Vol. 10 No. 48                          THE GLOBAL AIR CARGO PUBLICATION OF RECORD SINCE 2001                 Monday May 23, 2011


     Airlines are rethinking their China strategies as booming imports bring more balance to a market traditionally structured around exports
     Bearish ex-China freight rates, the result of excess capacity and weaker than expected demand, have grabbed all the headlines this year, but a more significant change in China’s air cargo trade has received scant attention – the country’s budding appetite for imported goods.
     China might be known as ‘the world’s factory’ but in 2010 it was also the world’s second largest importer. Last year the world’s second largest economy imported nearly US$1.4 trillion worth of goods, an increase of 38.7 percent.
     And that trend has continued in 2011. In the first four months of the year the value of China’s imports rose by nearly 30 percent year-on-year to $545.02 billion, almost equal to exports of $555.3 billion, which increased 27.4 percent compared to a year earlier.
     One government source forecasts that China’s exports will be valued at $1.89 trillion this year, up 20 percent compared to last year, while imports will total about $1.72 trillion, a gain of 23 percent.

 


    Although the value of China’s imports is closely linked to rising commodity prices, especially for iron ore and crude oil, China is also a booming consumer market. Over the last 18 months, fueled by an appreciating Remnimbi and rampant spending by its growing middle class, air cargo import demand has surged.
     “On exports, rates [ex-China] are dependent on supply/demand and market forces,” said Ravishankar Mirle, Emirates' Regional Manager for cargo operations for Asia and Australasia.
     “Currently, the export market is weak and carriers are taking aggressive tactical actions to secure volumes."
     However, he added: “The strength of the Chinese economy, higher disposable income, and a strong Remnimi versus the U.S. dollar are all factors stimulating imports. Imports into China are on the rise.”
     Total air cargo imports to China in 2008 were 1.3m tonnes in 2008 according to figures from aviation consultancy Seabury APG. Import tonnage dipped to 1.25m tonnes in 2009 during the financial crisis, but then rebounded spectacularly last year to reach 1.76m tonnes.
     While exports also increased in 2010 - totaling 2.27m tonnes compared to 1.77m tonnes a year earlier - since 2008 there has been a clear move towards more tonnage balance on China import-export lanes, a convergence that many carriers are now expecting to become a long-term feature that will eventually be reflected in respective inbound and outbound freight rates.
     According Seabury APG, imports and exports by air were almost perfectly balanced in January this year when outbound cargos totaled 168,657 tonnes and imports reached 167,689 tonnes. By contrast, back in January 2009 imports totaled just 36 percent of the total China air cargo market.
     Indeed, air cargo trade was more closely balanced in December 2010 and in the first two months of this year than it has been at any time in the period from 2008 onwards.
     “Over the last years Chinese imports have grown heavily and therefore reduced the [trade] imbalances significantly,” said a spokesman for Lufthansa Cargo.
     “One main reason for this is the growing middle class in China and a strong demand for high value consumer goods that are made in Europe. Also manufacturing goods are imported from Europe.”
     This fundamental restructuring of China’s international trade is forcing operators to adjust their short- and long-term strategies.
     John Cheetham, Regional Commercial Manager for Asia-Pacific at BA World Cargo, (right) said increasing consumer demand in China would “ultimately lead to carriers’ capacity decisions being influenced by the import market as well as the export market.”
     He added: “This is quite a change from the traditional structure of the market, which is almost solely export driven.
     “Should this be the case, I think a more balanced import and export market will lead to a reduction in rates from China and an increase in the import rates as a consequence of carriers increasing capacity to meet the import demand.
     “I am not suggesting that there will be full parity of rates any time soon, but I believe we will see some small convergence.”
     BA has capitalized on this surge of imports by increasing line capacity in Beijing to daily flights and increasing line flights in Shanghai to six per week. These passenger services complement its twice-weekly 747 freighter offering though PVG.
     Rival carriers have been following suit, a key factor in bearish ex-China rates so far this year. Figures from Seabury APG show that in the 12 months through January 2011, total outbound capacity from China increased 18.9 percent to 3,165,818 tonnes. Freighter capacity in the period jumped 22 percent to 2.1m tonnes, while belly space increased 13.1 percent to 1.05m tonnes.
     But as carriers adjust their plans with the expectancy of more profitable import services to China, ex-China trade will remain critical to the financial well being of global cargo operators.
     The Lufthansa spokesman said that although imports were helping carriers offset weaker than expected ex-China markets, this was not lessening the importance of exports.
     “We still do not have a balanced situation,” he said. “Exports are still more important to us as a cargo airline.
     “This is especially true for the yields.
     “Whereas the volumes are aligning more and more, the eastbound rates are still significantly below the westbound fares and we do not expect this to change completely in the foreseeable future.”
Mike King/Flossie Arend

 

Thinking CNS PHX
Three Weeks Later

     Did you know?
     Southwest of Tucson there is a deactivated Minuteman silo, which is worth visiting—unless you have claustrophobia. At certain times the lid has to be opened so that the Russians can verify the U.S. is not cheating on the SALT treaty. There is also the Pinal Air Park at Marana (3/4 of the way between Phoenix and Tucson), which stores decommissioned jets; unfortunately, it is not open to the public. It is rumored that it was used as a “secret” airbase.

     CNS 2011 saw some 460 conference delegates at its 21st annual event in Chandler, Arizona. Is there a single, effective way to come up with a scorecard? CNS promoted it as a premiere networking event and as billed, it was an unequivocal success.
     What were the planned topics of the program? E-freight, Cargo2000 and security; the speakers, panels and moderators certainly addressed these in one form or another. E-freight is lagging behind despite a collective push; beyond acknowledging and bemoaning this sad state of affairs and flagging it as a perennial project, there were no signs of progress.
     Cargo2000 is starting to even sound a little outdated in 2011, and while it provides an array of roadmaps, methodology, measurements and CDMP, it has not generated a significant change in the industry much beyond the major players.
     Security is probably the one area where everyone feels they have skin in the game, but it’s mostly reactionary since developments are government-driven for the most part. Change is the norm and global harmonization of national security programs a hopeful but distant dream.
     So it’s business as usual to a large extent, watching carefully the price of fuel and seeing that 2011 holds up not too far below 2010 business levels. Do we need a conference for that?
     There was an exhibition and one of the stands worth mentioning in my view was Franwell with an allegedly affordable RFID solution based on open standards. Air Canada is a customer and last year it became the first airline to track cargo and mail shipments associated to a ULD at piece level, having tested shipments on the YUL-LHR route; pilot work continues.
     One of the tracks, New Technologies & Standards Impacting the Air Cargo Industry, was well attended, focusing on messaging and RFID. The other, Future Developments for Customs & Security, touched on all the high points but seemed to ignore a roomful of people in attendance, with the panelists endlessly chatting amongst themselves about the state of affairs in the Washington bubble, but sounding pessimistic about real progress in the short term.
      While there is general agreement about security regimes, the extent to which TSA, CBP, the State Department and other government branches can be the sole global role model, and only acceptable model, is rife with speculation. The lack of firm timelines and detailed procedures is just another indicator of the state of flux when it comes to air cargo inbound to the U.S.
      What seems clear is that the express carriers have cut their own deal and to judge by the volumes and last year’s Yemen incident, that matters; the airline/forwarder combination, not so much.
      In our coverage during CNS we addressed the “disappearance” of CNS in IATA. Des Vertannes was present and Aleks Popovich was also there showing the flag but playing no official roles. The conference topics are indistinguishable from standard IATA fare and the management of the event is outsourced to WorldTek, as are all IATA events worldwide. What can IATA do better to really help air cargo? The informal consensus from the secretariat seems to be to just wait for the new IATA DG to be in office in June and then everything will be good.
      That may be too much wishful thinking and a denial of the reality of IATA as an organization and how it evolved over the last twenty years.
     Airlines and forwarders carry on because they have a business to run, day in and day out. Industry framework aside, the degree to which it matters to them barely registers. IATA top management makes an art out of keeping its airline members in the dark to the extent possible. Airline top management is complicit because they do not institute the needed checks and balances to ensure their trade association focuses and works on what is critical to their business, and not IATA’s own objectives.
      That is unlikely to change and it is unlikely we will have the autonomy and visibility cargo needs to thrive and grow.
      It’s all in your hands; as always, we’d like to hear from our readers and your views on this question.
Ted Braun/Flossie

 

Virgin Cargo Transport Logistic



 

The Upbeat World Of Jan Krems

      Jan Krems is Vice President the Americas, Air France/KLM/Martinair Cargo.
      We sat down during a quick break at CNS. Talk about dynamic! Jan is on fire and is the most enthusiastic cargo ambassador and top executive I have met in a while! He is based in Atlanta, which also serves as head office for AF/KL Cargo USA, the domain of Alain Pagés, where he oversees the various regions he manages.
      He’s clearly enjoying his work and welcomes with open arms any challenge thrown his way, such as having put together and aligned the processes of the three airlines after consolidation, before he took on the responsibilities of his current post.
      The chosen business model is a complex one, built on the respective networks and market expertise of the three carriers. While it may seem complicated from the outside, Jan animatedly illustrates how the cross-trained sales force can expertly identify the best customer solution and aircraft availability on a case-by-case basis.
      The historical strength AF gained in Africa (and Martinair in South America and KLM in Asia) is being honed to best serve a global customer mix. KLM benefits from their long combi tradition, Martinair adds the all-cargo B747 and MD-11 fleet and experience and AF operates B747 and B777 aircraft in addition to cargo space of passenger aircraft. Operations and processes are constantly coordinated and improved, with challenges that require special attention at hubs such as Paris CDG.
      In Atlanta AF/KL Cargo is handled by Delta Cargo, therefore regular interaction with Neel Shah and Ray Curtis is the norm to keep improving the operation. All in all, this is just a brief look at one of the key global cargo players, with more to follow up in Atlanta in the near future.
Ted Braun

 


Heide Enfield

 

     As Transport Logistik wrapped recently in Munich, Roy Kinnear, Etihad Crystal Cargo Senior Vice President in Abu Dhabi, noted that 2011 is looking good so far, with the rest of a very interesting year still to come.
     Etihad Airways of Abu Dhabi has, in just over six years, established itself as a major leading airline.
     Created by Royal (Amiri) Decree in July 2003, Etihad commenced commercial operations in November 2003 and has gone on to become the fastest growing airline in the history of commercial aviation.
     "Etihad Crystal Cargo continues to grow impressively,” said Roy Kinnear.
     “Our belly cargo ATK capacity grew by 20 percent (year-on-year) in 2010, outpaced by our freighter ATK capacity growth of 40 percent.
     “Overall, this led to a 25 percent year-on-year ATK growth. FTK growth kept pace at 26 percent.
     “Yield was also a significant driver of cargo revenue growth with year-on-year growth of 34 percent.
     “Improvement was accomplished through a combination of such factors as stronger demand in 2010, a focus on improving revenue performance on high demand legs and a drive to improve the cost effectiveness of offline routings.
     Mr. Kinnear also pointed out that expectations for 2011 are for further revenue building action, “again outstripping ATK growth.”
     “Etihad capacity growth will continue, partly through continued yield increases and partly through improved load performance on existing traffic lanes.”
     Mr. Kinnear noted that during the past year Etihad was able to introduce passenger services to seven new destinations with belly lift.
     “We also launched daily MD11F freighter services from Shanghai via Mumbai/Delhi/Chennai to Abu Dhabi and two weekly A330-200F flights to Erbil, Iraq.
     The freighters are leased in from U.S.-based World Airways.
     “The most significant new routes were Erbil, Nagoya, Narita and Seoul.”
     Etihad Crystal Cargo recently launched a new premium service branded Fast-Track for customers needing guaranteed priority service.
     “The Fast-Track service,” Mr. Kinnear said, “is designed to support the requirements of freight forwarders, companies and individuals who need to send a shipment quickly.
     “Benefits of Fast-Track include expedited airport to airport service; priority access to capacity and later booking; and faster tender times."
Geoffrey/Flossie

 

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