With turmoil in China’s stock market and the lowest GDP growth rate since the global financial crisis in 2009, air freight operators could be facing turbulent times ahead.
But some airlines seem to have performed reasonably well in the region.
“Hong Kong Airlines achieved a 9.3% growth of cargo tonnage on its freighter routes to and from Shanghai Pudong, Zhengzhou, Tianjin and Hangzhou over the first four months in 2015 compared to 2014,” says Jeffrey Zhang, cargo director of Hong Kong Airlines. “We also launched scheduled all-cargo services between Hong Kong and Hangzhou with an A330 Freighter on March 2, 2015. This new service will obviously facilitate the movement of cross-boundary e-commerce shipments, and further enhance Hong Kong Airlines’ cargo market share in the Yangtze River Delta region.”
Taiwanese carrier EVA Air has been taking advantage of both the geographical location of its home country and its high-tech industries.
“We transhipped a lot of cargo via Taipei such as semiconductor manufacturing equipment, fresh seafood, cherries, express mail shipments from the US, fresh salmon, medical shipments and luxury items from Europe,” says Matthew Hsu, business management secretary of the cargo management department at EVA Air. “Apart from that, regular air cargo sources from Taiwan to China that we have handled include TFT-LCD panels, solar energy equipment, cell modules, electrical components, fabric material and machinery.”
Air France-KLM-Martinair Cargo, which operates to Beijing, Chengdu, Guangzhou, Hangzhou, Hong Kong, Shanghai, Wuhan and Xiamen, has benefited from its diverse network.
“Our Hong Kong flights are the most interesting ones to steer and fill up as they are fully constrained due to the A380 being operated on the route. Fresh, luxury goods and pharmaceutical products are driving our business to this destination,” says Vincent Audusseau, commercial director for the French export market at Air France-KLM-Martinair Cargo. “Fresh is also pushing on the Beijing route whereas pharma is the growing factor to Shanghai. Wuhan remains a very strong destination for the automotive business.”
One major trend has been the rise of e-commerce in the country, which has had a positive impact on air freight.
“We’ve noticed more and more express mail shipments, and online shopping items have increased into and out of China,” says Hsu. “Secondly, pharmaceutical and temperature-control shipments such as vaccines, medicines and high-end foodstuffs are expected to increase in demand. Some traditional industry items such as textiles, shoe materials and commodity accessories might gradually fade out of the air cargo market.”
Another major trend which has been picked up on across the board is the relocation inland of much of China’s manufacturing industry, mostly because of rising costs.
“We saw an increasing shift of cargo volume from the coastal cities to the central and western parts of China such as Chengdu, Chongqing and Zhengzhou,” says Zhang. “In general, there were declining cargo yields out of China in the first half of the year, mainly due to the oversupply of cargo capacity compared to demand, especially for western countries.”
Hsu says EVA Air is of the opinion that this change is set to continue. “We foresee more factories moving further inland and even away from China for competitiveness. Flextronics moved its factory to Guilin, for example, and Microsoft and Nokia moved to Hanoi,” he says. “We will fine-tune cargo sources and contribution ratios from China and other countries accordingly.”
The movement inland is taking place but at a slower pace than anticipated, at least from Air France-KLM-Martinair Cargo’s perspective. “The exception is the airport of Zhengzhou, which is growing very fast with the strong support of Henan province. The main impact of these movements is probably on the freighter operators who will have to follow the flows,” says Christophe Boucher, vice president of Asia at Air France-KLM-Martinair Cargo. “For Air France-KLM, as primarily a passenger and combi aircraft operator in China, the impact will be smaller, except in the balance between supply and demand in the places where we operate, with the usual consequences in terms of pricing.”
Audusseau says that, for the Chinese market, the main difficulty faced by the industry is the weakness of flows to Europe since the beginning of 2015, with extra capacity still being added.
All this capacity means that major airports in China such as Beijing and Shanghai Pudong are heavily congested. Pudong inaugurated its fourth runway at the end of March 2015, and work has already begun on a fifth runway. But even that might not be enough.
“The congestion leads to frequent flight delays and the disruption of rotation plans,” says Zhang. “It is difficult to obtain any additional landing slots in most Chinese gateway airports for cargo flights, and freighter operations to the majority of Chinese airports are only granted red-eye landing slots.”
Overcapacity and the pressure on yield decline are still constant concerns at EVA Air, but there are some challenges that are more seasonal in nature for the airline.
“Some project shipments just come with unstable and unpredictable demand but with huge cargo volumes – HP laptops and Apple iPhones, for example,” says Hsu. “It is difficult to accommodate these with regular scheduled flights and to apply for the traffic rights to operate charters in time. On top of that, difficulties might be caused by customs clearance issues and security check criteria with express shipments in China from time to time.”
Hsu adds that, in the long term, cargo such as TFT-LCD panels, solar energy equipment, electrical components and express shipments will still be EVA’s principal business and focus in the Chinese market.
In terms of the months to come, Boucher is hesitant to say what exactly will happen.
“The only thing that is certain is the unpredictability of the air freight market and the fact that China is and will remain a strong air freight market,” he says. “Our predictions are closely related to the levels of consumption in Europe and, to a lesser extent, in the Americas.”
Zhang, who says that the export tonnage on Hong Kong Airlines flights out of China to the Southeast Asian destinations of Bangkok, Kuala Lumpur and Singapore is relatively stable, is a little more optimistic.
“We see an increase in tonnage out of China for emerging markets such as Hanoi and Ho Chi Minh City in Vietnam, as well as Dhaka in Bangladesh,” he says. “With the growth of the middle class in China, and the development of cross-boundary e-commerce businesses, the load on sectors into China is getting more positive, and that improves the cargo traffic in the return direction significantly.”
By Jeffrey Lee
Staff Writer | Hong Kong
