Armed conflict in Ukraine and the Red Sea has ramped up freight shipments for Cargojet Inc. CJT-T, as global discord pushes companies to seek alternate transit routes.
The air freight and plane leasing company saw net earnings rise nearly seven per cent year-over-year to $32.5 million in its latest quarter, buoyed by continuing e-commerce demand in Canada but also trips chartered to haul cargo internationally.
“A lot of the charter activity that we’re seeing now is related to supporting both relief missions and military supplies either into the Middle East or into Poland and other places to support Ukraine,” said co-CEO Jamie Porteous on a conference call with analysts Monday.
In the Red Sea, ongoing missile strikes by Iran-backed Houthi militants in Yemen have pushed major container carriers to steer clear of the Suez Canal. The crisis has prompted some shippers to opt for air transport, bumping global air cargo volumes by 11 per cent year-over-year for the third month in a row in March, according to freight analytics firm Xeneta.
“Air freight growth was primarily driven by increased volumes from the Middle East and South Asia as shippers shifted services from ocean to air to avoid Red Sea delays,” said Niall van de Wouw, Xeneta’s chief airfreight officer, earlier this month.
“We also cannot underestimate the importance of e-commerce growth, which shows no sign of abating on its most prominent lanes.”
Cargojet offered a similar take. E-commerce shipments drove growth in its domestic volumes, said Porteous. Revenue from so-called wet leases – where the lessor furnishes the aircraft, crew, maintenance and insurance (ACMI) for another company – rose eight per cent, with two more of its 41 planes deployed to service global customers such as German logistics group DHL.
Uncertainty around short-term consumer spending amid high interest rates and inflation fallout served as a mild check on growth in those areas, he added.
The co-chief executive also laid down a qualifier on the discord that could further bolster the Mississauga, Ont.-based company’s profits, warning of a flip side to the conflict coin.
“Our cautious optimism is tempered by the increasing geopolitical uncertainty and potential supply chain disruptions,” Porteous said in a release.
But on the conference call, he clarified that he saw the Red Sea strife “more in terms of opportunity than impact.”
“The fact that supply chains have been disrupted because of that could lead – and have led to – additional ad hoc charter opportunities.”
Analyst Walter Spracklin of RBC Dominion Securities called last quarter’s volume growth “frankly quite exceptional … given the meaningful decline we saw among trucking players” in Canada.
Co-chief executive Pauline Dhillon said streamlined maintenance processes and more efficient schedules and shift management helped bring down costs as well.
Meanwhile, the shutdown of Calgary-based Lynx Air in February was “certainly helpful” with pilot recruitment amid a global shortage, said executive chairman and founder Ajay Virmani.
Though Air Canada and WestJet have set up fleets of air freighters over the past three years – rather than hauling ordered goods exclusively in their passenger planes – “they’re not … irritants or competing with us in any big way,” said Virmani.
“They have their own markets. They have their own niches.”
Despite the boost provided by turmoil abroad, Cargojet began the year with a pivot to focus on its domestic operations after ditching plans for a major international expansion via a slate of aircraft aimed at intercontinental trips.
In January, Cargojet announced it would scale down its fleet growth by scrapping the purchase of four Boeing 777 airliners. The move came after the company nixed the other four 777s in its initial eight-plane order announced in March 2022.
It also sold four Boeing 757 aircraft last quarter.
Cargojet said revenue totalled $231.2 million for the three months ended March 31, roughly on par with $231.9 million in the same period last year.
On an adjusted basis, Cargojet earned $1.86 per share in its first quarter, up from an adjusted profit of 97 cents per share a year earlier. The result nearly tripled analysts’ expectations of 66 cents per share, according to LSEG Data & Analytics.