So at the scale of Apple, I wonder if it would make sense to actually own 747s and sell the remaining space themselves.
I guess the problem is that they must have a large spike in demand around launch dates; perhaps not enough the rest of the time to make all the overhead of operating the fleet worthwhile.
They could operate their own aircraft for typical shipment volumes, then augment that by paying Fedex/UPS/etc during spikes.
I don't know what the margins are on air freight, but it seems like there's enough competition to keep them low. Also, Apple is big enough to negotiate better deals than typical customers. For those reasons, I don't think it's worthwhile for Apple to do it themselves.
For sure; my meaning was that since their volume wouldn't be as high typically, it may not be worth operating the fleet (whereas if every day was launch day, perhaps it would be). Basically I agree with you.
Precisely why they charter flights. In fact, if I recall correctly, there was a global lockup of all available freight flights out of China going to Apple and no one else during the last iPhone spike. Another competitive advantage for Apple.
I suspect Apple's "scale" is a rounding error of air freight volume, and unlike - say - retail, there's very little consumer value-add for owning your own freighting service.
The unit used in the air cargo industry is the RTK -- revenue tonne-kilometer.
On PVG-ANC, the route by which iPhones enter the US, a single 77-tonne load of iPhones (what the article estimated) is around 530,000 RTK. Boeing estimates that in 2013, worldwide air cargo was 208 billion RTK. In other words, that plane-load of iPhones is around 25 ten-thousandths of a percent of global air cargo capacity.
So yes, iPhones are absolutely a drop in the bucket. Just saturating the existing scheduled cargo capacity into the US for a few days would probably exceed Apple's manufacturing capabilities.
Are you sure there are 100 freighters operating on the PVC-ANC route daily? 60% of air cargo is flown in the belly of passenger planes. There are not a huge number of dedicated freighters out there.
A 77-tonne load would represent about 6% of the capacity of the scheduled freight-only flights that ran PVG-ANC today (Wednesday). Depending on final aircraft arrangements, it would represent at most 4.8% of tomorrow's (Thursday's) scheduled freight-only flight capacity.
Apple is flying 1.4 full freighters per day just for the iPhone (well, maybe it's like 1/3 of 4 freighters). So they are a significant percentage of transpacific cargo.
77 tonnes of cargo on that route is 6,933 * 77 = 533,841 RTK.
Boeing reports[1] 208 billion RTK worldwide in 2013.
533,841 / 208,000,000,000 = 2.566543269230769e-06. So that's the percentage of worldwide air cargo a 77-tonne load on a PVG-ANC cargo flight would represent.
I think the hang up here is on Apples scale. That single shipment of 300k phones weighs just 77 tons. But Apple sold 74.4M phones last quarter of which about 30% went to North America.
30% of 74.4m iPhones would be 22,320,000 iPhones. Divide by 300k (which is a planeload) and you get roughly 74 planeloads of iPhones per quarter.
Currently there are about half a dozen 747 freighters each day flying PVG-ANC. So at most it's about 12 days' capacity of that one route each quarter, meaning it tops out at 10% of the overall capacity on the route each quarter.
And it still is a drop in the bucket compared to worldwide air cargo. Remember one planeload of iPhones is 533,841 RTK. We're talking now about 74 per quarter, which is 296 planeloads/year. 296 * 533,841 = 158,016,936 RTK represented in iPhones coming to the United States in a year.
And global air cargo is 208,000,000,000 RTK/year. Divide 158,016,936 by that, and you get a figure of: 0.0007596968076923077. So if we add up a reasonable estimate of all the iPhones that come to the US in a year, and a reasonable estimate of how many 747s it takes to haul them from China, we get a figure that is... just over seven hundredths of a percent of a year's worth of global air cargo. In other words, all the iPhones that come into the United States in a year, combined, are still basically a rounding error of global air cargo.
What's with the PVG-ANC route? Is Apple doing U.S. fulfillment out of Alaska? Those phones still need to reach the mainland, so I think you need to double the ton-kilometer number to get them down here.
Shanghai is the point of departure from China, and Anchorage is the point of entry in the US (both are significant cargo hubs). So that's the route you can rely on the shipments taking; from Anchorage they could go anywhere in the US, and so it's not really possible to estimate how much further they travel on average.
Even if we assume worst case for 100% of iPhones -- that is, that every iPhone bound for the United States ends up in the southeastern corner of the country in order to maximize the distance flown (since that's the furthest point from ANC) -- the incoming leg from Shanghai is still longer than the onward journey from Anchorage. Which means that the estimate for PVG-ANC represents the majority of the RTK of iPhones bound for the US, which means the hard ceiling on the total RTK even if we assume every single iPhone is delivered to someone in Miami to max out the distance, is around 300m RTK, which is still a rounding error of the global air-cargo total of 208 billion.
No matter how much you try to push it to be a bigger number, "the scale of Apple" is just not significant in terms of percentage of global air cargo.
New blog post coming at the end of the week but my initial estimate pegs the iPhone alone at 5% of air freight crossing the pacific in the first quarter of last year.
But still they are not likely to go into the airline operating business given all the regulations, airport slots, and operating expertise required.
I would expect that they are using some of that insane cash hoard to provide awesome financing terms to their preferred airlines. That could come just through guaranteed contracts for space, but if I was at Apple I'd get creative offering airlines some loans to get better planes and retrofit them to my needs.
Freight operators are extremely good at selling space and solving the problems described in the article and operate a dispersed global network in a difficult space on extremely thin margins. It barely makes sense for Apple to charter, except perhaps to max out loads to the US and Europe in the run up to new product launch. Apple's iPhone sales vary between 12 and 40m units per quarter, so it makes far more sense for third parties to balance that variable demand for them.
Now I'm off to pick up a MBA with a new SSD that apparently took four days to get to London!
I would guess they calculate shipping cost on 'per phone'.
14 hour flight from China would cost give or take $300,000 on a large cargo jet. If a plan can pack in 300,000 phones, the cost of shipping would be $1 / phone for a product that costs $800. If they sell 250 million phones per year, it's $250 million in air freight cost for iphones. Even if we are generous and pretend margin for air cargo business is 20%, Apple would say maybe $50mil/year by operating their own fleet.
EBIT margins of a well run freight forwarder are closer to 5%, so this looks aggressive. And it's so far outside their core competency, to save even $50M that'd be a big risk to take.
I guess the problem is that they must have a large spike in demand around launch dates; perhaps not enough the rest of the time to make all the overhead of operating the fleet worthwhile.