Vietnam has faded from Sam Tang’s radar. At the beginning of the year, he was headed for Ho Chi Minh City – like other Hong Kong-based manufacturers with production facilities in the Pearl River Delta who have been looking for a location with lower production costs than southern China. However, the torching of Chinese factories in Vietnam in May prompted by the ongoing territorial dispute between the neighbors in the South China Sea soured the allure of Vietnam for them and prompted many to turn elsewhere.
“Many are looking to Cambodia now,” Tang says.
Cathay Pacific sees potential in Cambodia, particularly in the garment sector. The carrier is planning to mount twice-weekly freighter service between Hong Kong and Phnom Penh, the capital of Cambodia, says James Woodrow, director of cargo.
Cathay is not reducing its freighters to Vietnam. Etihad does not see cause to move away either. In July, the Middle Eastern carrier started twice-weekly freighter flights to Hanoi with A330-200F aircraft.
Yasmin Aladad Khan, senior vice president for Southeast Asia and South Asia at DHL Express, has not seen a dent in the inflow of investment into Vietnam. “There is no talk about pulling out. Investors who are there already will stay and new ones are going in,” she says.
Henry Dinh Huu Thanh, president of Vietnamese forwarder Bee Logistics, agrees, pointing to new production plants for the likes of Nokia and Samsung. The latter is about to build a US$1 billion (775.8 million euro) factory in Vietnam, its third plant in the country to date, and is considering a fourth in Ho Chi Minh City. “Within two or three years, Vietnam can become a production hub in the region,” he says.
Bee has expanded into Cambodia and is planning to open two new facilities to serve this market, citing good growth in the country. In absolute terms, though, this market and its volumes are rather modest, Khan points out. “Compared to Vietnam or Myanmar, the growth is not going to be as significant,” she says.
Myanmar has garnered a lot of influx of investment, with logistics providers in hot pursuit. The country’s trade with the U.S. almost doubled in 2013 and is poised for further growth, with the likes of The Gap, Coca-Cola and General Electric either moving in or already entrenched there.
In August, UPS launched forwarding services in and out of Myanmar, joining rivals such as DHL, CEVA Logistics, Toll, Bee, Kerry and Damco that have started logistics operations in the country. “We see huge opportunities in Myanmar,” says Khan, noting that many companies are investing or have already set up shop there.
At this point, lift into Yangon, Myanmar, consists largely of narrow-body passenger aircraft. The influx of passenger flights quickly overwhelmed the city’s airport, which is the chief gateway into the country. This has left the airport short of aircraft parking spaces, reports Patrick Dick, managing director for Myanmar at The Freight, a logistics firm.
This is not the only challenge. “There is no main deck loader in Myanmar,” Dick says. Dinh remarks that the cargo facilities at Yangon International Airport leave much to be desired.
The situation in Myanmar is extreme but a similar pattern can be seen in other markets in the region: airport infrastructure is more of an issue for operators than lift capacity. Dinh points to Hanoi, which has been struggling to cope with the rapid increase in throughput. “There is only one X-ray facility,” he says.
Finding lift has not been an issue, confirms Khan, an observation echoed by Giuseppe Arba, managing director of The Freight in Thailand. “There is more than enough capacity in the market,” Arba says.
Even capacity reductions have not changed this picture. In response to a slump in tourism after the military coup in Thailand, Thai Airways whittled down its schedule and further cost-cutting moves are expected as the carrier tries to return to profitability. Neighboring Malaysia Airlines, whose cargo arm tabled a US$15 million (11.6 million euro) loss for the first quarter, is also poised to make drastic cuts in order to stem a torrent of red ink. Plans to order new A330 and A350 aircraft have been put on hold there.
Singapore Airlines has weathered the combination of adverse economic conditions and competition from low-cost airlines better than these two regional rivals, but it also has been struggling. SIA Cargo reported an operating loss of SG$100 million (US$79.3 million) for fiscal 2013/14 after 2.5 years of falling traffic. Its load factor deteriorated by 0.9 percent, a drop that would have been harsher were it not for capacity reductions. Management is looking to retire another freighter, according to recent reports, which would leave it with a fleet of seven all-cargo aircraft.
The first quarter of the new fiscal year brought a deficit of SG$14 million (US$11.1 million), an improvement over the same period a year earlier, but no cause for cheer at the airline. “Overcapacity in the market will continue to impact the cargo business, notwithstanding a slow recovery in airfreight demand,” SIA Cargo declared in a statement.
To foster growth, Singapore Changi Airport unveiled a stimulus package this summer that includes a 50 percent rebate on aircraft parking fees as well as incentives to handlers and other operators to boost their productivity. The airport’s cargo volume has been steady in the first seven months of the year.
Moving forward, Changi has started planning the Changi East project slated for completion in the mid-2020s, which will encompass a new fifth terminal and third runway. Land is being set aside for airfreight and express operators, as well as MRO activities, according to a spokesperson for the airport.
Playing host to over 20 cargo airlines with main-deck connections to 52 destinations, Changi continues to dominate airfreight flows in the region. Growth has been spread among established markets such as China, Japan and Hong Kong and emerging ones such as Vietnam and Myanmar, the spokesperson says, adding, “While better supply chain planning has led to companies opting for more economic transport solutions via oceanfreight, demand for airfreight of products such as e-commerce, pharmaceuticals and perishables has continued to grow.”
DHL has seen solid growth in all markets in the region, with the Philippines, Vietnam, Malaysia and Indonesia leading the charge, Khan says, adding that growth has occurred in all three major sectors – intra-regional, transpacific and Asia-Europe.
She hopes that the planned integration of the Association of Southeast Asian Nations (ASEAN) in 2015 will add further impetus to intra-regional growth, but nobody has high expectations at this point how far the process will actually advance next year. “We really need a single window in terms of customs clearance,” Khan says. “I would like to see increased efforts to reduce non-tariff barriers, simplify regulations and create a single, harmonized environment.”
Bee is moving to position itself for such a scenario. Having expanded into Myanmar and Cambodia, the company has set its sights on a foothold in Thailand next year. ASEAN integration would strengthen Thailand’s position for flows to and from Cambodia, Myanmar and Vietnam, Dinh says.
“The economic integration of ASEAN provides an opportunity for intra- and extra-ASEAN trade and investment, which will in turn stimulate airfreight volumes across the region. With Singapore’s strategic geographical location, Changi Airport is well positioned to serve as the preferred port of entry to the region, as well as a cargo hub,” the spokesperson for Changi says.
How much airfreight will benefit from this remains to be seen, but without a doubt, surface transportation will harvest the biggest effect. Charles Kaufmann, head of operations and value-added services at DHL Global Forwarding, Asia-Pacific, reports an increase in volume in its LTL and FTL trucking operations connecting China, Vietnam, Thailand, Thailand, Malaysia and Singapore, with Myanmar to be added to this network before long.
Dinh points to a string of highway construction projects in Vietnam. A recently completed new highway from Hanoi to the Chinese border has reduced trucking time on this sector from previously 10-12 hours to just four.