Signs point to steady growth in air cargo volumes on routes within Asia and this has been driven in part by significant changes in manufacturing supply chains.
Dubbed the ‘factory of the world’, the Asia-Pacific region generates about a third of global air cargo carryings according to IATA figures – it is in effect a barometer for the industry globally.
So, continued strong growth across Asia, and in the Asia-Pacific region specifically, is welcome news, especially given the escalating political rhetoric around protectionism.
Indeed, the so-called ‘law of unintended consequences’ appears to be responsible for driving some recent growth, as manufacturers look to move capacity from China to other countries in the region, such as Vietnam and Cambodia, in response to fears over threatened US trade tariffs, as well as rising costs in China.
Most recent figures from the Association of Asia Pacific Airlines – which represents 15 major carriers across the region – point to growth in cargo volumes year-on-year of more than 5 per cent.
In the organisation’s most recent traffic bulletin in July, director general Andrew Herdman stated: “Asian airlines have continued to experience relatively encouraging growth in air cargo demand this year, up by about 5 per cent, on top of the very strong upswing we saw in 2017, although growth in new export orders has slowed in recent months.”
Herdman observed that the movement of manufacturing capacity away from China to other countries in Southeast Asia was driving some of this growth.
This view isechoed by Taipei-based air freight forwarder, Dimerco, which has, in response, developed a network of cross-border road feeder services to hubs including Shenzhen, Hanoi, Bangkok and Singapore, as well as Penang, Kuala Lumpur and Johor Bahru, in Malaysia.
Felix Chen, Corporate Marketing senior specialist at Dimerco, cites Vietnam, which has seen several major electronics companies relocate production lines to the country, including Intel, Foxconn, LG, and Samsung.
While, in other sectors, Nike, Adidas and Puma have moved production to Vietnam and Cambodia. Lower wage costs, the availability of skilled labour and the risk of US tariffs are listed as among the key drivers.
“Since there are no direct flights from Vietnam to the US, all freight must transit via a major transit hub, such as Hong Kong, Taipei, Singapore, Guangzhou, Seoul or Tokyo to connect to the US,” says Chen.
At one of those hubs, Hong Kong, the trend is evident, as Vivien Lau, Executive Director of Hactl (Hong Kong Air Cargo Terminals) and Managing Director of subsidiary company Hacis (Hong Kong Air Industry Cargo Services) attests.
Hactl handles the overwhelming majority of all cargo movements through Hong Kong, with more than 100 client airlines, including several dedicated freight carriers, as well as bellyhold shipments on scheduled lines.
Lau observes: “Hactl has been witnessing growth in intra-Asian traffic for some time, and some markets, such as Vietnam and Laos, are trending above global averages.
“This is mainly due to a shift in manufacturing to the younger and lower-cost economies in the region, although there is no change in the ultimate markets for their output, which are the US and Europe.
Hong Kong and Hactl continue to benefit from the presence of global air cargo capacity and connections.”
She continues: “Air freight is always driven by consumer wealth and confidence, which stimulate demand for the higher-value commodities it typically carries. Growth in consumer wealth in China and Hong Kong has certainly fuelled inbound e-commerce, helping to balance trade flows, and Hong Kong has been recognised as the ideal location for regional fulfilment centres thanks to its tax-free port status.”
And she predicts: “As other economies in the region become more prosperous through increased manufacturing activity, this e-commerce trend will be repeated elsewhere, and traffic will continue to flow through Hong Kong.”
Growth through Shanghai’s Pudong Airport Cargo Terminal (PACTL) has also remained strong, with international carryings up by as much as 14 per cent in some months this year. Inbound international cargo is consistent at around 65,000 tonnes monthly, with outbound around 90,000 tonnes.
Among recent developments has been the inauguration of a thrice-weekly dedicated cargo link with Hong Kong, operated by Hong Kong Air Cargo Carrier using an Airbus A332F.
The extent to which growth driven by relocated manufacturing will be sustained is uncertain at present, with the first indications of a slow-down in growth rates occurring as surface transport alternatives begin to be developed.
At DHL Global Forwarding, Li Wenjun, senior vice president, Air Freight, Asia Pacific and Head of Air Freight, China comments that China is still the biggest market within Asia-Pacific.
“However, we are starting to learn of interest from manufacturers in shifting their production from China to Southeast Asian countries, such as Malaysia, Thailand and Vietnam, owing to the current US- China trade war.
“After strong demand for air freight volume in 2017, we have observed consumer demand slowing down in the first half of 2018, with an average year-to-date growth rate of 4.3 per cent, compared with the average growth rate of 9 per cent in 2017, across the various Asia-Pacific countries.”
Li Wenjun observes that the main products carried by air freight within the region remain high-tech manufactured goods. “But we do see an increase in perishables, automotive, chemical and fashion products as well.”
Significantly, he adds: “As more and more consumers grow accustomed to making purchases online, the e-commerce sector will continue to contribute towards air freight volumes.”
Hactl’s Lau, at Hong Kong, sees an evolving market in the sector: “e-commerce continues to be a rising star, and this is particularly obvious to us due to the involvement of our value-added logistics arm, Hacis, which is working with postal authorities to process mail containing e-commerce packages. We are now handling ten times the daily volumes of just two years ago.
“e-commerce is also setting its own trends – Russia is emerging as a popular new destination for exports and Hacis is handling increasingly large volumes of e-commerce parcels and signing new contracts specific to this market.”
Lau also reports that mobile phones are still a significant proportion of all traffic, but pharma also continues to grow, influenced by Hactl’s decision to focus on the special needs of this sector.
Looking towards the future, there is a strong consensus that the ongoing US-China trade war will continue to drive the dispersal of manufacturing from China and across the wider Southeast Asia region in particular.
Li Wenjun also observes that manufacturers are diversifying their production from China to the rest of Asia.
“While we understand the US’s desire to bring manufacturing jobs back to the US, this will not be easy in the short term as the core of manufacturing is in material sourcing, with the majority of components coming from within Asia.
“So, intra-Asia-Pacific traffic should continue to grow over the coming 12 months. Asia-Pacific is still the factory of the world, and the increase of GDP in the region will result in an increase in demand for more goods.”
He says the boost of e-commerce will spur the growth of overall trade within Asia, as the median income of the average Asian consumer continues to grow.
“In a way, the ongoing US-China trade war has prompted businesses to look again at their global supply chain operations. We have seen an interest in manufacturers relocating parts of their production from China to Southeast Asia. This could help bring jobs to developing countries and spur the economy of these countries, which in turn lifts the median income level and increases spending power,” Li Wenjun states.
And that in turn may further fuel the rapidly expanding e-commerce sector.
Hactl’s Lau, adds: “Given no major incidents or external influences beyond our control, we would expect steady growth with a good finish to the year. But things are becoming less predictable because of the potential effect of China-US trade tensions, Brexit and other unresolved, evolving factors that could cause all manner of changes: some for the worse, but also some for the better, as China and other producers look for new markets.”
Lau feels that even if the current trade situation is not resolved, China will seek new markets and shift its emphasis.
Equally, importers in the US may look for new suppliers and sources of materials and components elsewhere in Asia, that are not subject to punitive tariffs.
“This may still benefit Hong Kong and Hactl, as we are a major regional hub and global gateway for Asia. Overall, the situation should balance out, although we may see considerable change in the relative importance of some trade lanes.”
Ongoing investment at Hactl reflects the general level of confidence within the region. Lau explains that the company is nearing the end of a massive three-year programme to totally replace the legacy systems that operates the automated terminal.
She says the new logistics control system will be future- proof, expandable and easier to upgrade.
She adds: “We are also about to introduce a new system to automate the tracking of loose cargo in our huge warehouse; this deploys home-designed and developed technology that will halve the time taken to locate racked cargo.
“Hacis will shortly open its ninth mainland China depot, serving the western Pearl River Delta, and linked to Hactl via scheduled road feeders operating via the Hong Kong-Zhuhai-Macau Bridge.”
The Association of Asia Pacific Airlines’ Herdman also remains broadly upbeat, saying that the general outlook for further long-term growth in demand for air cargo remains positive, and this confidence is reflected in the number of orders being placed for new freighter aircraft by both integrators and leading international airlines.
“Asia, in addition to being the preferred location for many of the world’s major manufacturing centres, is also home to a rapidly growing market of middle- income consumers. The modernisation of retailing and logistics services within the Asian region reflects these major shifts in consumer demographics. In particular, China is already the world’s largest market for e-commerce services.”
By 2036, aviation in the region is expected to support 44 million jobs and $1.7 trillion in economic activity according to a new report released by the Air Transport Action Group (ATAG).
Key to this growth will be sustainable development of air transport as part of national growth plans, including improvements in infrastructure, support for sustainable aviation fuels and helping to encourage more young professionals to enter the industry.