July brought an unusual development in the Chinese airfreight market for the summer season. Rates to Europe, usually held down by a combination of slower output and abundant belly capacity at this time of the year, actually went up, climbing 5 percent in the first week of July.
In part this was due to flight restrictions imposed for large-scale military exercises, but it also reflected strengthening exports by air. After months and months of declining yields and whittling down their freighter fleets, carriers from the Asia-Pacific region appear to have staged a turnaround.
Airlines based in the region enjoyed 4.6 percent growth in volume in the first half of this year, considerably more than their counterparts from Europe (up 3.2 percent) and North America (up 1.6 percent), according to traffic statistics from IATA.
Perhaps even more encouraging, in July new export orders for China’s manufacturing sector climbed to heights last seen 3.5 years ago, according to financial services company HSBC’s Purchasing Managers’ Index for the month. Overall output and total orders grew at the fastest pace since March 2013.
Coupled with robust volumes on the water for the maritime peak season rush, these developments have raised hopes for a “proper” peak shipping period for air cargo out of Asia this year.
“Volumes have held up well over the summer, which is usually slow. This is encouraging. We are relatively optimistic this is going to be a better peak than last year,” James Woodrow, director of cargo of Cathay Pacific, says.
Shawn McWhorter, president for the Americas at Nippon Cargo Airlines, has seen volumes strengthen in recent months, while Asian rivals have been taking out freighter capacity. “We see a lot of demand already from Asia for the peak season. I think we are going to have a good peak,” he says.
William Flynn, president and CEO of Atlas Air Worldwide Holdings, is also upbeat. He anticipates a good peak, although it remains to be seen how yields will develop.
Yield went up 0.9 percent in June – the first rise in 30 months, according to IATA. The prospect of growing demand is fuelling hopes that this will improve further. IATA’s July Business Confidence Index, a quarterly survey of airline heads of cargo and CFOs, shows that 31 percent of the respondents believe there will be a rise in yields ahead.
“I would agree that the market out of Hong Kong is strong and capacity will be very tight this season. There is no doubt that we will see the airlines establish their peak season surcharges. It is hard to say if that will stick for Shanghai but I think they might try, although it is very unlikely to be applicable for any other Asian ports,” says Rich Zablocki, vice president of trade lane management for the transatlantic sector at CEVA Logistics.
However, there are questions about how much volume will move in the pre-Christmas rush. Dirk Steiger, managing director of airfreight research and consulting firm AAA Advisory, points out that the World Cup has preempted part of the surge in consumer electronics.
He also expressed misgivings about the market for tablets. In recent months, one European telecommunications provider offered free tablets to new subscribers, and an electronics retailer tried to crank up TV sales with free tablets, he says. “This makes you wonder how strong demand for tablets still is,” he adds.
Two other factors that threaten to undermine a strong rise in yields during the peak are the smaller size of shipments – such as tablets versus personal computers – and the proliferation of wide-body passenger aircraft with large belly-hold capacity, above all the B777s, Steiger says.
The days when forwarders lined up charters to secure capacity out of Asia for the peak season are gone, as capacity has been by and large sufficient to move the additional volumes, he points out.
Not even demand for block space agreements has shown any spike so far. “It seems they do not need huge agreements to secure capacity. On the contrary, some are playing around with pricing,” Steiger says.
Woodrow would be more bullish if U.S. consumers showed greater appetite for Asian products. “What we are hoping and waiting for is a pick-up in U.S. demand. Once there is real consumer confidence in the U.S., companies will start to invest,” he says.
Until that happens, it is more critical for carriers to improve their westbound traffic to improve overall utilization. “We are pushing hard to boost exports from the Americas,” Woodrow says. Cathay’s latest move in this direction is the addition of a stop in Calgary on two weekly freighter flights from New York to Hong Kong to load perishables and oil and gas equipment.