CMA CGM and Air France-KLM abandon air cargo alliance

Wednesday, 14 August 2024

French shipping group CMA CGM and carrier Air France-KLM are scrapping an air cargo partnership after struggling to get US approval to operate North American routes and deliver on the project’s promise in the wake of pandemic lockdowns.

The companies said on Tuesday they would end a tie-up announced in 2022 at the end of March, citing regulatory constraints, and that each would go back to operating their own cargo aeroplane fleets while still trying to co-operate on some routes.

One of the biggest hurdles had been the partnership’s difficulty in getting antitrust approval to operate in and out of the US, killing off one of their biggest markets, two people familiar with the matter said.

“A constrained regulatory environment on some important markets did not allow us to co-operate in an optimal fashion,” the companies said.

The original 10-year deal, which was partly motivated by CMA CGM branching into new avenues on the back of Covid-19 era windfall profits, was coupled with a direct investment by the shipping group into the Franco-Dutch airline group. CMA CGM will keep its 9 per cent stake in Air France, but a lock-up on those shares will end in February 2025 and no longer be partly extendable until 2028.

The Marseille-based transport group, the world’s third biggest container shipping company, will also give up its seat on the board of Air France-KLM. The airline group also counts the French and Dutch governments as big shareholders, and had welcomed CMA CGM as it looked to turn the page from Covid-19-related bailouts and raise fresh capital.

The collapse of the partnership comes after CMA CGM’s rivals such as Maersk and MSC also branched into air cargo in recent years.

The companies were lured by surging demand when pandemic lockdowns in 2020 grounded aeroplanes that also carried goods on passenger flights. This in turn exhausted capacity on maritime routes and sent customers searching for speedier transport solutions.

Recent Houthi attacks on container ships in the Red Sea have begun to push up air freight rates and shown fresh pockets of demand for such services.

But prior to this, the expected air cargo boom was damped by a return to pre-Covid traffic levels on passenger flights, adding extra capacity and competition, which weighed on freight rates. In the first nine months of 2023, Air France-KLM’s cargo revenues were down 31 per cent on the previous year.

The US antitrust issue was complicated by the Dutch government’s attempts to cut flights at Amsterdam’s Schiphol airport on environmental grounds, a plan it abandoned at the end of last year but which had also irked US airlines such as Jet Blue, which had risked getting no slots.

That had added to the struggle to obtain competition approval, one of the people familiar with the matter said.

Flush with cash after the pandemic, a boom that is now waning as shipping rates come down from the lockdown-era surge, CMA CGM began its air cargo push by buying six planes and has six more on order, which it intended to contribute to the partnership.

The shipping group will still use the aircraft, but trying to break into the industry on its own has its challenges too, a third person familiar with CMA CGM’s business said.

Under its original attempts, some potential clients were hard to entice because CMA CGM was proposing its services to logistics companies it was also competing with through its own divisions such as CEVA.