Logistics for an Unflat World: Air Transport Services Group (ATSG)

Photo courtesy pixabay

war and Covid ADD a premium TO air cargo carriers ready to ship

Shipping has never been easy. Just ask the Venetians. Starting in the late 16th century, the dominant global trading enterprise of that era, the City State of Venice, faced a major logistics challenge: Something close to 250 to 300 ships, out of a total fleet of roughly ten times that size, were lost to lawlessness while at sea. The Venetian ships were targets for Algerian and Tunisian pirates and Turkish, Dutch, and English privateers. All were hungry for cash to fund pricey conflicts firing off throughout central Europe. 

The rising tide of shipping losses in turn drove a cascading spike in security costs, rates for able-bodied seamen, and, most importantly, the cost of insurance. Research conducted by J.L Anderson of La Trobe University estimated that by 1607, the increased cost of soldiers, armed sailors, port dues, and insurance rose to roughly 85% of the total shipping costs. 

Fifteen years earlier, the same costs of security and insurance ran just 10%. 

Not surprisingly, Venetian capital soon began turning from the sea. A lack of Venetian presence left a trading vacuum for Atlantic-facing nations like Portugal and Spain. And on land, the remaining known world became easy targets for Islamic armies swarming in from central Europe and Asia. 

Costly Shipping

A similar waterfall of increased risk is flooding today’s global logistics market. The war in Ukraine is further clogging Covid-cramped shipping lanes in and around the Mediterranean and Red Seas. Russia has become a no-fly zone for much of global airfreight. And everything from rail freight to trucking routes have had to adapt to increased fuel costs are other expenses. The actual dimensions of the changes in global logistics are just emerging. 

Certainly established operators like Cargojet, FedEx and UPS are seeing opportunity. But overall, they are facing limits on capacity and do not have the means to focus on the nimbleness required in today’s changing logistics market. Those close to air freight indicate that Wilmington, Ohio-based Air Transport Service Group (ATSG) is the compelling air cargo provider for bespoke logistics markets. 

In many ways, shipping is proving to be intelligent and adaptive. Indian Prime Minister Narendra Modi announced that his country passed a record $400 billion in total exports. And a look at the comparative density of shipping traffic in war-affected sea lines in the Eastern Mediterranean and Red Seas, shows that traffic has remained roughly equal, at least so far, this year compared to last. 

Shipping density maps indicate total traffic remained unchanged through both covid and conflict in the Middle East.

Freight forwarders are reporting that traffic levels for various forms of cargo transports are being maintained through clever workarounds that exploit alternative forms of shipping. Cargo more and more is finding its way onboard flexible, if costly, air freight. 

The demand is squeezing already tight capacity in the air-cargo sector. 

Today’s constrained air cargo market has a symbolic moment: The world's largest transport plane, the Antonov AN-225, was recently destroyed while being serviced near Kyiv. While the overall effect of the loss of the plane is minimal, the image tells the story of the challenges ahead for keeping freight flying. 

Air Cargo is getting dangerou: The largest cargo aircraft on earth, the Antanov 225, was recently destroyed while getting ground-service outside of Kyiv.

Air Transport Service appears to offer the right mix of leasing, services and customized transport options. They are the Penske Trucking for cargo aircraft, says one freight forwarder. 

Covid sapped company performance. But recently, it is operating at larger capacities. And it shows improving financial benchmarks. It is also priced at a $11.50 price-to-earning ratio. UPS and FedEX are trading at $14.34 and $90.40 respectively. 

Meaning, Air Transport Service Group is flying on the cheap. At least, for now.