Asian demand drives air freight volumes, capacity expansions
David Hannon -- Purchasing, 4/6/2006
Air freight buyers can expect to pay more for express services, especially in the Asian market, as demand spiked in late 2005, tightening available capacity for air freight. A recent report from the Seattle-based Air Cargo Management Group shows the express segment of the air freight market grew sharply in 2005, up 6-7% while heavyweight freight grew only 2.2%. That is opposite most years when heavyweight air cargo grows more than express, says Ned Laird of ACMG.
The primary driver of air freight express is the intra-Asian market. Companies with manufacturing sites at one point in Asia and suppliers in another part are leveraging more air freight to connect the two sites. The lack of ground infrastructure makes rail and trucking very difficult between countries in Asia.
Laird reports that there is increasing capacity for air freight in Asia to meet increasing demand. For example, a new joint venture between Shenzen and Lufthansa called OK Airlines is one example.
But capacity additions do not come easy in this market. Because of the lack of competitors and the regionalized nature of the Asian air freight market, shippers often are leery of letting go of any capacity. Laird cautions shippers to check with 3PLs or freight forwarders that claim to be doing business in Asia, particularly China. While they may claim they can gain air freight capacity in the region, unless they already have contacts, it may be more difficult or costly that expected.
"Each region in Asia has certain carriers and operators serving them. Because of that, they can maintain price control even in a down market. Shippers have limited choices and do not like to drop their volumes for fear they will not be able to pick them up again later."
Some capacity additions in Asia are being shelved because of high fuel prices and concerns from carriers about profitability. For example, Australian carrier Qantas recently put off plans to expand a joint venture called Thai Air Cargo.
"Plans for Thai Air Cargo to commence flying have been put back indefinitely due to current high fuel prices and the unavailability of suitably fuel-efficient aircraft for lease," Qantas executive general manager associated businesses Grant Fenn said in a recent news report. "A decision on operating in the future will be made when the economic environment has improved." The freight operation was designed to give Qantas access to intra-Asia traffic rights and was due to hub in Bangkok and fly to India, Singapore, Shanghai and Hong Kong.
According to the International Air Transport Association, in 2005 freight traffic in Asia grew 4.2% while available capacity grew 6.7%. "[Asian freight traffic growth of 4.2%] was below the double digit growth of previous year but above global growth of 3.2%," an IATA report says. "The difference between economic growth and traffic growth has two messages. One, Japan is dragging down the regional numbers. Two, Asian markets have lots of potential."
IATA predicts trans-Pacific air freight volumes to increase by 6.0% through 2009 but says volumes within Asia will see faster growth of 8.5%.
Internationally, combination carriers and cargo carriers working with freight forwarders still control up to 90% of the air freight tonnage globally. In Asia, combination carriers make about 35% of their revenue from cargo, a much bigger percentage than similar carriers do in the U.S. (5%) and Europe (15%).
| China | 14.4% |
| Qatar | 12.5% |
| Sri Lanka | 12.2% |
| Macao | 11.6% |
| South Korea | 10.7% |
| Source: IATA | |
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