Maintaining the trade balance
While there is demand for Latin American produce in the United States, China and Europe, those freighters need to be full or near-full on all flight segments in order to make routes financially viable for carriers. For instance, there may be a strong demand in Europe for Peruvian blueberries, but demand in Peru for European exports is weak, so it may not make financial sense for an airline to offer roundtrip freighter flights between the two locations. Empty air cargo capacity is money down the drain, because of rising fuel costs per flight.
Rodrigo de Narvaez, director of new business development at 21 Air, a specialist cargo carrier that operates flights between the U.S. and Latin America, said that his business often runs into this problem. “I can fill all my planes going up, but going down, it’s tough. [The ratio] is probably 60/40, but even that doesn’t really show the reality. We come up 100 percent full, but we go down with 40 to 55 percent.”
The discrepancy indicates there is steady demand in the U.S. for perishables from the region, but it also shows that demand for U.S. exports in Latin America is weaker. When a region’s economy is at a low point, consumers tighten their belts, and this is reflected in lower demand for imports.
It becomes an optimization equation; the imbalance de Narvaez described could be the difference between a route’s financial viability and a net loss. While a surge in demand may provoke airlines to purchase aircraft or increase frequencies, it may not be money well spent if revenues don’t cover costs.
However, industry leaders are in agreement that the long-unbalanced trade relationship between Latin America and other world economies is beginning to evolve.
The source of demand
Latin American exports have long found their way into North America and Europe, but Asia’s emerging role as an export partner is a relatively recent development. Cargo carriers have been adding more trans-Pacific frequencies in an attempt to harness the demand from the region. And although the broader Asia-Pacific region has a strong appetite at large, Alex Heinen, senior manager of global accounts at American Airlines Cargo, called China its number-one market.
“Perishables are entering into Hong Kong, and exotic fruits from northeast Brazil are going to Asia like never before,” he said.
Some industry members attribute growth to the e-commerce sector in China, particularly to Alibaba, which is pioneering the sale of groceries by way of its e-commerce platforms. Consumers have come to expect items like salmon, blueberries and Brazilian pimenta malagueta red peppers to be available with the tap of a touch screen on their iPhones any time of year, and industry members are eager to find a way to capitalize on that expectation.
Flowers, asparagus, fish and produce are all available online, de Narvaez says, because of the increasing population of middle- and upper-class Chinese citizens that are able to pony up for the extra cost associated with fast shipping.
The new expectation of year-round access to perishable products like papayas is changing the dynamic between Asia and Latin America. As de Narvaez puts it, “In order to get it there fast, you’ve got to fly it.”
Forwarders like Rhenus Logistics and Panalpina are investing in infrastructure in the region. Panalpina acquired Argentine company Newport Cargo S.A. just last month to expand its perishables footprint, and Rhenus purchased Brazilian company Piramide SeaAir in January to employ its forwarding services and customs clearance consultation.
There has always been some demand in South America for China’s manufactured goods, but it was considerably weaker in the opposite direction. Now, however, with a flourishing economy in China creating demand for perishables from South America, there is potential for a more balanced demand for airfreight between Asia and South America.
“E-commerce is going backwards,” said de Narvaez, referring to the traditional trade imbalance between China and many regions of the world, due to a disproportionately high demand for Chinese exports. “The transportation there is already flowing; you have airplanes going that way already. [Now that] it’s easy to buy on the internet, economical country barriers are already being faded out.”4 - Readers Like This Post