CMA CGM Ends Air Cargo Alliance with Air France-KLM

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CMA CGM’s air cargo partnership with Air France-KLM will end in March, with both parties citing a tight regulatory environment in “certain important markets” as a catalyst for the breakup.

Reports from Reuters and the Financial Times said the short-lived partnership, which was initially struck as a 10-year agreement in May 2022 before officially going into effect in April 2023, had difficulty hurdling regulations required to operate in the U.S.

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A CMA CGM spokesperson confirmed to Sourcing Journal that the U.S. was a market where the Air France-KLM agreement proved to be more of a constraint.

The spokesperson indicated that the U.S. remains a market that CMA CGM’s air cargo division wants to develop.

The death of the partnership is a setback for the France-based container shipping giant’s attempts to expand further into air cargo, similarly to what ocean carrier competitors Mediterranean Shipping Company (MSC) and Maersk have done to widen their logistics operations amid heavy demand for air freight services and record profits during the Covid-19 pandemic.

CMA CGM launched the air cargo division in February 2021. The ocean carrier’s air cargo division owns and operates six cargo jets, and current has six more on order. Air France-KLM Group operates six cargo jets of its own, and has eight on order.

Air France-KLM and CMA CGM have begun discussions on new terms and conditions to operate their own cargo airplane fleets independently starting March 31. The companies will withdraw from their existing agreements on the same date.

According to a joint press release, the regulatory environment in certain markets prevented the cooperation “from working in an optimal way.”

The Reuters and Financial Times reports said the partnership had difficulty getting antitrust approval to fly in the U.S.

The situation got even more complicated when the Netherlands government attempted to cut roughly 10 percent of available flight slots at Amsterdam’s Schiphol Airport to reduce pollution, which miffed airline operators including U.S. carrier JetBlue. The U.S. warned the Dutch government that flight cuts could open the door for retaliatory cuts to Netherlands-based KLM’s frequencies to the U.S.

The Dutch authorities later halted the plan, but according to Reuters, the situation remained unfavorable for CMA CGM and Air France-KLM’s partnership to get cleared for takeoff in the U.S.

While neither company has touched on the financial implications, there’s a possibility that plummeting revenue also contributed to the partnership’s conclusion. In the first nine months of 2023, Air France-KLM’s cargo revenues were down 31 percent from the previous year to roughly 1.8 billion euros ($2 billion).

CMA CGM’s air cargo division reportedly struggled to gain traction in the year before the Air France-KLM partnership was announced, since potential logistics clients were also competitors with the company’s subsidiary, Ceva Logistics.

An alliance like CMA CGM and Air France-KLM was geared to serve a similar purpose to ocean alliances like the soon-to-be-dissolved 2M shipping alliance between Maersk and MSC.

With an alliance, both airlines aimed to better market air freight capacity and increase the scale of their dedicated services. Ultimately, it was intended to benefit shippers by giving them a wider array of destinations, and improve transit times and flexibility. With Air France-KLM in tow, CMA CGM could have even stored cargo on the belly of passenger flights.

CMA CGM will remain a shareholder in Air France-KLM, having acquired a 9 percent share in the airline when the deal was first struck. The parties agreed to amend the existing lockup period on the subscribed shares to end in February 2025 and will not be partly extendable until 2028, as originally planned.

Under the exit agreement, CMA CGM will step down from the Air France board of directors when the partnership ends.

The news dropped a day ahead of a major shift in the ocean freight power balance, with fellow container shipping lines Maersk and Hapag-Lloyd joining forces to form a new shipping alliance next year, called the Gemini Cooperation. That alliance will rise from the ashes of the 2M alliance, which is ending next January.

CMA CGM could be in for more air freight bookings ahead as the ongoing Red Sea disruption forces most major container shipping companies to spurn the conflict-ridden waterway and key East-to-West trade route.

According to data from the Freightos Air Index released Tuesday, trans-Pacific air cargo rates have been level since the end of December, but China-to-Northern Europe daily rates of $3.67/kg were up from about $3/kg in that same time frame, possibly reflecting some ocean to air shift due to longer ocean transit times.

Logistics companies such as DB Schenker and C.H. Robinson have both indicated that they expect more shifts from ocean to air in the coming weeks.