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   Vol. 15  No. 28
Monday April 6, 2016

China Airlines New For 2016

China Airlines New For 2016

    Taiwan-headquartered China Airlines is hoping free trade agreements under negotiation or already in place and high demand for niche cargoes and sports equipment will boost cargo demand as 2016 unfolds.
    CAL will introduce two B777s and four A350s this year; the B777 will fly the SFO, LAX, and JFK routes while the A350 will fly European and Australia/New Zealand routes. The capacity additions will mean overall cargo capacity is expected to grow by 2-3 percent during the year, but according to Jeremy Chang, Vice President of Cargo Sales & Marketing Department, there is room for some optimism this year, despite the barrage of bearish economic forecasts and indicators released recently.

Jeremy Chang
    “The 12 member nations of the Trans-Pacific Partnership (TPP) reached an agreement on October 5, 2015, to remove more than 10,000 import/export tariffs and other non-tariff obstacles,” he said. “This is expected to help increase Japanese exports of automobiles and automotive parts as well as boost the imports of textiles and exports of clothing from Vietnam.”
    Chang told FlyingTypers that the looming Rio Olympics would also boost exports of specialty clothing and sporting footwear from Southeast Asia and he was optimistic about demand for uplift of semiconductors, not least into Taiwan. “Semiconductor Equipment and Materials International (SEMI) forecasts indicated that capital expenditure by the global semiconductor industry would continue to grow in 2016,” he said. “As Taiwan has the world’s highest capital expenditure, CAL is therefore bullish on demand for shipping of imported machinery and equipment from the U.S, Japan, and Europe to Taiwan.”
    However, Chang said the parlous state of the global economy as well as the slowdown of Asia’s manufacturing sector meant that export growth from Taiwan was expected to flatten out during 2016. “International institutions—the World Bank, OECD and IMF—have all lowered their forecasted global economic growth rates for next year,” he explained. “OECD also indicated that global trade growth has now dropped to global economic recession levels. Fortunately, the increasing global popularity of sports and recreation, as well as growing demand for electric vehicles, mean that Taiwan’s functional textiles and electric vehicle components will become key drivers of air cargo exports.”
    CAL also expects to benefit from its sea-air agreement with leading container line Yang Ming Marine. CAL signed an MOU with Yang Ming Marine in mid-November to form a “Sea-Air Grand Alliance.” The two companies then further expanded the strategic partnership to include Chunghwa Post last December in an effort to profit from the growing web commerce market by offering a new door-to-door delivery service.
    “With the addition of Chunghwa Post, we aim to expand into the segment where bulk container shipments of goods ordered on major online shopping platforms are stored and processed for door-to-door parcel delivery,” said Chang. “Moreover, we plan to establish a joint online shopping platform that is scheduled to be introduced in April next year.”
    The Yang Ming collaboration consists of three services: “Cargo-to-Post,” “Joint Sea-Air Freight” and “Joint Air-Sea Freight.” Customers using “Cargo-to-Post” are able to ship ocean cargo from China to Taiwan where postal mail tags are attached before the cargo is exported via air cargo to the U.S. The “Joint Sea-Air Freight” product sees cargo from SE Asia and China transported by sea to Taiwan and Dubai before being sent by air to the U.S. and Europe. The “Joint Air-Sea Freight” service will see European/American cargo shipped by air to Taiwan and then transshipped to SE Asia by sea.
    “The conversion of Chinese cargo to postal service does not incur additional tariffs because the cargo to be transshipped by sea will enter the dedicated transshipment warehouse at Taoyuan International Airport,” explained Chang. “The mailbag tags will be added under the supervision of Customs or dedicated personnel. The converted mailbags are then exported directly by air. The joint sea-air/air-sea cargo is transported by bonded trucks to the bonded zone for transshipment so there are no additional tariffs either.
    “The joint freight services not only offer customers additional shipping options—for example, the cost of shipping is lower than air cargo and shipping time is shorter than sea cargo—but are also a response to the growth in the export of Chinese cargo arriving for transshipment by air before being exported as mail bags. This will help with the delivery of foreign cargo around the world through the postal system after they arrive in Taiwan for transshipment.”
    Chang said the overall growth in demand for air cargo had been limited in the second half of 2015 due to continued weakness in the Asian manufacturing sector and lower-than-expected throughput from air cargo-related industries.
    Although full year volumes handled by CAL had not been released when FlyingTypers interviewed Chang, he said expectations were that volumes growth had been positive. “Growth in international Freight Revenue Ton-Kilometer (FTRK) is expected to reach 2-3 percent due to CAL’s continued optimization of our capacity allocation and development of potential market sources (e.g. changing the European transshipment hub to Dubai [DWC], the addition of Shenzhen [SZX] as a freighter destination, and additional freighter flights to Tokyo, Hanoi, and Ho Chi Minh City).   
    “We have also strengthened our collaboration with international couriers, SkyTeam Cargo, and sea freight operators to develop new courier sources and joint sea-air freight business opportunities,” he said.
    Chang said one of the bright spots last year was the performance of the Transpac lane, which was “outstanding,” not least because of the cargo backlog at U.S. West Coast ports between late 2014 and 2015 Q1 driving up demand for charter flights between Asia and the U.S. and also pushing up U.S. shipping prices.
    “Due to cargo owners shifting from sea to air cargo, CAL dispatched three charter flights carrying 3C cargo from Taipei to Seattle and one charter flight carrying French fries from Los Angeles to Tokyo. In 2015 Q1, CAL also dispatched 17 charter flights from Taiwan/Japan/Vietnam to the U.S.”
    The resolution of the West Coast port backlog saw the cargo market return to normal levels after Q2, though CAL’s Transpac cargo revenue grew moderately between September and November. “While the Thanksgiving holidays in the U.S. meant a reduction in Transpac cargo volume in the last week of November and the onset of the cargo off-peak season in December, CAL strengthened our collaboration with international integrators on courier sources to improve unit revenue and loading,” he said. “This helped to alleviate the impact from slackening market demand.”
    On European lanes, overall cargo demand remained flat last year due to the slow recovery of the economy and manufacturing sector. “Measures such as the switching of transshipment hub to DWC, reducing of freighter capacity as necessary, and operating 777s with large holds for FRA, however, should see the European lane outperform last year’s results,” he added.
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