Unit Load Devices

First, we need to talk about how air cargo physically moves. In the same way that ocean freight is containerized before being loaded onto a ship, air cargo is built up into standard “contours” called Unit Load Devices (ULDs). ULDs are identified by three-letter codes like AKE, AKH, and PMC. Some are containers, and some are just metal pallets. Each one has a specific shape that is designed to fit into a particular part of a particular aircraft. This is akin to each ULD having a “parking space” on the aircraft. Each aircraft has a very specific layout of parking spaces, and each parking space can accommodate one or more types of ULDs.

For example, the Boeing 777 is the most common passenger aircraft flying between Hong Kong International Airport and Los Angeles International Airport.² Hundreds of passengers sit on the main deck (the upper deck), but the lower deck has ten parking spaces available for P6P ULDs, each of which measures 125 by 96 by 64 inches.3

Lower deck ULD being loaded onto a passenger flight

If the 777 were a dedicated freighter instead of a passenger aircraft, then the entire main deck, instead of being filled with seats, overhead bins, and restrooms, would be an empty volume available for ULDs. The main deck is taller and has a wider floor, so it can accommodate a greater variety of ULDs.

PMCs and Consolidation

The most common ULD is the PMC, shown in the above photos. A PMC is not a metal container, but a standardized metal pallet measuring 96 inches by 125 inches, on top of which cartons are stacked. But you can’t stack cartons in just any shape. There are very specific contours inside of which the cartons must remain. Since these are just pallets and not containers, you have to be careful that the cartons you stack don’t exceed the imaginary lines of the specific contour you’re building. Some PMCs define basic rectangles, and some define additional bevels and more complex angles that allow them to tuck into the curved side of an aircraft. These contours have their own codes, such as H2, Q5, and Q7. Once the cartons are assembled into the right contour, the whole pallet is covered with plastic and cargo nets. Finally, the ULD can be forklifted onto a truck to be delivered to the airline’s cargo terminal, where the ground crew will take over and load it onto the aircraft.

Interior of an air freighter showing main deck and unit load devices (ULDs)

Air Cargo Supply

Supply refers to any capacity available to a freight forwarder to move air cargo. Capacity is provided by airlines, which we call carriers. Carriers sell capacity to freight forwarders, and freight forwarders try to fill that capacity with cargo. The capacity may be on passenger flights or on dedicated freighters. Flexport procures capacity via three main avenues: 1) Long-term contracts called allocations, 2) the spot market and 3) partner agreements.

Allocations

Allocations comprise the largest component of supply for a large freight forwarder. An allocation defines a “committed weight” between one or more airports, and it’s the freight forwarder’s responsibility to achieve this committed weight by tendering cargo. For example, Flexport might have an allotment with Happy Airlines that specifies Flexport commits at least 100 metric tons of cargo every month on any Happy Airlines flights originating in Hong Kong and arriving anywhere in the United States (the HKG — US trade lane). It’s most common to achieve the bulk of the committed tonnage by delivering fully built-up ULDs, but the freight forwarder has the option of tendering loose cargo as well. In that case, the carrier will build up its own ULDs, mixing in Flexport’s cargo with cargo from various sources going to the same destination.

When the freight forwarder delivers a ULD, it must follow very specific rules in the allocation contract, specifying things like dates, minimum and maximum weight, total volume, and specific contour. The aircraft may be carrying ULDs from dozens of sources besides Flexport, so the carrier defines these rules so that its flights are sufficiently loaded and properly balanced.

International carriers at LAX Airport Tom Bradley International Terminal.

A common type of allocation is the Block Space Agreement (BSA), and BSAs are further split into “soft” and “hard”. In a soft BSA, the forwarder can cancel its allotment on a particular flight with no penalty, if it provides the carrier with advance notice. In a hard BSA, the freight forwarder is responsible for paying the full cost of the allotment on every flight, even if the forwarder tenders no shipments on a particular flight. How much the forward pays is determined by a special term called called pivot weight.

Pivot weight

To understand pivot weight, let’s look at an example of a hard BSA contract between Flexport and Happy airlines.

• Origin: Hong Kong HKG
• Destination: Los Angeles LAX
• Flight number: HA123
• Duration: January 1, 2019 to December 31, 2019
• Days: Mondays
• Departure time: 13:00
• Arrival time: 18:00
• Unit Load Device (ULD): W2
• Max weight: 5000 kilograms
• Max volume: 10 cubic meters
• Allotment rate: $4 per kilogram
• Pivot weight: 1000 kilograms
• Over-pivot rate: $3 per kilogram

This BSA specifies that Flexport gets a W2 (a specific PMC contour) ULD every Monday for all of calendar year 2019. For every flight, Flexport must deliver the fully built-up W2 to the Happy Airlines cargo terminal, ready to be loaded directly onto the aircraft.

A pivot weight of 1000 kilograms means that Flexport must pay for at least 1000 kilograms per flight, even if we tender less than 1000 kilograms. Those first 1000 kilograms are charged at the $4/kilogram allotment rate, so each flight costs Flexport at least $4000, even if we only tender a fraction of the 1000 kilogram pivot weight. If we tender more, then anything over 1000 kilograms costs $3 per kilogram. Furthermore, each W2 ULD can take no more than 10 cubic meters of total cargo summing to no more than 5000 kilograms.

Equalization

Many BSAs come with an equalization clause, which allows pivot weight to be averaged over a certain period, usually one month. In the case of the Happy Airlines BSA described above, let’s look at a hypothetical June equalization period. We have four flights in June, and imagine that on the first Monday we shipped 1000 kilograms, on the second we shipped 1000 kilograms, and on the third we shipped only 900 kilograms. So we’re 100 kilograms short of our pivot weight, meaning we still must pay for the full 1000 kilograms. But with equalization, we have the chance to make up those missing 100 kilograms at any time during the equalization period. In this case we have one Monday left in June, so if we ship an extra 100 kilograms over and above the 1000 kilograms we’d normally ship in order to achieve the pivot weight, then our pivot weights “equalize,” and we pay no pivot charges.

Equalization works in the freight forwarder’s favor, but it can be complicated to keep track of equalization periods. Part of an air planner’s job is to avoid pivot charges, and they can do that in part by intelligently managing equalization.

Allocations form the backbone of a freight forwarder’s capacity, but they exist only on a contracted basis, between pre-specified airports. What if a freight forwarder needs to move a shipment between two airports where it doesn’t have an allocation in place? Then it has two options: It can turn to the spot market, or it can move the shipment with a local partner (usually a co-loader or another freight forwarder).

Spot Market

There is no central, liquid, on-demand marketplace for air cargo, but rather an informal network of air planners and carrier representatives that communicate directly. For example, for air cargo coming out of Hong Kong, the spot market consists of a flurry of phone calls and WhatsApp messages between freight forwarders and carriers, inquiring whether the needed space is available and at what price per kilogram. If Flexport needs to move a 1000-kilogram shipment of six pallets from Hong Kong to Atlanta, where it doesn’t have a BSA in place, a Hong Kong–based air planner will contact all the carriers with flights between Hong Kong and Atlanta, provide the shipment details, and ask for pricing terms.

Recently, companies like Cargo.one and WebCargoNet have started to offer services to standardize this ad hoc booking process. They aim to decrease phone calls and emails in favor of online tools that offer greater visibility into carriers’ capacity and rates by integrating directly with carriers.

Partner Agreements

Finally, Flexport always has the option of utilizing a local partner to move the shipment at the point of origin. By partnering with co-loaders and local partners, Flexport can vastly increase its geographic service area, allowing it to quickly find capacity for any shipments. When we move a shipment with a partner, the partner decides how to ship it, using their own capacity mix.

Flexport’s Private Air Service (our 747!)

Flexport has one additional option for moving air shipments that most freight forwarders don’t have: Our own 747 freighter. We lease this aircraft from Plus Logistics and it flies routes between Hong Kong, Los Angeles, and Chicago.

Flexport’s 747–400F was built by Boeing in 2008 in Everett, WA.

Procuring our own aircraft is somewhat akin to signing a very, very large allocation, with about 40 ULDs per flight. Look for more information on the why and how in a forthcoming blog post.