Under current market conditions it looks tempting to Asian airlines – above all, the carriers from China – to shift more of their longhaul capacity from the European to the transpacific arena. While shippers and forwarders have been clamouring for lift to the US, yields and rates to Europe have once again slumped.

The growth of the US economy has shored up demand for airfreight capacity across the Pacific. Yields to US destinations have been further buoyed by the lengthy labour dispute at the West Coast ports and the backlogs it created, which forced shippers to shift their traffic to air carriers.

Anxious to keep their North American production plants supplied with parts, Japanese car manufacturers have been in the vanguard of this reaction. Besides buying up space on scheduled flights, some of them also resorted to all-cargo charters. According to one report, in February, Subaru was facing US$60 million higher transportation costs per month as a result of the need to shift US-bound traffic from ocean to air.

In the opposite direction, shippers of perishables were particularly affected by the congestion at the ports. Faced with the prospect of their shipments stuck at port terminals, they paid premium dollars to have their cargo extricated from the ports and flown to Asia instead in a race for shelf life.

The labour dispute has been settled, but it will take weeks for the backlogs to be cleared, forwarders have warned. Hence, demand for airfreight capacity looks set to remain strong, keeping rates at relatively lofty heights.

By late February, transpacific airfreight rates from Hong Kong had climbed to US$3.40 per kilo, while prices out of Shanghai to North America had surged past the US$4.00 per kilo level.

This is in sharp contrast with the pricing situation between Asia and Europe, where the ongoing economic woes of the Eurozone have dampened demand for airfreight. According to one report, eastbound rates plummeted as low as US$0.65 a kilo, while spot rates from China to Europe sank to US$1.28.

Relief is not in sight, if maritime pricing is an indicator. Ocean spot rates out of China fell 13% in the week after the end of the lunar new year holiday.

For the airlines, the situation is exacerbated by the drop in oil prices, which has reduced their fuel surcharges. Operating costs have come down as a result of cheaper oil, but this has kept some freighters in the market that would have otherwise been taken out of service, one operator argued privately.

Despite the recovery in demand seen in the second half of 2014, there is still too much capacity in the market, and the increase in bellyhold lift from the deployment of more large passenger widebodies is affecting the Asia-Europe lanes more than the transpacific sector, where stage lengths bring payload restrictions.

While load factors improved, the downward pressure on yields remains. According to Carsten Wirths, vice president Europe and Africa at Lufthansa Cargo, the German carrier has managed to fill its freighters out of Asia, and eastbound all-cargo flights are relatively full, but still there is pressure on yield.

Cargolux has reported strong improvements in load factors and record tonnage numbers in the final quarter of 2014. Nevertheless, the European all-cargo carrier allegedly needs capital infusions in the neighbourhood of US$100 million a year to meet its longer-term financial commitments and remain competitive.

In line with the agreement with its Chinese stakeholders, Cargolux has ramped up its flights to Zhengzhou, but others are looking to scale back. “The yield out of China is going down, so we are looking to reduce our freighter capacity out of China,” one European carrier executive said.

Asian carriers are looking increasingly to the Americas to deploy their widebody freighters. Cathay Pacific, which added three weekly freighter flights to North America last year to a total of 35, is looking to go up to 40 flights a week on the sector this year. The airline’s freighter schedule to Europe currently stands at nine weekly flights, down from 32 in 2008.

By Ian Putzger

Air Freight Correspondent | Toronto