Air cargo industry in Latin America builds map for future growth

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The air cargo industry in Latin America faced a challenging 2016, in wake of unprecedented economic and political crisis in the continent, hindering trade. It is therefore, important for the air cargo players to stay competitive. The continent has been on a constant look out for newer routes to establish direct trading with new markets to bring the industry back on track.

Shreya Bhattacharya

The growth of air freight industry in any region is highly susceptible to the fluctuations in the economy of that region. The air freight industry in Latin America is in that phase where sluggish growth and more demanding constituencies, coupled with unpredictable events in major mature economies have slowed down its growth, alternated with brief crisis periods of negative growth.

The largest economy in Latin America- Brazil, for instance, has seen a major downfall in recent years. From recession to joblessness to corruption scandals, the country has encountered a number of upheavals, political and of all sorts. The economy entered into recession in 2014 and continues to crawl through it even now. Brazil's economy shrank 3.6 percent in 2016, the Brazilian Institute of Geography and Statistics says. That's just a slight improvement from 2015, when it contracted 3.8 percent, but it still remains far from good. Despite hints of a recovery underway, life for ordinary Brazilians remain challenging. In other parts, rains spelled trouble for the continent, with floods and mudslide taking a toll on the natives. External factors like uncertainty related to the potential course of US trade policy have had its own effect. Major players in Latin America opine that all this have had an impact on the region’s air cargo industry.

“2016 was a challenging year for RIOgaleão Cargo as it was for most Brazilian airports due to the unprecedented economic and political crisis which has impacted all sectors of the Brazilian economy. As a result, import and export volumes dropped quite significantly in 2016. The silver lining for Rio de Janeiro was the Olympics which bolstered volumes between June and September. The performance was expected but the decline was probably more pronounced than we had expected,” says Patrick Fehring, director of RIOgaleão Cargo.

Brazil’s Viracopos Airport also narrates a similar experience. “We saw a significant drop in cargo volume transported from/to Viracopos in 2016. However, we managed to keep our revenue results 1.5 percent above 2015, mainly due to management measures and investment in infrastructure. One of our main actions, for example, was to focus on different cargo profiles, especially the higher-priced pharmaceuticals and high-tech products that are lighter but more valuable,” says Marcelo Mota, director of operations, Viracopos Airport.

While 2016 proved to be a challenging year, 2017 has not yet shown too many signs of recovery. According to IATA’s February report, having recovered partly during second half of 2016, the region’s seasonally-adjusted traffic trend started to move downwards again over the past four months. “Latin American airlines’ international traffic fell by 7.1 percent year-on-year in February (around 3 percent allowing for the impact of the leap year). The annual growth rate has now been in negative territory for 25 out of the last 27 months,” said the report. “FTKs remain around 14 percent lower than their peak in late-2014. The mini-recovery in the ‘Within South America’ market has also reversed in recent months, with FTKs flown on the route falling by 20.1 percent year-on-year in January. However, the region’s airlines have managed to adjust capacity, which has limited the impact on the region’s (comparatively low) load factor.”

In such challenging times, it is important for the air cargo players to move ahead in order to stay competitive in the region. The continent has been on a constant look out for newer routes to establish direct trading. Last year RIOgaleão Airport managed to attract their first regular European freighter.

“In 2016, we managed to attract our first regular European freighter, a weekly (six day) 747F Luxembourg (LUX) to Rio de Janeiro (GIG) Cargolux service. We work very closely with Cargolux and all our airline partners and given the success of this service to date we are confident that we can soon announce a second European freighter frequency,” says Fehring.

He goes on to add, “From Miami, we currently have a weekly 777F LATAM service and Centurion has returned with a regular weekly 747F operation. As the oil & gas market bounces back this year, we see an obvious opportunity to add more frequencies. In terms of belly capacity, we are seeing passenger capacity growing back now and new routes coming online: Qatar Airways will start operating to GIG at the end of the year and Lufthansa and KLM are adding back capacity from Europe whereas LATAM has just announced a new Orlando route and American Airlines are considering a new Dallas (DFW) to Rio De Janeiro (GIG) service. In Latin America, Avianca will start operating a wide-body aircraft between Bogota and GIG, something our pharma customers have been craving for. We are expecting a slight recovery of airfreight imports, driven by returning consumer confidence and a recovery of the oil & gas market in the second half of 2017. And if past Brazilian recessions are anything to go by, we will see a strong rebound of the market in 2018!”

Similarly, in a bid to increase the number of international flight routes and cargo frequency, the concessionaire of Viracopos, Airports Brazil Viracopos (ABV) has introduced a new incentive programme that allows up to a 100 percent exemption of aircraft landing fees. The airport thereafter has been negotiating four proposals for new routes and additional cargo frequencies.

The air freight market in Latin America and the Caribbean (LAC) is heavily concentrated in trade with Miami. The United States accounts for 94 percent of Latin America’s imports from North America and 90 percent of its exports to North America. Miami international airport acts as its gateway for trade with the United States and a hub for trade with other regions as well, as Miami controls the north/south cargo flows in the Western Hemisphere.

While the freight exported from Latin America consists of pharmaceuticals from Brazil, flowers from Colombia and Ecuador and other perishables from Peru, Chile and Argentina, the southbound traffic i.e, imports from Miami includes electronic equipment, machinery and mining equipment. Besides, the growth in e-commerce is further opening opportunities for the industry.

In the Latin American market, Fraport has been operating and managing Lima airport for more than 16 years through its Lima Airport Partners subsidiary. Fraport stated the airport’s cargo is largely comprised of perishables shipments, which have grown moderately in recent years. “The cargo activity at Lima Airport is mainly focused on exporting vegetables and fruits, especially green asparagus, as well as some mangoes etc. Imports are manufactured goods,” informed Robert Payne, spokesperson for international activities, Fraport AG.
Meanwhile, in the pharmaceutical segment, stakeholders are increasingly adopting IATA’s CEIV certification that is setting a recognized industry standard for pharmaceutical logistics by air.

“We have a world-class pharmaceutical product and many of our pharma importers have consciously opted for RIOgaleão as their gateway to Brazil for exactly that reason. However, we have only been certified in December of last year so it is too early to correlate any growth to the increased quality of our pharma handling and CEIV certification. Our next goal is to win more partners in the logistics chain to be certified i.e. implement a CEIV Community and offer the market a fully certified trade lane,” reveals Fehring. The airport also inaugurated its TF2 facility in 2015, which offers 1,400 pallet positions, two temperature environments and is fully automated, representing a $7 million investment. Fehring also added that the airport is planning to expand cold storage capacity in 2017/18, adding areas for customs inspections in a temperature controlled environment, a dedicated facility for frozen goods and further temperature controlled docks.

Viracopos airport also signed in early 2016 a contract with IATA to start the CEIV Pharma certification process. With this, it has become one of the two airports in Latin America that is in the process of obtaining the CEIV Pharma certification. The certification process is expected to be concluded within six months.

Going further, Viracopos in partnership with Brink’s also constructed its first high security terminal for high-value cargo in 2015. The 1,560 square metre facility went into operation in April of 2016. The site has physical and technological infrastructure of international standard, including a special area with controlled temperature, which can hold pharmaceutical products and other cargo that requires such kind of environment.

Foreign investments
Although Latin America is going through a rough phase, air freight industry does see potential in the region. The region, which once started turning into the world’s hottest emerging market, with an economic powerhouse, still attracts foreign investors.

Fraport AG is set to expand its portfolio in the continent after placing the highest bids in public auctions for the concessions to operate Fortaleza and Porto Alegre airports in Brazil. Fraport placed a bid of €446.81 million for the 30-year concession to operate and develop Fortaleza and around €114 million for the 25-year concession for Porto Alegre.

Also, Chinese conglomerate HNA is close to buying out approximately 30 percent stake that engineering conglomerate Odebrecht SA has in Brazil's Rio de Janeiro international airport, say reports. HNA will take over from Odebrecht as the joint holder of a controlling stake in Tom Jobim airport, Brazil's second busiest air hub with some 17 million passengers a year.

Constant investments in infrastructure, newer routes and new flights are vital for bringing the growth rate back on track for the air cargo industry. According to a report by Boeing on the current market outlook, the region’s commercial fleet is projected to double between now and 2035, from nearly 1,550 airplanes today to more than 3,600. Latin America will need 2,960 new deliveries over the next 20 years to meet the combined demands of growth and replacement. The majority of these deliveries are expected to be in the single-class segment, reflecting the continued growth of low-cost carriers and further expansion of networks within Latin America and the Caribbean.

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