Experts warned that a prolonged aircraft shortage could lead to volatility in freight markets.
- Even before the FAA order, UPS and FedEx proactively grounded their entire fleets of aircraft manufactured by McDonnell Douglas, which merged with Boeing in 1997.
- Smaller consumer electronics goods, such as mobile phones and tablets, are often shipped by air, and the grounding could cause delays.
- A report said that deliveries are expected to rise 5% during the holiday season compared to the same period last year.
UPS and its rival FedEx could face a shortage of aircraft amid the busy holiday season after the U.S. Federal Aviation Administration barred the MD-11 aircraft, one of which was involved in a fatal crash in Kentucky, last week, from flying for the time being.
The FAA stated that it issued the emergency airworthiness directive after the crash on Tuesday, when the left engine and pylon broke apart from an MD-11 aircraft during takeoff in Louisville. The cause of the detachment is under investigation.
“The FAA is issuing this AD because the agency has determined the unsafe condition is likely to exist or develop in other products of the same type design,” the FAA said before adding that operations of the aircraft could resume after corrective measures.
How Many MD-11 Planes Do UPS, FedEx Have?
Even before the FAA order, UPS and FedEx proactively grounded their entire fleets of aircraft manufactured by McDonnell Douglas, which merged with Boeing in 1997. Production of the MD-11 ended in 2000, and it was retired from passenger service in 2014.
UPS had about 27 MD-11 aircraft prior to the crash that claimed 14 lives, including three UPS crew members. The company said that the MD-11 aircraft accounted for about 9% of its entire fleet. Rival FedEx has 28 MD-11s in its fleet of 700 aircraft. Both firms said that they were taking up contingency measures to avoid supply disruptions.
“With safety as our top priority, we recommended to the three operators of the MD-11 Freighter that they suspend flight operations while additional engineering analysis is performed,” a Boeing spokesperson said, as per an NBC report. Another operator of MD-11 is Western Global Airlines.
Separately, the FAA capped domestic flight capacity by 10% due to a shortage of air traffic controllers amid the ongoing U.S. government shutdown. However, some Senate Democrats have sided with the Republicans to provide stopgap funding to reopen the government, which could ease some concerns.
What Could UPS, FedEx Do To Avoid Disruptions?
While the aircraft account for only a small percentage of the entire fleet, UPS and FedEx could still face problems during the traditionally busy holiday season. According to an NPR report, citing data from consulting and analytics company ShipMatrix, deliveries are expected to rise 5% during the holiday season compared to the same period last year.
UPS, FedEx, and others ship products for retailers such as Target and Amazon. Smaller consumer electronics goods, such as mobile phones and tablets, are often shipped by air, and the grounding could cause delays.
“If the grounding is extended more than a week or two, then as it creeps up on the holidays, there definitely is the possibility of packages getting delayed,” Mike Stengel, a partner at AeroDynamic Advisory, said, according to the report.
UPS and FedEx could resort to ground transportation, such as railroad or trucks, to alleviate some of the concerns. According to an AP report, Mike Short, the president of Global Forwarding at global freight forwarder C.H. Robinson, said trucks and expedited ground networks can absorb some displaced volume, but “not without challenges given that short-term surges drive spot rate volatility and equipment repositioning.”
What Are Stocktwits Users Thinking?
Retail sentiment on Stocktwits about FedEx and UPS was in the ‘bearish’ territory at the time of writing.
FedEx shares have fallen nearly 7% this year, while UPS stock is down over 24%.
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