Charging impact of plane grounding after UPS crash seen as ‘minimal’

An MD-11 aircraft is grounded after the fatal plane crash UPS The aircraft earlier this month could boost air freight rates during the peak holiday shipping season, with some capacity leaving the market, but analysts don’t expect a major impact.

The Federal Aviation Administration on Nov. 8 banned MD-11 flights, less than a week after a Honolulu-bound UPS plane crashed moments after takeoff from Louisville Muhammad Ali International Airport in Kentucky, killing the three crew members and 11 people on the ground.

Earlier this week, the TAC Index, which tracks air freight rates around the world, said the Baltic region’s air freight index rose more than 4% in the week ending November 17, and was up 2.4% last week compared to the same period last year.

“While it is normal for interest rates to rise ahead of the Thanksgiving holiday in the US and Christmas in Europe, sources indicated they received an additional boost after all MD-11 cargo planes were grounded following a fatal accident in Louisville earlier this month,” she said in a note.

UPS and fedex Each said they grounded the planes, which make up 9% and 5% of their fleets, respectively, according to a note from Bank of America.

FedEx said the company is working with the Federal Aviation Administration to ensure its 28 MD-11 planes comply with standards.

“We are flexing our integrated air-ground network in the most efficient way possible to deliver outstanding service, which includes using emergency options such as using standby aircraft to restore service in the network, leveraging ground service wherever possible, and strategically taking advantage of limited transportation and commercial flight opportunities,” the company said in a statement to CNBC.

UPS said after the incident that it had contingency plans to continue providing service.

“We proactively made this decision based on the recommendation of the aircraft manufacturer,” UPS said on November 7. “Nothing is more important to us than the safety of our employees and the communities we serve.”

In a statement issued Friday to CNBC, UPS said the company did not charge any additional peak season surcharges as a result of the grounding of 26 MD-11 planes. Instead, the company said it has secured additional aircraft for its fleet, similar to the charter aircraft it purchases for the peak season, and has consolidated flight routes to maximize air capacity.

“We have reconfigured our ground network and added additional capacity to move more packages,” a UPS spokesperson told CNBC. “Our contingency plans give us assurances that we will continue to move volume and serve our customers effectively now and throughout the peak season.”

In the company’s most recent earnings call, which occurred before the deadly crash, CEO Carol Toomey said early forecasts from its top 100 clients were that the peak season would have a “significant uptick in volume.”

However, because UPS has begun to phase out its business with… AmazonTumi, which was previously its largest customer, added that the decline in Amazon sales volumes means that overall average daily volume for the US peak season will decline year-on-year.

Stifel expected in a note on Wednesday that the operational and financial impact of the grounding would be “negligible.”

“Most importantly, the planes will be back in the air once they are individually approved, rather than the entire MD-11 fleet waiting for an individual ruling, and the FAA can effectively authorize third parties to trigger inspections, which have already begun, according to the administration,” Stifel analysts wrote.

Air cargo volumes in October rose 4% year-over-year, with freight supplies growing at a rate of 3% year-over-year in the past four weeks, Bank of America said in a note on Monday. Analysts said any potential disruption from the shutdown was not immediately apparent, but they generally expect the holiday shipping season to be quieter compared to the past two years.

The National Transportation Safety Board, which is leading the investigation into the UPS plane crash, said the plane’s left engine separated from its wing during takeoff before the plane crashed into a series of businesses outside the airport.

In its preliminary report released Thursday, the NTSB said it found evidence of cracks in the plane, as well as areas of overpressure failure.

Although UPS is headquartered in Atlanta, the Louisville Airport is home to the world’s largest parcel handling facility.

The accident occurred during the country’s longest government shutdown, disrupting air travel due to a shortage of air traffic controllers. It also limited some cargo flights. Both commercial and dedicated shipping companies carry packages and other goods.

During the lockdown, Treasury Secretary Scott Besent told ABC News that a slowdown in shipping could lead to holiday shortages. The lockdown officially ended last week, and air travel disruptions have largely dissipated.

Correction: Key points in this story have been updated to reflect the number of people killed in the UPS cargo plane crash.