Cross Pollination: Asian demand rises for Latin American trade

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In early March, a loaded 747-400 freighter, operated by Atlas Air on behalf of forwarding firm Panalpina, pushed back from the gate in Hunstville, Alabama, and took off at sunset, full of ma­chine parts from the American Midwest. It was the inaugural flight of Panalpina’s twice-weekly “Brazil Wings” main-deck service from Huntsville to São Paulo, Brazil. The total transit time for the new HKA-HSV-VCP route was less than 40 hours – pretty impressive for a journey of more than 11,300 nautical miles.

The Brazil Wings service was designed for U.S.-based manufactur­ers to send machinery to the well-established agricultural and mining industries in Brazil. Panalpina offers road feeder service from 10 U.S. cities each day to Huntsville. “This allows for fast expediting and full control on the ground,” said Roberto Schiavone, head of airfreight for the Americas region at Panalpina. “In addition, customers benefit from cargo consolidation and customs clearance services.”

For many other carriers, the reverse of this journey – from South America to the Asian cities of Hong Kong, Shanghai, Tokyo and Seoul – is becoming increasingly popular as demand grows in Asia for fresh food and other perishables from the South American market.

The Pacific Ocean, at its widest point, between Indonesia and Colom­bia, is about 10,700 nautical miles – too far for most commercial aircraft to fly fully loaded with cargo or passengers. But the value of goods along the Pa­cific Rim – from pharmaceuticals and high-tech electronics in Asia to fish, fruit, vegetables and other perishable goods in South America – are making this niche Latin America-to-Asia lane one of the fastest growing in the world.

“We call it ‘south to south’ trade,” said Jim Ramsay, vice president of UPS’s Americas region. “It’s a global trend that’s gathering some tremen­dous momentum, and it’s an area we’re very interested in.”

What’s being carried

According to 2014 figures from CEVA Logistics, based on research by the Seabury Group, the trade flows from Asia-Pacific countries to Latin American are centered on high-tech and manufacturing. Last year, CEVA said, electronics, machinery, and com­ponents and supplies, combined, made up nearly three-quarters of the ship­ments to South and Central America.

“Trade from Asia to Latin America Singapore is very technology-driven,” said Janet Ang, regional trade lane director of air products at CEVA Logis­tics’ Singapore office. “A lot goes from China to Brazil, including high-tech components and consumer personal electronics.”

Looking in the other direction, how­ever, the view looks very different. Temperature-controlled shipments, including perishables, made up 33 per­cent of the export market from South America to Asia-Pacific countries, followed by 19 percent for high-tech goods. The largest year-over-year in­crease in 2014 for the trade lane was a 21 percent growth in temperature-controlled products, CEVA said.

The volumes of these Latin Ameri­can exports are relatively small, compared to, say, Asia-Pacific routes to North America or Europe. “But the trending is pretty positive, with a significant percentage growth coming from Latin America,” Ang said.

Robert Villamizar, head of air prod­uct capacity management, intra-Amer­icas, for DHL Global Forwarding, said some of the goods being transported from Latin America to Asia include clothing, automotive parts, electronic components and machinery. “There are also perishable commodities like asparagus from Peru, flowers from Colombia and Ecuador, and fruit from Chile and Argentina,” he said. “Some of these commodities have a seasonality factor throughout the year that impact the air capacity, thus the airfreight rates.”

Besides the Brazilian airports Gua­rulhos International and VCP, other Latin American hubs with growing Asia-bound cargo exports include Juan Santamaria in San José, Costa Rica; Jorge Chávez in Lima, Peru; and El Dorado International in Bogotá, Columbia. “These airports handle a variety of commodities, from per­ishables to finished goods bound for China, South Korea, Japan, Taiwan, Singapore and Malaysia,” Villamizar said.

What’s driving it

So, how does a trade lane with such vast distances and such large trade imbalances become a sought-after market? In short, East is start­ing to look a lot more like West.

Most of the exports coming out of Latin America are perishables destined for Western regions, such as North American and Europe, which expect to have seasonal berries, flow­ers and vegetables in their stores year-round. However, with the developing world increasingly adopting many of the same Western diets and shopping habits, the demand for fresh imported produce continues to rise. In response, a growing percentage of these goods are being pulled into Asian markets.

“After Europe and the U.S., Japan is the third-largest market for flow­ers,” said Juan Carlos Serna Velez, vice president of Latin American air prod­ucts for CEVA Logistics. “From Bogotá, we’re seeing a positive flow, year-over-year, to Japan.”

Because some perishable foods have an extremely short shelf life, airfreight is sometimes the only option for Asian markets that want fresh – not frozen – food delivered to their kitchen tables and restaurants. In Argentina and Chile, Velez said, fish and berries are becoming a hot export to Asia, as well as salmon coming from Peru. “We’re currently a strong player in the aspara­gus trade,” he added. “The majority goes to North America, but there is a developing niche for Asia.”

The lower cost of fuel since the mid­dle of 2014 may also have had some ef­fect. “Some of the export lanes are see­ing some sort of cost reduction,” Velez said. “Outbound traffic is also affected by all-in pricing, but it all depends on the capacity they have.”

Even at these long distances, howev­er, fuel prices may not be a major fac­tor in the market. “I do not see it has much of a role, since perishable com­modities demand very low rates out of Latin America in order to be accessible to the end consumers,” said Villamizar. “Even when the fuel price was high, the rates for perishable commodities did not increase substantially.”

“The yields on the Asia-Latam route are probably the most interesting ones,” Schiavone said. “With the long distance comes high yield rates, and for this reason carriers and forwarders are focusing more and more on this trade lane. The quantity of perishables and other products going from Latam to Asia is much lower than the high-tech products coming into the region, so, in this case, the carriers don’t re­turn the flight exactly on same route they came in on.”

How it gets there

Because of the enormous distances involved, shippers wishing to put fresh Peruvian asparagus on the menu in Shanghai must rely on some circuitous routes involving well-established trade lanes.

For instance, Miami International is still the undisputed linchpin in most Latin America-to-Asia trade. The seasonal quality of most perishables coming from the south means ship­pers and forwarders have to rely heavily on trans-shipments and consolidation to main­tain profitable yields. Miami – which serves 43 destinations in Latin America, including 29 in South America – has been the per­fect location to send most of this Latin American cargo, where it can be sent on to North America, Africa, Europe or Asia.

“The northern part of South America has a lot of flowers moving through Miami and then on to Europe,” Velez said. “Brazil, Argentina and Chile have also leveraged their logistics using widebody passenger capacity through their hubs. As long as the cool-chain process is maintained and you work closely with your suppliers, products can manage within 48 hours, along with holding and processing.”

Other consolidation hubs often used in these trans-Pacific flights in­clude Atlanta, Chicago O’Hare, JFK and LAX. “It’s a complex logistics because simply there is no direct flight attending the route,” Schiavone said. “You have to either use Europe or USA as connecting points, especially if we talk about freighter services, which can transport big ship­ments and cargoes that do not fit on passenger flights.”

The other way around

In more recent years, shippers, car­riers and forwarders have been getting more creative with their routing of Latin American goods to Asia, always searching for the right balance of cost-reduction and expedience. Some solu­tions being tried seem entirely coun­terintuitive, like taking the longer way around the globe by flying east across the Atlantic and then across Africa and Eurasia to reach those coveted Chi­nese, Japanese and Korean markets.

The key has been the rapid rise of the Middle Eastern carriers, which are continuing to grab market share through their hubs in Doha, Dubai and Abu Dhabi. Emirates now has flights to São Paulo and Rio de Janeiro, as well as flights to Buenos Aires and freighter service to Quito, Ecuador.

“It all depends on the connectiv­ity and planned routes available,” Velez said. “If you can do some trans-shipment via Abu Dhabi, with 8-hours trans-shipment connectivity, you can expedite products [to Asia] in one and a half to two days. But realistically you don’t always have that connectivity.”

Transportation technology has reached such a point where more road, rail and air modes are being com­bined to bring west to east, said UPS’s Ramsay. “Surface-based transport has always been the focus of the supply chain,” he said. “We’re now seeing in­terest in moving as fast as we can on land and using the Middle East as a consolidation point. The concept of multimodal transportation is on the rise.”

Integrators such as UPS and DHL, as well as forwarder DB Schenker, are even experimenting with the concept of air service from South America to the many hubs of Europe, which then link with rail that extends through the Central Asian steppes all the way to markets in coastal China.

These rail journeys usually take 18 to 24 days, depending on the route and the Siberian weather, so they won’t work for the most sensitive per­ishables, but they are an option for durable goods that is cheaper than airfreight but about twice as fast as putting it on the water.

“You need to add some creativity with perishables,” Ramsay added. “You have to get the volume to get to Asia fast. We’re starting to see companies looking at the surface option.”

CEVA’s Ang is seeking to cut costs with a road option through part of the U.S. Air rates, she said, are lower fly­ing from Asia to Chicago, so CEVA is experimenting with flying shipments to O’Hare and then trucking it south to Miami to make connections to Latin America. “This is tested and ready to go,” she added. “The market is dying for an alternative.”

One option many forwarders say will never be a viable Asia-Latam option will be seafreight, given the types of commodities shipped and the 40- to 50-day journey that is required. “With seafreight, there have been some in­novations with temperature-controlled containers on the flower side,” Velez said. “But compared to the size and volume of airfreight, it’s still a very small percentage.”

“Especially on the high-tech sec­tor, the higher cost for airfreight [vs. seafreight] is paid back very easily if we consider inventory costs, faster planning and the ability to fill instant market opportunities,” Schiavone said.

The Brazil question

Of all the South American countries involved in trade with Asia, none is as inextricably linked to its success as Brazil, which has the world’s 7th larg­est economy, based on GDP, and is a dominant player in the automotive, manufacturing and mining industries.

Unfortunately, the news coming out of Brasilia has not been good for the past four to five years. A massive corruption scandal in Petrobras, the state-run petroleum industry, near stagnant growth in GDP, rising infla­tion, disastrous over-spending for the 2014 World Cup and a slowdown in exports all indicate that the largest country in Latin America is headed for a deep recession.

However, Schiavone said there may be some silver linings to all of this economic mayhem. “The present eco­nomic situation in Brazil is driving a considerable currency devaluation and this, for sure, will boost the exports of perishables,” he said. “Brazilian prod­ucts will become more competitive not only because of the reduced price in U.S. dollars, but also because they will enjoy more competitive freight costs due to already existing overcapacity and a decrease in dry cargo demand.”

“Brazil has been no stranger to vola­tility, but it’s not like it’s in a complete tailspin,” Ramsay said. “Brazil still has a very large economy with a high middle class population. A lot of their economy is based on exports. Its econ­omy will always have some variations, but it has consistently strengthened each time.”

The South American economy will always be led by Brazil, he continued. “In Colombia, there is lots of growth in Bogota and Medellin. We are also see­ing a rise in trade through Costa Rica.

But none of these are ever going to overtake Brazil as the anchor for the whole continent.”

Despite the poor economic outlook, “the perishable market continues to thrive,” Velez said. “We’re still see­ing large volumes, even though the GDP has become a real problem.” He also said he’s seeing growth in leather goods from Brazil being sent to Viet­nam and Hong Kong.

The key to Brazil’s consistent suc­cess in the eyes of freight forwarders is variety. “There are so many other products – it’s a much more diversi­fied economy,” Velez said. Some other export niches include mangoes, limes and live ornamental fish from Manaus. “If one begins to falter, you can start to look at other options.”

“I do not foresee that the high cargo demand of Viracopos will be replaced by another major inbound airport in Latin America,” said DHL’s Villamizar. “There are still many factories in Brazil that need the raw material and parts coming from Asia Pacific for the differ­ent industry sectors that make up the volume of this important airport.”

Cautious optimism

For some forwarders and logistics experts, 2015 may be a difficult year to predict regarding trans-Pacific trade, given the reduction in China’s econom­ic growth, the lingering backlog effects of the West Coast port crisis and a pos­sible rise in fuel prices.

“We’re three months in and we’re still not sure which direction it will head,” said Ramsay at UPS. “But think­ing longer-term, we feel that Asia- Pacific to Latin America is a growing trade lane. We just need to see where this ‘new normal’ is going to land be­fore we make any decisions.”

“The current situation in some Latin American countries favors their exports due to weakening of their currencies against the U.S. dollar,” Vil­lamizar said. “This allows for moderate growth, so I foresee a positive outlook for Latin America-Asia trade for 2015.”

At Panalpina, Schiavone said he thinks this was still a good time to launch the company’s Hong Kong- Hunstville-São Paulo service.

“Although we may have a reduction on the volumes available, Panalpina has high expectation to increase its market share by exploring our recently launched product Brazil Wings. 2015 will be an important year for us within this trade lane.”

Find opportunities in the Asia-Pacific region, the world’s most dynamic airfreight market, at Cargo Facts Asia, April 21-22 in Hong Kong. Get more information here.

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