A surge in the introduction of new technology products, including Apple Inc.'s (AAPL) iPhone 5, is poised to drive up rates for shipping by plane, benefiting companies from FedEx Corp. (FDX) to Atlas Air Worldwide Holdings Inc.
Apple, Google Inc. (GOOG), Microsoft Corp. and Amazon.com (AMZN) Inc. are offering new smartphones and tablets as they compete for customers in the fast-growing mobile-computing market. So many devices shipping at once may spur a larger price increase than the 20 percent jump after Apple's new iPad in March, said Kevin Sterling, a transportation analyst at BB&T Capital Markets.
"This is a new dynamic for the air-freight industry," Sterling said in a telephone interview from Richmond, Virginia. "There's been tech launches periodically, but there's so much hype around so many products at one time."
The gadget convergence is a bright spot for air-freight companies in a pre-holiday shipping season clouded by weak U.S. job growth. Potential beneficiaries include companies such as FedEx, which runs the world's largest cargo airline, and Atlas, the biggest operator of Boeing Co. (BA) 747 freighters.
Shipments of iPhones and tablet computers may reach as much as 20 million pounds (9.1 million kilograms), said Satish Jindel, president of SJ Consulting Group in Sewickley, Pennsylvania. Strict pre-release security and short timetables for delivery to retailers make air transport the shipping method of choice, Sterling and other analysts said.
"The tech companies, they tightly control these product launches," Sterling said. "Apple doesn't want someone getting ahold of the iPhone5 a few days before, taking away from the hype."
The resulting crunch may push the average air freight rate as high as $5 a kilogram this month, he said. The average in March, when the iPad was released, was $4.44 per kilogram, according to Drewry Shipping Consultants Ltd. July's rate, the latest available, was $3.82.
"We have kind of a perfect storm of new product launches," said Jim Corridore, a Standard & Poor's equity analyst in New York who covers transportation companies and estimates that a rate increase may last through October. "They're all going to want to be expedited."
Atlas, buoyed by iPad cargo earlier this year, applied those lessons to get ready for the latest rush.
"We anticipated there would be a number of these new product launches that would support the overall demand for air freight moving into what is traditionally peak shipping season," said Dan Loh, a spokesman for the Purchase, New York- based company. Atlas expects "an environment that would be akin to what we saw back in March."
In advance of events such as product releases, UPS Airlines can add flights, increase the capacity of its facilities, or farm volume out to 12 regional hubs, Mike Mangeot, a spokesman, said in a telephone interview.
"It's something that we know is coming, and we work with the shippers to flex our operations and make it happen," said Mangeot, who declined to discuss specific customers.
A FedEx spokesman, Jess Bunn, declined to comment before the Memphis-based company's quarterly earnings report slated for Sept. 18.
Deutsche Post AG (DPW)'s DHL Express, which is one of Atlas's long-term contract clients, also declined to comment on individual customers.
"A number of these companies, when they launch a new product, we are heavily involved; all the big brands," Rob Siegers, DHL's president of global technology, said in a June interview.
Analysts say DHL may be a primary carrier for Apple, which plans to deliver its iPhone 5 on Sept. 21. The Cupertino, California-based computer and mobile-device maker is expected to debut a smaller, cheaper iPad tablet by the end of the year, two people with knowledge of the plans said in July.
Google started shipping its Nexus 7 tablet in July, and Microsoft's (MSFT) tablet computer, the Surface, goes on sale Oct. 26.
Amazon.com has four different sets of Kindle reader and tablet devices on sale this year, with a high-definition and regular 7-inch (17.8 cm) Kindle Fire tablet available today. Larger models of the Fire are available starting Nov. 20, while the Kindle Paperwhite e-book reader goes on sale on Oct. 1.
"Everyone sees an opportunity," said Will Stofega, program director at researcher IDC in Framingham, Massachusetts. "It's a brand-new form factor. If you can compete with Apple, you have a good chance to up your revenue. A lot of people feel that the first implementations were not that great. The operating systems and the hardware have matured, and this is now or never."
The release dates coincide with the traditional shipping surge between Thanksgiving in the U.S. and Christmas, when holiday deliveries boost sales.
"With capacity down and demand appearing like it's going to be fairly strong, rates will be very strong," Helane Becker, a transportation analyst with Dahlman Rose & Co. in New York, said in a telephone interview.
Benefits to air-cargo shippers may be heightened by capacity cuts made as global demand slackened this year. Atlanta-based UPS reduced its Asian air network by 10 percent, shrinking it to the size it was in 2009, and would face a lag bringing capacity back online. FedEx said in June that it retired 24 jet freighters to reduce capacity in its U.S. domestic express segment and cope with sagging volumes.
The softening air-cargo market reflects a weaker European economy and slower growth in China. The tech product surge won't be strong enough to counter that, Jindel said.
Another complication is that air freight companies have already secured contracts with high-profile shippers, preventing them from taking full advantage of any rate increases, Jindel said in a telephone interview. .
"The increase that would come from these items will have some positive impact," he said. "But it's not going to be material enough to change the fortune and earnings projections of the companies that are going to handle it."
Atlas (AAWW) Air, which provides crews and equipment for customers, has more flexibility to raise prices than either UPS or FedEx because it offers services on a charter basis as well as long-term contracts, said BB&T's Sterling.
UPS and FedEx won't see "the material upside that we expect with Atlas," he said. Atlas Air's first-quarter profit of 51 cents a share beat analysts' average estimate of 15 cents, a boost that was "all March," when Apple released the new iPad, Sterling said.
Atlas is likely to benefit in the months ahead by adding capacity-seeking customers through both long-term contracts and charter customers, said Loh, the spokesman. "We provide a way to participate in some of these new product rollouts," he said.
The company is outperforming broader U.S. stock indexes this year, while UPS and FedEx are lagging behind. Gains of 8.2 percent for FedEx and 2.1 percent for UPS through yesterday compare with 16 percent for the Standard & Poor's 500 Index. Atlas Air surged 48 percent in the same period.
The stocks of all three companies may get a boost, even if earnings don't benefit equally, as investors in air-freight companies react favorably to the crunch, said Becker, the Dahlman Rose analyst.
"The goods will start to fly, and everybody always wants the latest phone," she said. "People are just waiting to see what the new ones look like. They have to have one."