FAA flight reductions, cargo plane groundings threaten to disrupt supply chains

[Cologne Bonn Airport cargo ramp]
Bjoern Wylezich/iStock Editorial via Getty Images

The Federal Aviation Administration’s directive to trim flight capacity by 10% across 40 major U.S. airports could tighten air cargo networks just as the holiday shipping season begins, the Associated Press reported Sunday.

Among the affected airports are key distribution hubs for major carriers. FedEx (FDX [https://seekingalpha.com/symbol/FDX]) operates large facilities in Indianapolis and Memphis, while UPS’s (UPS [https://seekingalpha.com/symbol/UPS]) Worldport in Louisville, Kentucky-- site of this week’s fatal cargo plane crash -- serves as its global aviation hub.

In response to the tragedy, UPS (UPS [https://seekingalpha.com/symbol/UPS]) and FedEx (FDX [https://seekingalpha.com/symbol/FDX]) said late Friday they are grounding their fleets of McDonnell Douglas MD-11 aircraft “out of an abundance of caution.” The Louisville crash killed 14 people, including the three pilots aboard the MD-11 bound for Honolulu. The model accounts for about 9% of UPS’s aircraft and 4% of FedEx’s fleet.

‘ONE-TWO PUNCH’ FOR AIR CARGO

The FAA’s order and the grounding of the MD-11s together amount to what Patrick Penfield, a supply chain management professor at Syracuse University, called a “one-two punch” for air freight operators and consumers alike.

“This is such a stressful time for both companies, and you’ve got this surge in demand and then you just lost some of your capacity,” Penfield said. “So they’re already scrambling as it is during the holiday season, and they’re going to scramble even more.”

Penfield predicted it may take weeks for the grounded aircraft to return to service after inspection, with possible shipping delays of a day or two in mid-December, when parcel volume peaks. He advised consumers to order early.

AIRLINES ADJUST OPERATIONS

The FAA order focuses on domestic flights, requiring air carriers to reduce daily scheduled operations between 6 a.m. and 10 p.m. by 10% at each of the 40 airports. While the directive doesn’t specifically address cargo carriers, air freight often moves in the belly of passenger aircraft as well as in dedicated freighters.

Both UPS (UPS [https://seekingalpha.com/symbol/UPS]) and FedEx (FDX [https://seekingalpha.com/symbol/FDX]) said their networks are resilient enough to absorb the temporary capacity loss. FedEx (FDX [https://seekingalpha.com/symbol/FDX]) stated it had “made the necessary operational modifications to meet the requirements so that shipments continue to move safely and swiftly through our network.” UPS (UPS [https://seekingalpha.com/symbol/UPS]) added that its network was built “to be safe and resilient and we're confident we can keep delivering the reliable service our customers count on.”

FREIGHT FIRMS BRACE FOR RIPPLE EFFECTS

Industry analysts expect the combined disruptions to create bottlenecks but not a full-scale crisis. Mike Short, president of Global Forwarding at C.H. Robinson (CHRW [https://seekingalpha.com/symbol/CHRW]), said his firm is helping customers prepare contingency plans if necessary.

“While the FAA’s 10% reduction in intra-U.S. flights will create some ripple effects in transportation, the impact on air freight overall is expected to be limited,” Short said. “Because most U.S. domestic air freight moves in the bellies of passenger aircraft versus cargo planes, reductions in commercial routes will tighten air capacity in those markets.”

Short added that trucks and ground networks can handle some of the overflow, but “not without challenges given that short-term surges drive spot rate volatility and equipment repositioning.”

Smaller, high-value products such as electronics and semiconductor components are typically shipped by air. Ground transportation can help offset some domestic delays, Ed Anderson of the University of Texas’s McCombs School of Business noted, meaning overnight parcel services should remain largely stable.

MOUNTING PRESSURE ON THE AVIATION ECOSYSTEM

Brandon Fried, executive director of the Airforwarders Association, warned that the combination of flight reductions and a prolonged government shutdown could compound the problem.

“Air cargo depends on every part of the aviation ecosystem working in sync,” he said. “When capacity is cut and federal employees are stretched thin, the supply chain slows and the longer this shutdown continues, the worse it will get.”

According to Eytan Buchman, chief marketing officer at Freightos, fewer flights could tighten the domestic cargo system, raising spot prices and stretching delivery times. Yet he noted the industry has learned to adapt.

“The silver lining is that airlines have become very good at consolidating loads and adjusting fleets after five years of dramatic supply chain swings,” Buchman said. “So this won’t translate to a simple one-to-one loss of capacity everywhere. I’d expect carriers to prioritize high-yield lanes, route via secondary hubs, and shift some domestic legs to other modes when it makes sense.”

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