he prospect of accessing the explosive Chinese cargo market and tapping into growing intra-Asian freight traffic has operators throughout the world dreaming of air hubs in the Asia-Pacific region. Many carriers are swooning over Shanghai, but others see Seoul as a more viable option. Some carriers are focused on Hong Kong and Guangzhou, while others are still banking on Tokyo.
For their part, airports in the Far East are expanding facilities and pushing to attract cargo airlines in what is shaping up as a high-stakes battle to determine the future of air trade lanes. Carriers and forwarders' decisions in the next several years could play a big part in determining long-term air shipping patterns in Asia. It appears that the biggest airports in the largest markets, such as Shanghai, have the advantage in courting the world's cargo players.
Several U.S. carriers are flying to Shanghai, preparing to fly to Shanghai, or hoping to get traffic rights to Shanghai soon. The latest entrant is American Airlines, which was to launch flights to the Chinese metropolis at the end of March. Polar Air Cargo, which entered Shanghai last year, plans to add three weekly frequencies this year.
Jack Boisen, vice president of cargo for Continental Airlines, also wants a bite out of the industry's favorite cherry. Having mounted Beijing flights last year, Continental now is in pursuit of traffic rights to Shanghai. "We're waiting impatiently to see if we're going to get Shanghai," said Boisen.
UPS is taking its investment in Shanghai a giant step further. The integrator announced plans last year to build its Pacific hub at the city's Pudong airport. Designed to handle up to 200,000 tons a year, the facility is expected to open in 2007, when the U.S.-China air services treaty allows American carriers to set up hubs in China.
Although everybody is sanguine about the cargo potential of Pudong, many operators do not regard it as a hub for the region - precisely because of its success.
With Shanghai the focal point of international companies' drive into China, Pudong's facilities are bursting with cargo originating at its own doorstep. Propelled by a 14.5 percent surge in tonnage, the airport leapfrogged sites such as Paris and Miami to jump from 14th place in 2004 to No. 8 in the global hierarchy last year, according to Airports Council International figures.
For this reason, DHL does not envision a hub role for Pudong. "Shanghai is full," said Charles Kaufmann, DHL Global Forwarding's director for North Asia. According to one airline executive, problems with transloading and issues with customs add to drawbacks that could disqualify Pudong as a hub for many carriers.
To Kaufmann, Seoul is a better option for regional hub status. "As a hub, Korea definitely plays an important role," he said, pointing to the presence of strong air and ocean carriers, a well-developed infrastructure and its location. "We use Korea very much as a hub. We have a lot of cargo from Southeast Asia going through Incheon."
That's music to the ears of Ken Choi, president of Korean Air Cargo. He describes the development of Incheon as a regional hub as the essence of KAL's strategy, reflected in the fact that 65 percent of the carrier's volume going through the airport is transit traffic. KAL is in the process of expanding its cargo terminal at Incheon, adding nearly 50 percent more capacity. Rival Asiana Airlines completed its third cargo building at the airport last year.
KAL and Asiana's transit ambitions enjoy the enthusiastic backing of the South Korean government, which foresees Incheon as a logistics hub in a triangle with Japan and China. In this view, China provides the manufacturing and Japan the design and development expertise while Incheon serves as the ideal hub for cargo movement.
South Korea has pursued a multimodal expansion policy with ample investment in port and airport development. Incheon, which opened in 2001 with the capacity to process 2.7 million tons of air freight annually, is due to boost capacity to 4.5 million tons in 2008 and 7 million tons by 2020.
The first phase of a foreign trade zone located on a plot adjacent to the airport opened its doors last month. The enormous "Airport LogisPark" covers 10 million square feet, with room to double that.
With its grandfather traffic rights in Tokyo, Northwest Airlines is using Narita as a hub and actually gave up fifth freedom rights between Seoul and Hong Kong last year. But other operators prefer Seoul to the major Japanese airports. Proximity to China is one factor and the higher costs in Japan are another.
Equally important to DHL is that, unlike Narita, there is no curfew at Seoul. For its part, Japan Airlines intends to overcome that obstacle by slotting affected flights though Haneda, Tokyo's domestic airport, which is due to open to some international flights in 2009 with the opening of a new runway.
But China itself is still the focus for many cargo powers.
While UPS picked Shanghai as its regional hub, FedEx opted for Guangzhou in the South. The integrator will invest $150 million at Baiyun airport, which will replace its present regional hub at Subic Bay in 2008. The planned 882,640-square-foot facility will be able to handle 24,000 packages per hour, twice the capacity of Subic Bay.
Guangdong Airport Management Group intends to spend some $290 million on infrastructure development at Baiyun. Another $50.7 million is earmarked for a third cargo terminal. Slated for completion in 2007, the three million-square-foot building will be able to handle up to 800,000 tons of cargo a year. The new facility will be dedicated to international cargo, while the existing two freight terminals will handle domestic shipments.
Some 50,000 tons of international cargo moved through the Guangzhou Baiyun International Logistics Center in the first five months of last year. The center projects its international freight throughput could double over the coming five years. In 2004, the airport's overall freight throughput increased 16.2 percent to 632,000 tonnes.
However, the airport's biggest cargo player to date, Guangzho-based China Southern Airlines, shows little inclination to push cargo activities in a similarly aggressive fashion. A few years ago, senior China Southern executives were declaring plans to build a fleet of 10 large widebody freighters, but the airline now seems content to keep its current freighter line-up level of two 747-400s. Instead of acquiring more cargo planes, the carrier concentrates on the regional freight market with "quick-change aircraft," which operate in passenger configuration during the day and are reconfigured for overnight freighter activities, said Jeff Ruffolo, a spokesman for China Southern.
He noted other Chinese carriers have likewise eschewed large orders for freighters even as they have made massive deals for passenger planes. "Cargo ex-China is gigantic; the problem is the back end," said Ruffolo. "That's the quandary for Chinese carriers: How do you position a freighter so it's not half empty on the return leg?"
China Southern's two freighters do not operate out of Baiyun. Instead, they fly out of nearby Shenzhen, halfway between Guangzhou and Hong Kong. "Baiyun is great, but Shenzhen gives us other opportunities," Ruffolo said.
Northwest Airlines is doubling its freighter flights to Baiyun this April from two to four frequencies a week. Jim Friedel, Northwest's president of cargo, said he expects better opportunities there than in Hong Kong. "I don't see any significant challenges or changes in Hong Kong, but growth is in Guangzhou," he said.
Polar Air Cargo, on the other hand, has no intention of mounting service to Guangzhou. Kirsti Krepp, vice president for the Asia-Pacific region, said per-kilo costs in Baiyun are lower than in Hong Kong, but she cited operational and capacity issues.
"The infrastructure in Baiyun is not adequate yet," says Friedel. "It's maturing."
Both Northwest and Polar are convinced there's enough cargo coming out of the Pearl River Delta to fuel growth in Hong Kong and Baiyun as well as in Shenzhen. If anything, DHL is even more bullish on Hong Kong. Last year, the integrator unveiled a $110 million investment to expand its regional hub at the territory's Chek Lap Kok International Airport. This almost doubles DHL's footprint at the airport to 376,736 square feet and boosts its processing capacity from 20,000 parcels per hour to 35,000.
That DHL would expand its hub at some point was bound to happen, but it wasn't expected to materialize so soon. The decision came six years ahead of schedule, just 14 months after the integrator opened its regional hub in Hong Kong.
Scott Price, chief executive officer of DHL Express Asia Pacific, said the earlier expansion of the hub was the result of rapid growth in the area. More than 70 percent of the integrator's traffic to and from China moves through Chek Lap Kok, which handled an estimated 30 million shipments last year.
Having increased its regional airlift capacity in Hong Kong through additional aircraft and the launch of direct overnight connections to several key Asian markets between April and November, DHL added a trans-Pacific link last December. The connection came courtesy of Malaysian freighter airline Transmile, which has since been running MD-11 freighter flights from its home market via Hong Kong to Los Angeles and DHL's North American hub in Wilmington, Ohio.
DHL handles its own traffic at Chek Lap Kok, but even without that volume, 2005 produced record tonnage for HACTL, which handles the lion's share of Hong Kong's air freight. The handler processed 2,432,759 tons last year, up 7.5 percent from 2004.
At least three airports in China aspire to stronger growth than that. The Chinese airlines may have left much of the cargo initiative to international carriers, especially the express operators, but new players are emerging.
Over the coming years, three Chinese airports stand to enjoy bigger roles in international cargo traffic as the hybrid cargo carriers born out of joint ventures between Chinese and international carriers take off.
The first of the lot, Shenzhen-based Jade Air Cargo, is expected to commence operations in July, according to stakeholder Lufthansa Cargo.
Great Wall Airlines, the venture driven by Singapore Airlines, is expected to be the next out of the starting blocks. It will make its home in the crowded Shanghai market.
And Okay Airlines, the planned cargo offspring of Korean Air and China's first budget airline, still has some hurdles to clear, according to Choi. Like the passenger carrier, it will operate out of Tianjin.
