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By air and by sea, CMA CGM expands freight business

The Edge Singapore
The Edge Singapore 10/6/2021 08:32 PM GMT+08  • 5 min read
By air and by sea, CMA CGM expands freight business
CMA CGM, which acquired NOL in 2016, declared US$350 million dividends in 1H2021, and diversified into air freight
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Although privately held, shipping and logistics operator CMA CGM Group has been making waves. In the latest James Bond franchise, No Time to Die, a light aircraft flies daringly below some CMA CGM cranes in Kingston Container Terminal in Jamaica, operated by the French group.

Originally a container freight forwarding operator that acquired Neptune Orient Lines (NOL) in 2016, CMA CGM announced, on Sept 29, the purchase of two new Boeing 777 Freighters to grow the group’s air freight division operations.

CMA CGM launched its air freight division, CMA CGM Air Cargo, in February 2021, commencing commercial operations in March with its first flight between Liege (Belgium) and Chicago, followed by flights to New York, Atlanta and Dubai. The first four freighters are 60-tonne-payload Airbus A330-200F freighter aircraft.

Growth in global air freight

In 1H2021, data for global air cargo markets released by the International Air Transport Association (Iata) showed 1H2021 air cargo growth of 8%, its strongest first-half performance since 2017 (when the industry posted 10.2% y-o-y growth).

In August 2021, global demand, measured in cargo tonne-kilometres (CTKs), was up 7.7% compared to August 2019 (8.6% for international operations). Iata says 2020 numbers were distorted by the pandemic. Overall growth remains strong compared to the long-term average growth trend of around 4.7%, according to Iata.

The pace of growth slowed slightly compared to July, which saw demand increase 8.8% (against pre-Covid-19 levels). However, cargo capacity recovery fell by 12.2% compared to August 2019 (–13.2% for international operations). Economic conditions continue to support air cargo growth but are slightly weaker than in the previous months, Iata says.

The August new export orders component of the PMIs (Purchasing Managers Indexes) was favourable for air cargo, it adds. Expansion continued at the global level, although there was contraction in emerging economies, Iata says.

Demand for air freight is likely to continue. “The inventory-to-sales ratio remains low ahead of the peak year-end retail season. This is positive for air cargo. However, further capacity constraints put this at risk,” Iata says.

“Air cargo demand had another strong month in August, up 7.7% compared to pre-Covid levels. Many of the economic indicators point to a strong year-end peak season. With international travel still severely depressed, there are fewer passenger planes offering belly capacity for cargo. And supply-chain bottlenecks could intensify as businesses continue to ramp up production,” said Willie Walsh, Iata’s director-general.

No surprise then that CMA CGM decided to muscle in on this part of the logistics value chain. “In response to the growing demand from our customers for agile logistics solutions, we are creating a new division within the CMA CGM Group dedicated to air transport: CMA CGM Air Cargo. This division [launched] with four Airbus A330-200F aircraft and will leverage commercial partnerships with airlines in order to deliver global coverage. This is a major milestone in the development of our logistics services,” said chairman and CEO of CMA CGM, Rodolphe Saadé, in February. Saadé’s family owns 72.6% of the company through Merit France.

In 1HFY2021, for the six months to June 30, CMA CGM announced a net profit of US$5.55 billion ($7.54 billion), free cash flow of US$8.7 billion and a dividend of US$350 million.

Per mare, per terram

Freight rates have been on a tear this year and the motto for the British Royal Marines (“Per mare, per terram”, or “By sea, by land”) suits CMA CGM’s business.

As at June 30, CMA CGM had expanded its vessels by 12.6% y-o-y to US$15.2 billion, and its containers by 25% y-o-y to US$3.6 billion. CMA CGM owns and leases 542 containerships. In 2020, it transported 21 million TEU (twenty-foot equivalent units) containers.

Its logistics arm, CEVA Logistics, handles 400,000 tonnes of airfreight and 2.8 million tonnes of inland freight every year. This unit has a network of 750 warehouses and 400 offices in 160 countries. In a statement,

CMA CGM said transported volumes by the ocean division were strong in 1H2021. The financial performance has been supported by the combination of unit revenue dynamics in the ocean division and cost containment efforts across the group. Such trends currently continue to prevail, it adds.

According to the company, the demand for transport and logistic services recovered quickly from the trough levels observed in 2Q2020 “to reach very high levels since the second half of 2020”. The company has been operating at full capacity since 2H2020.

Challenges remain

Towards the end of last year and during 1H2021, the level of demand combined with disruptions due to the pandemic created congestion in global supply chains, including in ports and hinterland infrastructures.

“In container shipping, this translated into slower asset rotations and severe equipment shortages (vessels and containers),” the company says. “The Suez incident towards the end of the first quarter and the resurgence of Covid-19 infections which led to new restrictions in certain Asian ports over the second quarter, combined with the absence of idle vessels, have exacerbated an already tense situation,” it adds.

As a result, CMA CGM added capacity wherever and whenever possible or reorganised its services to cope with the restrictions.

With NOL in its belly, CMA CGM owns American President Lines (APL), a US-based subsidiary which was acquired by NOL in 1997 for US$825 million. APL is an important part of CMA CGM’s global reach.

Under Ng Yat Chung who became CEO of NOL in 2011, NOL made a loss of US$10.8 million in FY2015, and a further loss of US$105 million in 1QFY2016 (NOL had a December year-end), before it was sold to CMA CGM for $3.38 billion in 2016.

Despite being enormously profitable in 1H2021, CMA CGM warned in an outlook that prospects remain highly uncertain. “As far as CMA CGM is concerned, the longer-term effects of the pandemic and the development of macro-economic circumstances are difficult to predict at this stage,” it says.

Interestingly, No Time To Die notched up the highest opening weekend UK takings of any 007 movie, following the movie's premier, attended by Britain’s Royal Family on Sept 30.

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