The Latin American perishables market is booming, and cargo operators are seeing record volumes –particularly to Asia– but capacity remains limited and expensive.
Panalpina has continued its advance into the perishables sector with a major acquisition in Latin America.
In mid-June the logistics giant announced an agreement to take over Newport Cargo, the leading air freight export agent in Argentina. Newport handles some 24,000 tonnes of air cargo a year, predominantly perishables.
Its reach extends beyond Argentina. Fish, fruit and seeds are trucked in from other countries in the region for export by air.
“With this acquisition we are expanding our perishables footprint in an entire region and again strengthening our global end-to-end capabilities for perishables,” commented Panalpina CEO Stefan Karlen when the acquisition was announced.
So far Newport has shipped mostly to North America, but in the Panalpina fold there will be moves to develop flows to other markets, such as Europe, says Roberto Schiavone, Panalpina’s senior vice president, Air Freight, South and Central America.
Perishable flows out of Latin America have been going strong.
Panalpina has registered 20 per cent growth this year, according to Schiavone.
Airlines also report rising volumes. Air France KLM Martinair Cargo (AF-KL-MP) saw perishables exports climb 17 per cent last year and 21 per cent in the first four months of 2018, asserts Enrique Falcon Deville, director South America.
Rodrigo Casal, regional manager South America at IAG Cargo, reports that all of the carrier’s routes from the region to the UK and Spain have performed ‘exceptionally well’.
Salmon exports from Chile have been particularly buoyant. It has been the best performing commodity in the past 6-18 months, notes Andres Bianchi, CEO of LATAM Cargo, the region’s leading cargo carrier.
“Just on our Chile to Tel Aviv route alone we have already filled 26 aircraft with fresh salmon, making it a considerable increase since this time last year. We are also seeing triple-digit growth across exports to China, Spain and other parts of Europe. Over the coming months we will be continuing to transport an average of 100 tonnes of fresh salmon per month to Madrid,” says Casal.
American Airlines carries salmon on its northbound flights out of Santiago as well as Buenos Aires. “Once our Santiago capacity is filled we truck to Buenos Aires. Our biggest widebodies fly to the deep south,” says Lorena Sandoval, managing director, Florida, Latin America and the Caribbean.
Chilean salmon is not the only perishable commodity from the region that is producing soaring volumes. Avocado – chiefly from Mexico but also from Costa Rica, Colombia, Peru, Chile and northern Brazil – is enjoying a worldwide craze.
Mangoes are also in robust demand. “We are currently shipping 13 per cent more avocados and mangoes from Mexico into Spain than this time last year, and exports of flowers from Colombia to Spain have increased by 40 per cent,” reports Casal. Of late, pineapples have produced a surge in traffic.
American has carried a large amount from Central America to Milan and Amsterdam this year. For Lufthansa Cargo pineapple from the Dominican Republic has been doing well, reports Gunnar Loehr, head of South America.
Some new crops are entering the picture. “Over the last months we saw a large increase in demand for tropical fruits from the Andean countries, such as pitahaya from Ecuador and Colombia, physalis, sweet granadilla, passion fruit or soursop,” notes Falcon.
The demand from China, Hong Kong and Japan
The biggest demand for these is in China, Hong Kong and Japan, but AF-KL-MP also ships some to Europe.
The flow of the established stalwarts – flowers, cherries, berries and asparagus – keeps increasing at a fairly steady pace, with a few new markets coming into the picture.
American added Australia to its tally of destinations for flowers from Ecuador, while AF- KL-MP has established regular flower traffic to Japan. Practically each of its flights out of Bogota carries some roses going there.
“We found the Colombian production well adapted to the Japan market,” says Falcon.
The biggest shift is the rapid rise in perishables exported to China. The Middle Kingdom is showing a ravenous appetite for a broadening range of produce from Latin America, led by cherries and berries.
The US is still the main market for the region’s perishables, followed by Europe, but exports to China are going through the roof.
“The new kid on the block is China. It didn’t start this year, but it is progressing more and more,” remarks Schiavone.
Chile was the first country in Latin America to embark on a determined campaign to boost perishables exports to Asia, but the likes of Peru and Argentina are following suit.
“It started with cherries from Chile. Now Peru has a trade agreement, and Argentina also has an agreement to send cherries,” Schiavone notes.
Loehr says that the Peruvian government has been very proactive to promote exports of cherries as well as berries.
China’s ascent has spawned new dynamics in carrier activities, such as a Chile-China-Los Angeles- Miami-Chile routing, Schiavone says.
For all its promise, Asia remains a challenging destination for Latin America’s perishables. The imbalance in flows is a problem.
Chinese shipments to Latin America go primarily to the eastern part, especially Brazil, less so to the countries on the Pacific coast, which produce the lion’s share of the perishable exports.
“Right now, there are charters,” Schiavone says. “The market is driven by people in China who pay everything.” It is important to find a solution that produces better inbound flows to reduce the pricing on the outbound sector, he adds.
“Asia presents a lot of new opportunities, but capacity remains scarce and very expensive during the peaks,” says Falcon.
American has been cultivating traffic between Latin America and Asia to leverage its network, and because yields from Asia to South America have been more appealing than from North to South America.
“Demand to China is very high,” says Sandoval. “There is never enough capacity for that.”
For the most part American routes these flows over Dallas and Los Angeles which have direct connections to Asia. Sandoval is looking forward to December, when the US carrier will inaugurate a route between Buenos Aires and Los Angeles with B787 aircraft.
AF-KL-MP pulled its freighters out of Asia in a fleet shrinking exercise during the downturn to concentrate its all-cargo operations on the perishables markets in Africa and South America.
Still, its capacity could not cope with peak demand levels in Bogota and Lima, so management decided to leverage its belly capacity in the holiday destinations of Curaçao, Aruba and Panama, which has worked out well.
“We are now operating up to four weekly interline frequencies from Bogota throughout the year,” says Falcon.
This year the European carrier boosted its lift for Valentine’s Day by 15 per cent to carry about 7,000 tonnes of flowers. Out of these, 1,000 moved on interline traffic. “We pay our interline partners, but the operation still pays off,” Falcon says.
He reckons that the interline approach will expand, not only for his airline but for other carriers as well. Lufthansa, which pulled its freighters out of the Latin American flower origin points a few years ago, is moving in the same direction.
Over the past year it has developed cargo business in a number of Caribbean holiday destinations, using the belly capacity of Eurowings.
This has generated some local origin business, like pineapple, but Lufthansa is also feeding traffic from South America to Costa Rica and the Dominican Republic as well as Panama and Miami for the haul to Europe.
Peaks – especially for flower shipments around occasions that are observed around the world like Mother’s Day – overwhelm capacity, but the pattern is less extreme than before.
“We have witnessed a recent transformation where a better organised production combined with the mild equatorial climate allows for more stable volumes throughout the year. Consequently, the demand for flowers has also stabilised, and we as carriers can sustain capacity more evenly,” remarks Falcon.
The global air freight market situation is forcing some constraints on capacity deployment, though. “We are in a phase where air freight is doing well worldwide. We have to look where we want to place out capacity,” says Loehr.
For this reason, Lufthansa is not chasing Latin American exports to Asia but concentrates on traffic to Europe.
For its part, AF-KL-MP is working with China Southern Airlines during the cherry season. Besides serving the Chinese market, this has also brought about shipments to Australia. “Creativity has to be there,” comments Falcon. “You use your network or partners.”
For LATAM Asia is a market of growing importance, which it serves through interline arrangements, Bianchi says, adding that he is bent on expanding and intensifying these.
Meanwhile LATAM is honing its performance. “We are working on redeveloping our value proposition for perishables,” he says. This involves processes as well as infrastructure and the tools to support this value proposition.
The carrier’s hub at São Paulo’s Guarulhos airport is the biggest focus there. LATAM intends to build a transit cooler near the tarmac. Most of the permits are in place, and Bianchi expects work to start soon.
Loehr reports that the digitisation of air cargo in the region is showing signs of picking up momentum.
Some countries, such as Brazil and Mexico, have embraced e-freight for exports and others, including Uruguay and Panama, are moving forward with the concept, he says.
AF-KL-MP has been working on efforts to extend the shelf life of flowers, Falcon says.
At this point he cannot reveal any details, but it is no secret that KLM has been working with Schiphol airport and the Dutch flower auction Royal FloraHolland since the summer of 2016 to develop new cold chain solutions for flower traffic.
Their work has concentrated on flowers from East Africa to the Netherlands so far, but some of the findings and concepts developed there should be applicable to flower traffic out of Latin America.
Operators are optimistic that growth will continue. There is uncertainty how trade patterns will evolve if the stand-off between the US and China over tariffs worsens. Exporters in the region are watching these developments, but nobody is taking any action at this point, operators report.
In any case, there are frequent shifts in traffic patterns. If adverse weather conditions affect output in one country, others step in and boost their exports of the affected commodity, Sandoval notes.