Latin America used to be the next great air cargo market, but carriers now are willing to accept modest growth before they bring in new planes
ike other air cargo carriers, DHL would like to pick up more volume before it adds more lift in Latin America.
"We've been stable. I haven't seen anything dramatic in any direction," said Carlos Gamundi, Florida-based general manager of the DHL-affiliated airlines based in Ecuador, Guatemala, Panama and Venezuela.
The airline operators were expecting to haul 2006 shipments totaling at least 114,000 tons, matching their 2005 loads. Their combined freighter fleet of eight 727s and three ATR-42-300s is supplemented by wet-leased capacity from Capital Cargo International, mainly into Venezuela.
But expanding the fleet has been little more than a fleeting thought. "We're always analyzing different scenarios, but those are just scenarios," Gamundi said.
His caution is common across a region once touted for great growth prospects but more recently falling behind as the rest of the world rushes to Asia. After fighting for market share in the 1990s amid forecasts of growing economies, several air freight carriers now are content to keep their capacity between the U.S. and points south of the U.S. border as is.
Instead, cargo airlines are sending their largest additional capacity to other parts of the world.
Air cargo operating capacity in Latin America rose 1.2 percent during the first nine months of 2006 over the same period in 2005, the slowest pace in the world, reported the International Air Transport Association. Comparable IATA data for the nine-month period shows cargo capacity grew from 3.5 percent in Europe to 12.6 percent in the Middle East, with Africa, Asia-Pacific and North America bunched in-between.
After rising in Latin America from January through May, compared with the same months in 2005, cargo capacity declined between June and September, though at a decelerating rate after July, IATA reported.
Air cargo lift in Latin America, measured by the number of tons of available loading space on all flights, multiplied by the number of kilometers flown, fell 4.5 percent in June, 6.7 percent in July, 3.1 percent in August, and 0.7 percent in September.
Passenger carriers have restricted belly space for cargo by limiting flight operations in Latin America. Passenger airlift in the region (available seats multiplied by kilometers flown) was unchanged in the first nine months of 2006, compared with the same period the year before, according to a survey by the Latin American Air Transport Association of more than 30 member-airlines based abroad.
American Airlines, a leading passenger and cargo carrier in Latin America, also has been a leader in keeping its capacity in the region constrained. Its available seats in Latin America, multiplied by miles flown, rose 2.2 percent in October after falling in each of the first nine months of 2006, compared with the same months in 2005.
Robust growth in international aircraft operations has diminished from Miami, the main U.S. gateway for air trade with Latin America. The number of international flights was virtually unchanged in the 12 months ended September 2006, up 0.01 percent from the previous year, and the volume of imports and exports passing through Miami International Airport rose only 1.3 percent during the same period.
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Mexico Ramp Up
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The growth of light and heavy industries in various parts of Mexico is prompting air cargo carriers to expand operations there, albeit modestly.
Take, for example, UPS' announcement to add an A300 to its Mexican network as part of a commitment to expand delivery capabilities in Western Mexico. Using Guadalajara as its base, the A300 provides nearly 70 percent more cargo space than the 757 it replaces, said UPS.
"One of the Mexican economy's key drivers is the small and mid-sized enterprise sector, which demands the most advanced capabilities in order to market goods and services at a global level," said Jean-Robert Covington, commercial director, UPS Mexico.
UPS is ramping up operations in Mexico as some shippers say they are pondering shifting some manufacturing to the country because rising costs in Asia and the problems with long supply chains have made factories in North America more attractive.
UPS Americas President Stephen Flowers says the company's 2006 investment in Mexico will reach $7 million. The investment includes 10 new facilities, including operating centers in Puerto Vallarta, Colima and Manzanillo.
The state of Jalisco accounts for 9.7 percent of Mexico's industrial output and 9.7 percent of the country's industrial Gross Domestic Product.
Mexico is attracting a lot of attention of OEMs, maintenance providers as well as air freight carriers, which seek new and additional operating authority between the U.S. and various points in Mexico, according to the U.S. Department of Transportation.
DOT recently granted Centurion Air Cargo and Florida West International Airlines rights for scheduled service between certain U.S. points and Mexico City. In addition, DOT awarded authority to Centurion to provide air cargo service between Los Angeles and Guadalajara, Miami-Mexico City and Miami-Guadalajara. Earlier, DOT renewed for two years Gemini Air Cargo operating rights between Miami and Quito and Guayaquil, Ecuador.
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Operating a bigger fleet to build revenue is anathema to carriers that focus on building profit margins.
"Improving yield is the thing we are working on," said Tom O'Malley, vice president, UPS Air Cargo, Latin America.
Yields in Central America are rich enough to justify increased lift for at least part of the year. That is how UPS is serving Nicaragua.
To support a seven-month expansion of scheduled flights from Miami to Managua, Nicaragua, from five weekly to six weekly, UPS put an extra 757 freighter into the region, which increased to 11 the number of 757s and 767s the carrier has deployed for Latin America.
The UPS expanded Managua-Miami service was expected to run from late October to May, high season for exports of okra and other perishables from Nicaragua. Afterwards, UPS probably will redeploy a 767 or 757 from to another part of the world.
Tough price competition is one reason to keep fleet size unchanged. Many rate-sensitive exporters in Latin America have commanded deep discounted service from accommodating airlines, though UPS has avoided price wars, O'Malley said. "Competitors may see the opportunity to acquire market share rather than yield improvement," he said, but "we're better off with improved yields than slugging it out over market share."
Lan Airlines is bucking the trend in Latin America by making more cargo capacity available despite the region's slow volume growth. The carrier's scheduled freighter service was expected to have "very good months" during the busy pre-Christmas shipping season, said Claudio Silva, a senior vice president of Lan Cargo.
Lan's charter flight business is growing, he said, citing solid demand for freighters flown from the U.S. to Argentina, Brazil and Mexico. "The southbound market is still very strong," Silva said.
Lan increased from four to five weekly scheduled 767-300 freighter flights from Los Angeles to Manaus, Brazil, starting in September 2006. Silva said the service expansion was a response to strong Brazilian demand for telephone equipment, plasma gear and other Asian-made goods transshipped through Los Angeles.
But Lan also was hedging on how much more cargo capacity it really needed. The airline plans to take delivery of two new 767-300 aircraft in 2007. But as 2006 drew to an end, the combination passenger and all-cargo carrier was still pondering whether to order one or both of its 767-300s in freighter configuration, Silva said.
While awaiting more lift, Lan upgraded ground-handling capacity in Miami. Near the end of the summer of 2006, Lan finished an extensive remodeling of its cargo warehouse at Miami International Airport, where it ranks as the busiest cargo carrier. In addition to installing a new rack system in the warehouse, Lan imposed new procedures to minimize cargo-handling errors. "It is working well. We have almost no incidences of lost or damaged cargo," Silva said. "The next step will be to improve the speed."
Upgrading ground facilities may be easier than increasing carrying capacity if additional aircraft are unaffordable or unavailable.
Just ask Fred Jacobsen, chief executive officer of the Colombia-based cargo airline Tampa Cargo. Tampa has a fleet of four 767 freighters and a DC-8. Tampa expects to return the leased DC-8 in 2007, replacing it with a more fuel-efficient 767. But "the problem is lack of aircraft," Jacobsen said. "The passenger airlines are really tight on capacity, so they are using anything they can get, and obviously the 767 is a very good aircraft today."
In late 2006, Tampa began considering the acquisition of a 757 to replace its DC-8 as a permanent addition to its freighter fleet, not a bridge to an all-767 fleet in the future. The superior fuel efficiency of the 757 could give Tampa a competitive edge in certain Latin markets served by rivals operating 727s and DC-8s, Jacobsen said.
Leasing a converted 767 freighter is not possible because "many of the leasing companies would like to keep those aircraft in passenger configuration for at least a couple more years," Jacobsen said. "So we think that until the 787 enters the market around 2009, there aren't going to be many options to convert aircraft."
