As costs rise in China and manufacturing moves elsewhere, emerging Southeast Asian markets are presenting new air freight opportunities, according to operators in the region.

“We do see growth right now very much moving away from China. I believe there are some countries in Southeast Asia which give the right value proposition – countries like Vietnam, for example,” said Lee Shashitheren, commercial director of Malaysia-based Raya Airways, speaking at the Cargo Facts Asia conference in Hong Kong. “What we see is that cargo now tends to move from point to point. When we look at the future, manufacturing will be more spread out, and there won’t be a ‘factory of the world’ anymore.”

Roy Ge, senior manager of cargo planning at Hong Kong Airlines, said that the company initially saw very strong cargo traffic from Hong Kong to Shanghai, and from Hong Kong and Shanghai to Taipei, what he called “a golden triangle.”

“When the manufacturing moved to the central and western part of China, we also saw production lines moving into countries in Southeast Asia, like Thailand, Indonesia and Vietnam,” said Ge. “We think this trend will continue to evolve, and it is an opportunity for Hong Kong Airlines to penetrate this network so as to use Hong Kong as a transit hub to connect all these countries.”

Hong Kong Airlines launched freighter services to Bangladesh in late 2013, with twice-weekly A330s. The service was expanded to a daily flight at the end of 2014.

“There is very strong demand for raw materials and fabrics moving from China into Bangladesh. On the return flight, we have seafood, garments and other products being exported to western countries,” said Ge. “Apart from Bangladesh, we also saw other emerging markets in Southeast Asia, including Cambodia and Myanmar, where we operated ad-hoc charter services.”

But we should exercise caution before jumping into an emerging market, according to Steven Verhasselt, business development manager of Liège Airport. “I think it’s not only about price,” he said. “It’s about the reliability of a country and its political system. It’s also about stability and consistency. I believe it’s a combination of where they do things better, where they have skilled labour, and how the logistics work out."

Shashitheren also said that there are other considerations to take into account. “It’s not just about having the demand. It is about having the ability to deliver and how quickly we can move goods around. The right infrastructure must come along and must work to make it possible,” he said. “With Indonesia, for example, yes, the ingredients are there, but in my opinion, more needs to be done for it to realise its full potential.”

Although yields for intra-Asia traffic are quite high and stable, according to Ge, one major issue with operating intra-Asia flights is aircraft utilization.

“This was a big challenge for us last year,” he said. “We introduced our fifth A330 freighter and it was a problem to maintain a high utilization rate in the Asian region. The industry average is about 13 hours per day, which is possible if you fly long-haul.”

The problem, said Ge, is that there is no customs clearance on weekends, which results in very little cargo at the beginning of the week.

“Our strategy is to fly each aircraft to two destinations every day, for example to Shanghai at night and then to Singapore during the day. From Tuesday to Sunday, utilization is more or less 12 hours,” he said. “What we do to increase utilization is to promote ad hoc charter services. We also explore opportunities in mid-haul destinations that are underserved, which are ideal for the A330-200F. Last year, we studied the possibility of flying to Israel over the weekend. For instance, the flight would depart late Sunday evening and return early Tuesday morning.”

As for whether air freight could compete effectively against cheaper ocean freight in less developed economies, Shashitheren said that more freight would always be carried via sea, but that air freight would always serve its own niche.

“I think ocean and air freight do coexist, but we try to reach into each other’s spheres once in a while. For air freight to continue its unique position, there are areas where more efficiency can be brought in,” he said, giving as an example the long periods of time air cargo can spend on the ground waiting to be moved. “That way, the entire product from end to end makes a more interesting value proposition.”

By Jeffrey Lee