Western Global Airlines Files for Chapter 11 Bankruptcy
Monday’s news of Yellow’s bankruptcy wasn’t the only development in the logistics sphere. Yet another business filed for Chapter 11, while UPS reported a hit to its profits after the Teamsters labor deal, and freight volumes continue to shift in the air and on the sea.
August cargo volume expected to soar: NRF
As retailers stock up for the upcoming holiday season, import cargo volume at the nation’s major container ports is expected to reach its highest level in nearly a year in August. That’s according to the new Global Port Tracker report released Monday by the National Retail Federation and Hackett Associates.
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One thing helping keep that freight moving is the end of the 13-day port strike in western Canada that impacted some U.S. retailers last month. And the tentative contract agreement reached between the West Coast ports and labor unions in June, along with a tentative contract between the United Parcel Service (UPS) and the Teamsters, have prevented further potential disruptions.
“Port and package-delivery labor negotiations that threatened the supply chain at the beginning of the summer have been resolved and retailers are now focused on preparing for the all-important holiday season,” NRF vice president for supply chain and customs policy Jonathan Gold said. “There are always supply challenges to be faced but holiday merchandise is flowing into the country, and we expect to see a smooth shipping season ahead of the winter holiday shopping season.”
According to Global Port Tracker, U.S. ports handled 1.83 million twenty-foot equivalent units (TEU) in June, which was down 5.2 percent from May and down 18.7 percent year over year. For the first half of 2023, ports handled 10.5 million TEU, which was down 22 percent from the first half of 2022.
“Dollar figures for international trade show imports remain in a year-over-year decline and cargo volume shows the same,” Hackett said. “The discrepancy between rising growth in sales and declining cargo volumes is happening because retailers are working their way through inventory built up over the last 12 to 18 months. Cargo growth should resume as inventories are depleted.”
July numbers have yet to be reported, but Global Port Tracker projected the month at 1.91 million TEU, down 12.7 percent year over year. August is forecast at 2.03 million TEU, down 10.2 percent year over year, but also the first month since October 2022 to reach 2 million TEU. September is forecast at 1.97 million TEU, down 3 percent; October at 1.99 million TEU, down 1 percent; November at 1.92 million TEU, up 8 percent for the first year-over-year increase since June 2022, and December also at 1.92 million TEU, up 10.7 percent year over year. Those numbers would bring 2023 to 22.3 million TEU, down 12.8 percent from last year. Imports for all of 2022 totaled 25.5 million TEU, down 1.2 percent from the annual record of 25.8 million TEU set in 2021.
Global Port Tracker provides historical data and forecasts for the U.S. ports of Los Angeles/Long Beach, Oakland, Seattle and Tacoma on the West Coast; New York/New Jersey, Port of Virginia, Charleston, Savannah, Port Everglades, Miami and Jacksonville on the East Coast, and Houston on the Gulf Coast.
Air cargo contraction eases in June
While ocean cargo may be down year over year, the global air cargo market is showing the smallest year-over-year contraction in demand since February 2022. That’s according to June data from the International Air Transport Association (IATA).
Global demand, which is measured in cargo tonne-kilometers (CTKs), fell 3.4 percent in June compared to the year prior. For the first half of 2023, demand slipped 8.1 percent compared to the same period last year while demand in June was only 2.4 percent below pre-pandemic levels of June 2019.
Capacity, which is measured in available cargo tonne-kilometers (ACTKs), increased 9.7 percent compared to June 2022, reflecting a slower rate of growth compared to double-digit gains between March and May. Strategic capacity adjustments made by airlines in a weakened demand environment led to the shift. Capacity was up 9.9 percent for the first half of the year compared to the same period in 2022, and up 3.7 percent above June 2019 levels.
According to IATA, cooling demand for goods and challenging macroeconomic conditions have fueled the decreases. But the difference between annual air cargo growth rates and the global goods trade dropped to -2.6 percentage points in May, the smallest gap since January 2022.
“We remain hopeful that the difficult trading conditions for air cargo will moderate as inflation eases in major economies,” said Willie Walsh, director general, IATA. “This, in turn, could encourage the central banks to loosen the money supply, which could stimulate greater economic activity.”
Western Global Airlines reaches reorganization agreement
Air cargo outfit Western Global Airlines on Monday announced that it has reached an agreement with key financial stakeholders to move forward with a reorganization plan. To implement the plan, the company has filed for voluntary Chapter 11 bankruptcy protection.
Western Global founder Jim Neff has pledged along with existing bondholders—who account for 85 percent of the company’s outstanding senior unsecured notes due in 2025—to offer $77 million in debtor-in-possession financing. The funds will allow the company, which counts UPS, FedEx, USPS and DHL as clients, to support operations through the Chapter 11 cases and fortify its balance sheet once it emerges from bankruptcy.
Western Global said its reorganization, which is laid out in a Restructuring Support Agreement (RSA), will reduce its debt by more than $450 million while also infusing capital.
The reorganization follows a substantial investment by Neff in June, when he purchased the company’s $115 million of outstanding senior secured debt for $45 million in a competitive process independently conducted by the lenders. Neff also has agreed to forego some of the statutory rights he would otherwise maintain as holder of this debt to pass the $70 million benefit to bondholders, employees and the employee stock ownership plan (ESOP).
“The plan we have outlined in the RSA reflects my continued dedication to and belief in WGA, along with the overwhelming support of our key financial stakeholders,” Neff said. “I am confident that this plan will tremendously strengthen our financial position and ensure a better future for WGA, our people, and our customers.”
Teamsters labor negotiations hit UPS Q2 profits
UPS reported a 24 percent drop in revenue for the second quarter from the same period last year, a hit it blames on the heated Teamsters union negotiations.
The tentative deal reached between UPS and the Teamsters hasn’t taken effect yet, but the threat of an Aug. 1 strike by the 340,000 union members within the company stirred up enough panic to send customers shifting to other services. UPS said it lost business during the labor negotiations, along with seeing softer online purchasing.
As it works to regain those lost customers, UPS adjusted its full-year revenue outlook for the remainder of the year, trimming it by $4 billion to $93 billion. The company also projected its full-year profit margin to be 1 percent lower than previous estimates, also partly due to the Teamsters negotiation.
