Cargo landscape shifts in Latin America

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Asian carriers have Mexico in their sights. Cathay Pacific, which launched all-cargo flights to Guadalajara last September, added Mexico City to its freighter network in March. Korean Air also mounted freighter flights to Guadalajara. Like Cathay, it tagged the Mexican destination to an existing U.S. route.

The Korean carrier intends to ramp up its presence in South America, having started B747 freighter flights to Sao Paulo and Lima, Peru, in 2012. 

“We are looking to develop our own product that will offer transportation service to South America from various gateways worldwide,” a spokesman for KAL Cargo comments.

Extending another U.S. freighter route to the southern hemisphere would run counter to a strong trend for Asian exports to South America moving in the opposite direction. Poor loads and yields from Asia to Europe have prompted European and Middle Eastern airlines to pursue this traffic and move it over their hubs, reaching Latin America via the Atlantic.

Daniel Bleckmann, regional director for South America, the Caribbean and Florida at Lufthansa Cargo, reports that this traffic has been strong and expects this to continue.

Forwarders such as Kuehne + Nagel juggle various routings, depending on the requirements of individual customers in terms of transit times and cost. The push of Middle Eastern carriers into the market has added another option, remarks Diether Bohn, senior vice president, airfreight for South and Central America.

The migration of freighters to Latin America has largely ended for now, but belly capacity keeps coming into the market. Hence forwarders have no problem finding lift, even at peak times, Bohn reports.

For airlines, on the other hand, the overcapacity has exacerbated the effect of the slowdown of the Brazilian economy, which has been limping along for the past two years. One of the reasons for this was the strength of the currency, so its recent decline augurs well for exports, but it may dampen the appetite for imports, notes Cristian Ureta, CEO of LAN Cargo.

The recent weakening of import traffic is of particular concern, he comments, since southbound rates are usually double the price for outbound traffic.

Operators are expecting a surge in flows into Brazil in the run-up to the soccer World Cup this summer, thanks to the usual boost that such events give to demand for TV sets and other consumer electronics as well as the last-minute rush to complete the preparations for the mega-event. So far, there has been no sign that this is finally taking off. Bleckmann reckons that it will kick in about two months before the start of the World Cup.

The Brazilian authorities have struggled to get the nation’s gateways ready to cope with the expected influx of passengers for the World Cup and for the summer Olympics in Rio de Janeiro two years down the road. As with some of the soccer venues themselves, big airports are struggling to complete their preparations in time. These include new passenger terminals at the key gateways of Viracopos and Guarulhos.

In the long run, cargo should benefit from these developments, but for now the focus is fully on the passenger side, and there have been concerns that work on these facilities might affect cargo flows. However, operators have not experienced any hiccups on that front so far.

“We have not seen any disruptions from infrastructure developments at airports,” says Robert Villamizar, strategic capacity director for the Americas of DHL Global Forwarding. “From the information that we have, Brazil will be able to handle the additional flow of goods with its current capacity.”

One positive effect of the scramble to get airports ready has been the move to privatize their management. Airline and forwarder executives report that they have found a greater responsiveness from the airports to their concerns.

“We met with some of the new management at Guarulhos,” Villamizar says. “The clearing process is improving.”

While exports of hard freight have been slow, perishables shipments from Brazil have filled the gap, and the weakening Brazilian real is improving their competitiveness in international markets.

“We have been able to move a lot of perishables to Asia, particularly to [Tokyo] Narita and also to Shanghai,” reports Carmen Taylor, managing director of cargo sales for Latin America at American Airlines. “Flower exporters and forwarders look to Asia more than before.”

Besides Colombia and Ecuador, the chief flower producers in the region, Chile and Peru, have shown particularly strong growth in airborne exports. Chile has benefited from a strong berry and stone fruit season last year and from the resurgence of salmon exports, which have recovered from a disease a few years ago that wiped out most of the country’s fish stocks and exports. Ureta says last year’s salmon volumes out of Chile were back at the level before the setback.

Out of Peru, asparagus has been the chief airfreight commodity for export, followed by other perishables. However, hard freight has also been on the rise, Bleckmann says.

Lufthansa added Lima to its main deck network last year, with two weekly MD-11F frequencies, serving the Peruvian capital in tandem with Brazil and Ecuador. Initially one-third of the capacity on the flights was allocated to Peru, but this was soon raised, according to Bleckmann.

As elsewhere, shippers have been experimenting with alternatives to airfreight in order to rein in costs.

“There have been some mode shifts,” Taylor says.

The latest push on this front is coming in the flower sector. Shipping giant Maersk has teamed up with Primaira, a Boston-based technology company, to develop a high ozone air cleaning system for refrigerated containers. By eliminating mold, fungi and bacteria, this should significantly extend the freshness of perishables and allow their shift from air to ocean transportation. The pair intend to complete tests and formally launch the new technology in the latter half of this year, and they have trained their sights chiefly on flowers.

Bohn is sceptical.

“It is important for our customers to get their product to market quickly in a safe way, and that means by air,” he says.

Villamizar shares his reservations. He adds that most flower production is located inland, so going by ocean carrier would require a long trucking leg to the ports. If the new technology were to prove successful, however, it could have far-reaching repercussions for airfreight in the whole region, he points out.

While Brazil is the chief magnet for freighters headed into South America, it cannot fill them on the return leg, which forces carriers to route their planes over other export markets, above all Colombia and Ecuador. Other products shipped by air from the region are nowhere near the volumes of flower exports, Villamizar remarks.

Already freighters are struggling with downward pressure on yields, as the rise in belly lift has been outpacing demand, leading to aggressive pricing.

“One of the concerns in this region is belly capacity that continues to drive margins down,” Villamizar warns. “This downturn on margins is unsustainable.”

LAN Cargo, the region’s leading carrier, has reduced its freighter capacity over the past year. Moreover, the airline has shifted its business model. In the past, it did not have enough belly lift to cope with cargo volumes, which drove the expansion of the freighter fleet, but since the merger with TAM, the focus has shifted to filling belly capacity, especially on the Brazilian carrier’s international flights. This has led to a restructure of the freighter network and the introduction of nightly freighter flights from the main gateways in Chile and Argentina to Brazil to feed TAM’s departures to the U.S. and Europe.

As a result, transits in Sao Paulo and Rio have been a major focus for the carrier.

“We have to invest in our processes in Brazil to improve transit times,” Ureta says.

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