The head of cargo for American Airlines Inc. said the carrier plans an aggressive entry into the market for temperature-controlled pharmaceuticals, a move aimed at offsetting the declines in traffic from some of its traditional customers, many of whom have decided to stick with ocean freight after converting from air several years ago.
David Brooks also said in an interview from American's Dallas headquarters that he is pleasantly surprised by the supply chain's ability to meet the government's Aug. 1 edict that all freight loaded in the bellies of passenger planes at U.S. airports be screened or physically inspected before boarding.
Brooks said he is unaware of any industrywide problems arising from the directive other than a "minor backup, maybe a day or two." Brooks said he was most surprised by the amount of pre-screened freight that was reaching American. The airline had expected that only 20 percent of freight would arrive at airports already screened; meaning American would be responsible for screening the rest. Instead, as much as 50 percent of systemwide cargo had already been screened upstream—either by shippers, freight forwarders, or third parties—before reaching the airline, Brooks said.
Upping its cool factor
As for American's push into so-called cool-chain logistics for pharmaceuticals, that effort has been under way for about a year, Brooks said. However, the company is now making a more aggressive play for this business and expects rivals like Delta Air Lines Inc. and the newly formed United-Continental will do the same.
European carriers like Lufthansa German Airlines and Air France-KLM have long dominated the market for temperature-controlled pharmaceutical shipping. "But there is room for more players," Brooks said.
According to Brooks, 60 percent of all air freighted drug shipments are temperature controlled. The supply chain for cool-chain drugs is global in nature, with manufacturing being done in Asia, in-process production handled in the United States, and the shipments then sent to Puerto Rico for repackaging for delivery into the U.S. market. Cool-chain pharmaceutical logistics is a potentially lucrative segment with high margins. But it is also one that demands the highest levels of service, Brooks said.
Brooks acknowledged that many traditional air-cargo users have shifted in recent years to ocean freight as soaring jet fuel costs and a global recession forced businesses to seek less costly shipping alternatives. During that period, the ocean supply chain has improved its value proposition by rolling out services with time-definite delivery schedules and faster transit times. As a result, businesses that would normally have returned to air when fuel prices fell and the economy recovered have instead stayed with ocean.
Brooks said commodities like printed matter and finished garments-on-hangers are no longer viable for air transport. Printed matter consumption has declined as more readers rely on electronic devices to get their content. In addition, in an era of austerity there is a shrinking market for expensive final garments that were shipped by air so they could be quickly brought to market, he said.
Asked about the capacity outlook for air freight, Brooks said he expects a decent peak shipping and holiday buying season, with nowhere near the capacity crunch experienced a year ago as air-freight demand surged from historically low levels and carriers that had parked aircraft during the teeth of the recession were unable to return them to service fast enough to accommodate the burst in traffic.
Brooks said American's supply-demand scale is largely in balance. However, he said freight rates are much higher today than they were a year ago, largely because Delta Air Lines grounded the freighter fleet of Northwest Airlines after the two airlines merged, and financially strapped Japan Air Lines pulled down most of its freighters. The absence of freighter—or main-deck—capacity has been a main factor in the increase in rates, Brooks said.
Brooks said trans-Atlantic demand remains weak, while exports from Asia to North America, as well as southbound from the United States into Latin America, continue strong.