Affluent Asians boosting Europe’s freight business

A new air cargo trend is improving west–east air cargo flows as Asia’s rising middle class demands the best of the first world from fine wine to finery – at home.

by CHIEF CORRESPONDENT, TOM BALLANTYNE  

July 1st 2014

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Traditionally, air freight traffic strongly favoured Asia-Pacific carriers. Manufactured goods from the glossiest of phones and computers to Asian gastronomic delicacies flowed to the economies of the First World from China, Taiwan, India and increasingly, Vietnam and Indonesia. Read More »

But an emerging trend could reset the balance between the first world and emerging economies as the Asia-Pacific’s expanding middle class feeds it habit for imported goods from Europe and America.

Lufthansa Cargo executive board member, Andreas Otto, in a recent state of the industry briefing in Frankfurt, said China is expected to be Europe’s fastest-growing major regional destination market for air freight this year.

More importantly, eastbound trade from Europe to China is recording a higher percentage increase than the [traditionally] much larger volumes moving in the opposite direction.

Otto said Seabury’s worldwide air and ocean trade flow database indicated a longer term continuation of the new trend, which could substantially improve the viability of future freighter operations between China and Europe as East-West trade flows move closer to balance.

Reform or wither warns IATA IATA’s new global head of cargo does not mince his words when it comes to the global air cargo industry. “The industry needs a structural re-design,” said Glyn Hughes, during the association’s 70th annual general meeting, held this year in Doha. “Times are changing. Ships are doing the unthinkable and stealing away goods that have traditionally been carried by air. The future of the pure freighter is being threatened,” the recently appointed IATA cargo boss said. Industry threats are: the reduced size of hi tech electronics that no longer require dedicated freighters for transportation; an expanding global passenger fleet that allows more freight to be delivered as belly cargo, particularly at the Gulf carriers; the high cost of air freight which has forced companies like Sony and Ericsson to switch to cheaper sea freight and the failure of the industry to adapt to a digital documentation model. Paper work has increased the average time to shift a product from the manufacturer to the final importer to 6.5 days. It took three days aboard a B707 in the 1960s, said Hughes. IATA wants its members to shave 48 hours off shipping times by simplifying handling procedures and introducing digital documentation. Just 14.3% of air waybills were electronic in 2013, well short of IATA’s target of 22% for the year. “As an industry we’ve been pretty much doing the same things for 50 years, so anything like this is a sizeable change,” Hughes said, when pressed for reasons for the slow uptake of IATA’s e-freight reforms. It is forecast air cargo volume will be about 52 million tonnes this year, a tonnage that has remained unchanged since 2010. In 2014, air freight will account for 0.5% of all goods transported globally, but the industry is worth $6.8 trillion or 35% of international trade by value.

Seabury’s figures forecast cargo volumes into China from Europe will see the highest growth rate yet this year, at some 4.8%. The forecast is well ahead of the 3% increase projected in the opposite direction.

Elsewhere in the Europe-Asia air freight market, European tonnage to North Asia (excluding China) was expected to grow by 3.1% this year, to the rest of Asia by 1.7% and to India by 2.8%.

Westbound, traffic to Europe from North Asia is forecast to expand by 4.1%, from the rest of Asia by 2.1% and from India by 3.6%. Lufthansa’s Otto said the positive outlook projected by Seabury was reflected in the German operator’s own recent experience. During the last five or six weeks of 2013, it had seen a 25% increase in its China to Europe volumes compared with the same period in the previous year.

Finnair said a major reason for the increase in demand was China’s growing middle class and its appetite for western luxury goods. The airline said China’s newly affluent are eating more Western food and drinking more imported wine, which had boosted shipments such as salmon from Norway and fine wine from France. The managing director of Finnair’s cargo division, Juha Jarvinen, said in Tokyo recently that the carrier could double shipments of salmon to China and Japan to 600 tonnes a week by 2020, from 300 tonnes currently.

China is also increasing imports of flowers. The country imported 6,581 tonnes of cut flowers last year, 17% more than in 2012. Geneva-based International Trade Centre data said shipments of cut flowers to China from the Netherlands, the world’s biggest exporter, rose 56%, in 2013.

The Air France-KLM group’s biggest export to China is fish and sales of French wine to China are booming. Chinese wine lovers bought more than 200,000 bottles of Beaujolais Nouveau in 2012, making it the world’s sixth-biggest market.

For Asian cargo operators there is more bad news, in the form of the expansion in the freighter operations of Middle East airlines. At the recent executive summit of The International Air Cargo Association (TIACA) in Istanbul, analyst Brian Clancy, managing director of Logistics Capital & Strategy, told delegates “the elephant(s) in the room” were the Gulf carriers. They had redrawn the Asia-Europe market by adding passenger aircraft on flights into and out of Asia that can carry 20 tonnes or more of cargo. This had forced some Asian and European carriers to reduce or eliminate their freighter fleets, he said.

In its latest air freight market analysis, IATA said for the four months to April 30 this year, air cargo traffic worldwide was up 4.2%, led by 4.5% growth in international traffic, while domestic traffic was up 2.2%.”

However, the picture remains mixed. Developed economies are maintaining post-recession momentum, but there has been an economic slowdown in emerging markets, particularly China. In recent months data has revealed weakening in business activity and a pause in trade volume expansion, which is consistent with the flattening in the air freight growth trend.

In the Asia-Pacific, the Association of Asia Pacific Airlines (AAPA) said international air cargo demand grew in April on the back of sustained demand for Asian exports, when air freight tonne kilometers (FTK) increased by 4.7% compared with the same month in 2013. However, air cargo remained under pressure because offered freight capacity expanded by 5.3%.

International air cargo load factor for the region’s air freight industry averaged 64.3% in April, 0.4 percentage points lower than the same month last year.

With no sign of a significant lift in the air cargo business, carriers such as Singapore Airlines and Air France-KLM have reduced the freighters they operate. Other airlines have deferred or cancelled freighter orders. Even Lufthansa Cargo, which is benefitting from the region’s demand for European products, has postponed its decision to increase its B777 freighter fleet.

Air France-KLM, another beneficiary of affluent Asians propensity for the finer things in life is now deciding if it will reduce, again, its freighter aircraft fleet. The French carrier’s passenger aircraft now accounts for 72% of total freight capacity compared with 54% in 2007-08. The airline’s chief executive, Alexandre de Juniac, said recently that the airline cut its freight-only capacity by 11.5%, to 14 aircraft in 2013.