After a lengthy wait, the road is finally open for FedEx and UPS to mount domestic express deliveries in China. The authorities in Beijing granted both companies licenses to run domestic operations without having to work with a Chinese joint venture partner.
The authorization brings an end to a five-year wait since legislation introduced in 2009 prohibited foreign couriers from delivering packages in domestic service. UPS holds licenses for deliveries in 33 Chinese cities. FedEx has 21.
This throws the door wide open for the integrators to tap into China’s rapidly expanding e-commerce business, which grew 60 percent in volume last year, according to the mainland National Bureau of Statistics.
Margins are another matter, though. UPS and FedEx enter a crowded field of nearly 600 companies that hold licenses to operate inter-provincial express services. Many of them are small firms that are likely going to be swept up in a wave of consolidation, but there are formidable competitors such as SF Express, Yangtze River Express and China Post, all of which operate air networks and have final-mile delivery capabilities.
For all the growth so far, there is a good deal of uncertainty about how e-commerce logistics will shape up. Online giant Alibaba is leading a consortium of e-tailers that is planning to set up a nationwide logistics platform.
Moreover, only a small fraction of this traffic utilizes relatively high-yielding air networks. About 85 percent of China’s domestic express volume is moved on the ground, which makes a standalone air network for this traffic not viable. K.M Liu, president of the transportation group at UPS, said at a conference in Hong Kong earlier this year that profitability would be elusive without integrating domestic and international networks.
At the same event, he declared that UPS wanted to expand its express delivery service to 33 cities in China by the end of the year. UPS, which recently opened a 6,500-square-meter (69,965-square-foot) distribution center in Beijing, has air hubs in Shanghai and Shenzhen and 250 operating facilities across the country.
Both U.S. integrators have welcomed the licenses they have been granted but have no comment on their plans going forward at this point.
“FedEx complies with all laws and regulations. We are and will be operating the domestic business as usual in China,” a spokesperson for the Memphis-based company says, which Air Cargo World contacted in a quiet period.
“UPS’s domestic capabilities are an important part of our overall plans for China, and a strong complement to our current integrated network,” a spokesperson for UPS says. “We look forward to expanding our service to customers in the domestic express market, and connecting them to the world with a full range of services and solutions.”
She indicates, though, that this is not the end of the road as far as her company is concerned. “UPS looks forward to working with the Chinese government to enhance the regulatory framework to allow true nationwide service rather than service between city pairs,” she says.
Integrating domestic and international networks is a logical step, which is reminiscent of DHL’s foray into the domestic U.S. market in 2003 through the acquisition of Airborne Express, which the European integrator abandoned after piling up massive losses. DHL withdrew from the domestic express scene in China in 2011 and sold three loss-making domestic operators that it had acquired two years earlier. Management cited lack of profitability as the reason for its decision. TNT sold its domestic business in China last year, waving goodbye to one of China’s leading road distribution service providers and a leader in day-definite services with a network of some 1,500 depots in over 600 cities.
While FedEx and UPS strive to build up domestic traffic and link it with their international networks, Cargolux is also looking to beef up its footprint in China. The European freighter airline added a third weekly frequency on the Luxembourg-Zhengzhou route in early September, part of its move to establish the airport in Henan province as its hub for China.
Building up a trucking network to feed and distribute traffic on its Zhengzhou flights is the other key element in this strategy. Henrik Ambak, vice president for ground services and commercial IT at Cargolux, says the objective is to emulate the carrier’s European hub, which relies heavily on road feeder service activities, given a dearth of cargo originating or terminating in Luxembourg.
Cargolux has established ties with a small number of Chinese RFS providers, which give it reach to most markets in the interior. At this point, the airline’s volumes are not large enough to fill more than a few dedicated trucks, so the strategy focuses on buying part loads on trucks. RFS operations have to be commercially viable, Ambak stresses.
Asia Pacific volumes continue recovery
PHOTO: AndrewHerdman
Airfreight demand continued to grow in July, according to traffic figures from the Association of Asia Pacific Airlines (AAPA).
Supported by encouraging growth in demand for exports from major regional manufacturing hubs, air cargo growth accelerated in July with a 6.4 percent increase compared to the same month last year. For the third consecutive month, the expansion in capacity lagged growth in demand.
In July, offered freight capacity increased by 3.2 percent, leading to a 2 percentage point increase in the average international freight load factor to 65.3 percent.
During the first seven months of the year, international airfreight demand for Asia Pacific airlines grew by 4.9 percent, “marking a long overdue recovery in trade volumes after several years of weak global demand,” Andrew Herdman, AAPA director general, said.
“The sustained upward trend in both international passenger and cargo demand is very positive, and reflects continued growth in the emerging markets and a relatively stable global economic outlook,” Herdman said. “Nevertheless, Asia Pacific airlines are still facing very challenging business conditions, with additional capacity placing further downward pressure on fares and yields. As a result, revenue growth has been lackluster, and profitability remains elusive for many of the region’s carriers. Airlines are carefully reviewing their existing fleet deployments and future capacity plans in the light of current market conditions, whilst maintaining tight cost controls. The general outlook for Asian airlines remains positive, but right now, I would say restoring margins is the key focus of management attention across the industry.”
Menzies opens pharma cold zone in Bangalore
PHOTO: Menzies
Menzies Aviation Bobba, operating a cargo terminal at Kempegowda International Airport in Bangalore, India, opened a Pharma Cold Zone for the handling of pharmaceuticals.
Bangalore is emerging as an important pharmaceutical hub in South India. To support the demands of the growing local industry, Pharma Cold Zone will offer a temperature-controlled facility.
“With the new and exclusive Pharma Cold Zone facility at our cargo terminal, with temperature controlled and state-of-the-art technology, the company would strengthen its leadership and capability in handling and transportation of pharma cargo between Bengaluru and rest of the world,” V.S Bobba, managing director of Menzies Aviation Bobba, said.
The facility provides dedicated truck docks for acceptance, customs clearance, screening and security clearances, and cargo build-up and storage.
“I would like to congratulate Menzies Aviation Bobba Pvt. Ltd on the successful opening of the new Pharma Cold Zone within its existing facility at Kempegowda International Airport, Bengaluru,” G V Sanjay Reddy, managing director, BIAL, said. “This is well-timed and in line with the city’s emerging status as the pharmaceutical hub of South India. This airport aims to be the engine of economic growth for the region by connecting Bengaluru to the world and positioning itself as the gateway to South India, not only for passenger traffic but also for cargo. I am delighted that our partners share this vision.”
Silk Way Airlines takes delivery of two freighters
PHOTO: Boeing
Boeing and Silk Way Airlines celebrated the delivery of the Baku, Azerbaijan-based cargo carrier’s two 747-8 freighters.
“We strive to be a successful and profitable cargo operator by investing in our fleet and our services, and by continuing to increase our regional and international footprint,” said Zaur Akhundov, president, SW Holding, parent company of Silk Way Airlines. “The delivery of our new 747-8 freighters is a sound step forward in that direction.”
Silk Way Airlines provides cargo services to Europe, the UK and Middle East, as well as the Far East including South Korea, China and Hong Kong.
“We are very proud of our continued partnership with Silk Way Airlines and today we have double the reasons to celebrate,” said Marty Bentrott, vice president of sales, Middle East, Russia and Central Asia, Boeing Commercial Airplanes. “The 747-8 freighter is the most efficient large freighter in service, and the two new airplanes will now serve some of the world’s high-growth markets.”