust year," says FedEx Logistics president Marcus Balzereit, citing "immense growth" in the manufacturing, healthcare, technology, automotive and aerospace sectors. Meeting that demand while making the economics work is the trick. George Dimitroff, head of valuations at fleet consultancy Cirium Ascend, says midlife 737-800s are now changing hands for about $20m. Paying that much and then converting the aircraft to a freighter is economically feasible, he adds. Engines are driving much of the price spike, a consequence of high demand for, and limited supply of, new engines, used engines, spare parts and maintenance capacity. Even "unserviceable" CFM International CFM56-7Bs, which power 737NGs, have recently been selling for $7m, "which is unheard of in my career", Dimitroff says. Parts shortages are so acute that MTU Aero Engines North America this year purchased 15 GE Aerospace CF6s solely for access to the engines' life-limited parts, says vice president of sales and marketing Les Cronin. Maintenance expenses are equally frustrating. "We've seen maintenance costs rise incredibly," says mBa's Kopinski. Have a Rolls-Royce turbofan that needs overhauling? Expect to wait one year for a maintenance slot, then another four months for the work to be completed, says Titan Aviation Leasing's vice-president of technical, Juan Zapata. Some maintenance shops are needing more time - six months - to complete overhauls, or about twice as long as previously, says Western Global Airlines chief executive James Neff. Want to scoop up an engine from the aftermarket? Good luck. "We're starting to see this continuous shortage of engines available in the market", which "drives up the prices", says Zapata. Challenge Group, which owns several cargo airlines, has so far been successful in acquiring aircraft already equipped with engines, but the severity of the problem leaves operators facing the prospect of acquiring engine-less airframes, then later sourcing turbofans, says Challenge chief commercial officer Or Zak: "There's not much more that we can do." Prices will likely remain elevated and capacity will remain tight for the foreseeable future, until aircraft manufacturers accelerate new-jet production. Then, more used aircraft will become available and prices will ease, executives say. "I think we're looking at post-2030 before you see feedstock values for the 777-300ERs coming down to a point where it's once again a viable [conversion] option," says Kopinski.

DSV still a bargain after near-17% post-results rally?

There's no denying that DSV's stock rally post-Q3 26 update out last week (21 October) has been remarkable. (Sorry.) Regardless of: a) air and sea (A&S) volume growth that was nowhere close to that recorded by Kuhene + Nagel (K+N) in the third quarter; b) core A&S volumes, as CEO Jens Lund told investors, that "are hovering around (...), basically plateauing now: so we've come out of the trough, and we're basically at the inflection point': c) a Road story that is ...

Container newbuilding fleet closing in on 16m teu by year-end

After recently passing 15m teu, the global orderbook for containership newbuildings could near 16m teu by the end of the year, according to new analysis from Alphaliner. "Before the end of the year, another 40 or so 'megamax' newbuilding contracts from Maersk, Yang Ming [both expected soon], CMA CGM, and MSC [both believed signed, but yet to be confirmed by Alphaliner] will push the global newbuilding pipeline very close to 16m teu in the last quarter of 2026," it writes today. On the Maersk order, Alphaliner reports that the carrier is exclusively talking to Chinese yards on cost and building slot availability. It added: "Reportedly, the carrier is looking to place firm orders for 12 ships of 24,000 teu, potentially with options attached for a second series of 12. "Tonnage of this category would currently be priced at around $240m per vessel." Meanwhile, according to analysts at Drewry, the global fleet currently totals 34m teu, which means that, even without the unconfirmed 40 newbuildings noted by Alphaliner, the orderbook represents 45% of the current fleet. Almost a third of this - 4.9m teu - has been ordered this year alone, and should orders for the extra 40 vessels be confirmed, this would be likely well over 5.5m teu and make it a record year in terms of newbuildings ordered, beating last year's 5.4m teu. However, shippers hoping the influx of new capacity will lead to a sudden collapse in freight rates may be disappointed, according to Vespucci Maritime chief executive Lars Jensen, who spoke at a Hapag-Lloyd press briefing a few days ago. "The market is not going to drop off a cliff. When we talk about the market crashing, that would be like what we saw in the financial crisis back in 2008. That, for sure, is not what we're looking at," he said. "How I would more likely characterise the coming years is as a regular run-of-the-mill cyclical downturn. This is a cyclical industry, it has been ever since it was born, and this is another one of those cycles. "So a crash? Absolutely not. But do we have too much capacity compared to what we can absorb? Yes, that is also the case," he added. Meanwhile, Hapag-Lloyd CEO Rolf Habben Jansen added that the growing imbalance of the main container trades - particularly the yawning chasm between China's export and import volumes - as well as an expected increase in vessels sent to be scrapped, would mitigate against new capacity. "Of course, the orderbook is bigger than it has ever been, but there are a couple of things to keep in mind - one is that the current fleet is aging, so we will start to see scrapping going up. "We can debate about when and at what pace, but that's definitely going to come up," he said. "There's the growth, especially the growth on some of those dominant legs - when you look at the middle of 2023 until now, the growth on the dominant legs has been about 25%, which is unbelievable. "If you combine that with some of the inefficiencies we see popping up because of trade barriers and tariffs, one cannot rule out that we're going to see another couple of years of pretty decent growth," he said. Mr Habben Jansen also pointed out that lead times for newbuildings had lengthened to near historic highs as slots as shipyards have become increasingly full. "If you look at the orderbook today, where traditionally it used to cover two, or two and a half years of deliveries, nowadays it's more like four, or four and a half years. "If you order a ship today, you will only get it by 2030," he added.