Most readers know about Amazon, FedEx, UPS and US Postal Service delivery service which brings parcels to your front door. When you think about the logistics, from warehouse to box to plane to van and to your door. Most of think about the last piece the van to your door because that is our immediate contact. However, there are companies that evolve around the plane or air cargo shipments.

In an article by Tim Hepher, Lisa Baertlein, Allison Lampert, and Valerie Insinna of Reuters, the people who run the cargo business are facing extra challenges now that COVID has passed. When COVID shut down passenger travel, the planes were flying but they were carrying cargo. Ever since planes have been flying, cargo has been a mainstay of profits. The early airlines were dependent on the revenues they made from carrying mail for the postal service. The mail was dependable and needed until the general public became familiar with flying cargo was the mainstay.

Jumping to the present time, during COVID, air cargo enjoyed record demand and when there is record demand it tends to mean higher prices for shipping. Since the end of COVID, demand has fallen, there is extra capacity in the system and freight rates are not going as much as costs.

When a passenger jet takes off, the lower level where passengers do not go is filled with cargo. During COVID, the airlines expanded the cargo space and now servicing passengers has taken back the space.

The global air cargo industry is worth about $200 billion a year.

Norwegian cargo analytics firm Xeneta, said in the next few years, shippers rather than the airlines will have the bargaining power and expect prices to decline.

An example is Western Global based in Florida recently filed for Chapter 11 protection. Even though Western Global does outsourcing for the US military. The carrier said the concerns are the unyielding and rapidly macro-economic headwinds that plagued the entire air-cargo transportation sector starting in late 2022.

According to data supplied by Xeneta, it costs $2.30 airfreight for 1 kilo (2.2 pounds). The price on the spot market is down 35% from last year and down 50% from the peak in 2022 of about $5.

The two big airlines Boeing and Airbus sell planes to shippers. Cathay Pacific, the 5th largest cargo carrier, has postponed a potential $2 billion order with Boeing. However, both Boeing and Airbus said 20 year demand forecasts for more than 2,000 new or converted planes remained intact.

Linking to dividend paying stocks, most readers work in a specialized industry, however in most industries the rules of supply and demand remain intact. If the industry is largely commodity based, the rules fit very well. If the industry is regulated, prices can increase according to inflation and supply and demand (for example utility prices). Understanding the business can make you a better investor.

There are more questions than answers, till the next time – to raising questions.