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Trade places: Air cargo demand between Europe and Asia sees growth

photo_camera Airlines are looking to improve cost efficiencies in cargo operations

Air cargo between Europe and Asia is performing strongly as economic recovery in the Eurozone bounces back and, there is also room for cautious realism. With routes linking Europe and Asia accounting for about 20 per cent of global cargo traffic, strong growth in this trade lane is welcome news for the sector.

All major Europe-Asia carriers have reported strong growth across the past 18 months, and so cautious optimism is stimulating new investment. The only blot on the horizon is a note of caution around the threat of US-inspired trade wars, and the uncertainty surrounding the Brexit process in the UK.

There have been several spectacular performances at both ends of the trade lane – London Heathrow cargoes were up more than 10 per cent in 2017 to 1.7 million tonnes; Shanghai’s Pactl cargo terminal up 12 per cent to 1.87 million tonnes; and Moscow’s Sheremetyevo, up some 23 per cent, albeit from a lower base.

With strong growth at Munich, and new records set in Vietnam and South Korea, it might be easy to overlook the fact that the growth to and from all individual Europe-Asia markets has been significant and based on similarly firm foundations.

Among carriers responding to new market buoyancy is Lufthansa Cargo, which serves the trade lane through a combination of dedicated cargo services and belly cargo on its scheduled passenger network.

“We have steadily increased our capacity to and from Asia-Pacific over recent years,” says Frank Naeve, vice president Asia-Pacific at Lufthansa Cargo. “This includes significantly increasing capacity in China, with additional freighter frequencies in Shanghai, Beijing and Guangzhou.”

A new route to the western Chinese city of Chengdu also opened in May, with Boeing 777 freighters twice a week and Naeve adds: “We have also invested heavily in Japan, with additional capacity in Tokyo as well as starting twice weekly freighter services to Osaka. In addition, we have a significant freighter presence in Korea as well as India.”

Cargo carriage in the market is split roughly 60:40 between dedicated aircraft and belly hold, compared with 50:50 on the airline’s network worldwide. At Shanghai, some 80 per cent of all cargo is transported on 11 dedicated schedules per week.

Air cargo demand: Frank Naeve
Frank Naeve – Increased tariffs are seen with some concern

By selling the belly capacity of Lufthansa Group airlines, also including Austrian, Eurowings, and from September 2018, Brussels Airlines, the Group serves the European market from four hubs – at Frankfurt, Munich, Vienna and Brussels – and offers some trucking feeder services, although Naeve notes that this is of declining attraction as capacity on more direct alternatives increases.

Naeve identifies cross-border ecommerce as a key driver of growth and suggests this sees little sign of waning, while acknowledging that commodities traffic varies significantly from market to market.

“Some, such as Hong Kong, have a high share of pre-built pallets, which are delivered to the airline for transportation. Japan is strongly driven by high-tech and automotive, while India’s growth rates are driven by the thriving pharmaceutical sector.”

Lufthansa Cargo also has a strong focus on the transport of valuable, temperature-sensitive or dangerous goods.

Naeve believes the mix will continue to deliver new opportunities, particularly in China and Japan, and the airline will take delivery of two new Boeing 777Fs early next year.

“Apart from large markets we are also constantly looking at developing markets, such as Vietnam, Cambodia and Bangladesh,” he adds.

The Air France KLM Martinair Cargo (AFKLMP) proposition differs in that the Europe-Asia connection is entirely served through the group’s scheduled passenger network, with the dedicated freighter fleet consolidated to four Amsterdam-based Martinair Boeing 747s and two Paris-based Air France 777Fs, deployed in other markets.

GertJan Roelands, vice president of Europe, traces current strong growth to November 2016, with ecommerce the key driver.

“Significant growth is driven by goods manufactured in the Far East and bought by consumers in Europe,” he says.

“The economy was already picking up and now all industries are benefitting from growth in Europe. So, we see major growth from Asia to Europe to a large extent driven by ecommerce, but also a lot of growth in the other direction, especially in automotive products – and especially to China, but also other markets.”

Roelands cites year-on-year growth in 2017 of 15 per cent, with both the Amsterdam and Paris hubs contributing to this. “We see growth in all product segments,” he says.

“Though, from Asia and specifically China, we see large growth in terms of ecommerce related business. From Europe there is significant growth in consolidated cargo to a large extent driven by the automotive industry and the perishable industry (vegetables and salmon). And we see growth in specific high-value flows.”

Strong partnerships and joint ventures with airlines including China Eastern, China Southern and Jet Airways, are enabling AFKLMP to increase its cargo availability, while a number of innovations are designed to improve the customer experience and help drive market share.

For example, some 40 per cent of quotations are now handled via the myCargo online customer portal.

A new sorter system at the Schiphol hub is helping the Group to tap into the ongoing e-commerce growth, while new products in the European market include same-day and door-to-door delivery, as well as ‘WhatCounts’, which incentivises small and medium-sized forwarders with a loyalty programme and dedicated offers.

IAG Cargo similarly relies primarily on its scheduled British Airways and Iberia passenger network to meet demand between Asia and Europe, although there are five dedicated weekly freighter services between Hong Kong and London Stansted.

“The main exporting markets into Europe are China, Hong Kong, Singapore, Malaysia, Japan, Korea, Thailand and India,” says Pravin Singh, IAG’s Regional Commercial Manager, Asia-Pacific, India and Middle East.

“We see a range of commodities that include mobile phones and electronics, and specialist shipments such as pharmaceuticals that rely on our Constant Climate product.

“London remains the key destination – shipments from Asia-Pacific are among the first to arrive into Heathrow daily, meaning same-day delivery. Our schedule from Asia enables freight to connect across our network on the same day from our hubs at Heathrow or Madrid.”

IAG is also investing in its Critical product, aimed at expediting urgent must-fly shipments. A new Critical Service Centre is staffed by experts who monitor, advise on and action the entire product journey.

Singapore Airlines’ cargo traffic splits roughly equally between scheduled passenger services and dedicated cargo operations serving 18 major European cities, with an extensive trucking network connecting the rest of the continent.

Cargo capacity between Asia and Europe is still limited

Cathay Pacific sees the year-on-year growth of air cargo recorded by various operators in 2017 continuing into 2018, with strong performance between the UK and Europe and Taiwan and mainland China.

Ronald Lam, Cathay Pacific’s director of commercial and cargo, said cargo and mail load factors rose 2.3 per cent to 68 per cent, while available cargo and mail tonne-kilometres increased 4.2 per cent.

Luxembourg-based Cargolux 2017 figures, reported in April, showed a 12.3 per cent increase in freight tonne-kilometres as load factors topped 70 per cent and helped the carrier to grow its market share by 4 per cent climbing to number six the IATA’s league table of international scheduled freight operations.

The airline operates 19-25 flights to mainland China every week and carried more than 250,000 tonnes of freight to and from China, including 147,000 tonnes to and from the Zhengzhou hub.

In 2017, Cargolux and Emirates SkyCargo entered into a comprehensive partnership, involving capacity swaps on each other’s aircraft to certain destinations and a new freighter service operated by Emirates between Luxembourg and Dubai, complementing the thrice-weekly service already operated by Cargolux.

Emirates: air cargo shifting from UK to Asia
Emirates is shifting considerable tonnage from the UK to Asia via Dubai

At the same time, Emirates SkyCargo continues to consolidate its strong position in the UK market to Asia via its Dubai hub.

With new daily connections to Dubai from London Stansted and, from September, Edinburgh, Emirates is upping its weekly cargo availability on scheduled passenger services from the UK to more than 2,500 tonnes, with total carryings since 2014 standing at around 600,000 tonnes.

While about 60 per cent of that traffic has passed through the main London hubs of Heathrow and Gatwick, Emirates has proved a game-changer in intercontinental cargo transportation to and from other parts of the UK.

At Newcastle, served daily by a Boeing 777, Emirates flies ‘the vast majority’ of exports passing through the airport, valued now at £350 million a year, compared with just £20 million in 2007, before services began.

Similarly, at Glasgow, cargo carryings of 5,500 tonnes annually in 2003, before Emirates arrived, reached 17,000 tonnes in 2017 and the airline stated: “Emirates’ cargo operation has carried more than 100 million kilos of cargo on the Glasgow service between 2004 and 2017, with more than ten million kilos (10,000 tonnes) transported in the last 12 months alone.”

According to the carrier, since the beginning of the service, Emirates SkyCargo has carried a host of items, including cars, whisky, Scottish salmon, cheese, chocolate and oil-well equipment.

The most popular destinations for Scottish salmon include China, Dubai, Beirut and Japan, while Scotch whisky is most often exported to South Africa, Japan, Korea and India.

While operators are happy to enjoy current fair winds, many sound a note of cautious realism when considering possible future trends.

A spokesman for Singapore Airlines Cargo said: “The demand for air cargo services from Europe to Asia is generally stable in the long term. However, international trade fluctuations, as well as geopolitical concerns such as Brexit, may affect the market.”

Heathrow Airport, airside, British Airways Boeing 777-236 on remote stand, control tower in background, March 2010. Image Ref CHE06966d NW

Naeve adds that the air cargo industry is by nature volatile, so making predictions is always somewhat difficult and always has a speculative element.

“The recent trade disputes and potentially increased tariffs are seen with some concern. Generally, the transportation industry works best in an environment of free trade, where goods can move easily across borders,” he says.

So, there is some concern as to the potential impact on demand by some recent developments. However, as Naeve reckons, it’s far too early to predict what if any changes in traffic flows may occur.

“Time will tell, and any impact will more than likely be felt in the medium term.”

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