EU-Asia Trade Hope in the air

Legacy carriers along the EU-Asia route are not enjoying the kind of growth and bottom-line benefit that other carriers operating in other trade lanes area. But over the last five years, the route has become more balanced with improved load factors from Europe to Asia. Surya Kannoth…

Given that the Europe-Asia market has been softer than any of the other trade lanes with yields remaining flat, the legacy carriers whose route rights and operating authorities are tied to that lane are still not enjoying the kind of growth and bottom-line benefit that other carriers operating in other trade lanes are.
That aside, even though the depreciating Euro puts pressure on Asian exports to Europe, on the return leg, European exports are assisted by the weakened currency. This has helped balance the route with improved load factors from Europe to Asia.
In fact, the International Air Transport Association’s Airline Industry Forecast 2014-2018, released in October, sees a more positive picture, predicting international air freight volumes will increase at a compound annual growth rate of 4.1 percent over the next five years. Looking ahead to 2018, the Europe-Asia trade lane is expected to increase its share to 12.4 percent, the report predicted.
The North Asia/China trade lane is dominated by exports of high-tech products to the European Union. Also e-commerce is more and more growing and driving the postal and express tonnages ex-China. The continued strong GDP growth ex-China supports overall tonnage growth, even though the trend seems to be slowing down in Q1 2015. Capacity to/from North Asia is dominated by freighter capacity which attributes about 60 percent to the total weekly capacity offer to/from North Asia. In fact, there is a strong capacity growth of the Middle-East carriers.
For Singapore-based PACTL, the airfreight trade lane between Europe and Asia is the most important one it is handling. “There has been a slight decrease of its share in the overall PACTL volumes due to a stronger growth in other regions such as the US. However, as numerous airline clients operate flights between PVG and major European destinations, it recently makes up about 45 percent of our import volume and approximately one third of our export volume,” said Lutz Grzegorz, vice president, PACTL.
Due to the value-decrease of the Euro (EUR) compared to the Chinese Yen (CNY), import conditions are becoming more favourable at the moment and support an increase of imports on the one side, while the strong CNY is reducing chances for the Chinese manufacturers to export on the other side.
Echoing similar views, James Woodrow, Director Cargo of Hong Kong-based carrier Cathay Pacific says yields are affected by the large over-capacity in the market, much of it as a result of the increased belly capacity on passenger services. “There is fierce competition from Asia to Europe, the overall weakness of the European economies harnessed to a depreciating Euro puts pressure on Asian exports to Europe. However, on the return leg European exports are assisted by the weakened currency. Over the last five years, the route has become more balanced with improved load factors from Europe to Asia.”
The overall outbound flow of freight (from Asia to EU) is still stronger than the inbound flow. However, PACTL recently registered an increase in its imports – in general and from Europe in particular. “This once again shows that imports and exports are developing in a more balanced way on this route which enables our customers to operate round trips more efficiently,” explained Lutz.
With this development, PACTL achieved an overall tonnage growth of 12.73 percent year-on-year and handled a total of 362,497 tonnes of air cargo in the first three months of 2015. Imports increased by 15.97 percent to 155,060 tonnes while export showed a growth of 10.43 percent to 207,427 tonnes in the first quarter.
As a European carrier, the traffic lane between EU and Asia is in focus for Lufthansa Cargo. Based on 2014 data, the biggest trade lanes in terms of tonnage for the carrier has been China-EU, India-EU and Japan-EU. “The trade lane China-EU and Japan-EU are balanced with a ratio of eastbound: westbound of 1:1 respectively 1.03:1. However, the trade lane India-EU is not balanced, and eastbound: westbound ratio stands at 1.3:1,” said Helge Krüger-Lorenzen, vice president Asia-Pacific at Lufthansa Cargo. The carrier has increased the capacity offer to some East Asian countries, for example by +9% ex China and +3% ex Japan compared to the first quarter in 2014.
Lufthansa Cargo’s Helge Krüger-Lorenzen explains the main commodities out of India are fashion and garments, as well as pharmaceuticals targeted for the US market. Meanwhile, from North Asia, the main commodities are high-tech consumer goods, machinery parts, raw materials and components. Due to the growing e-commerce business out of China, airmail and express services are also gaining momentum.
Meanwhile, Dusseldorf Airport recognized a strong increase on routes to and from Asia. “The cargo volumes at Düsseldorf Airport grew tremendously in 2014: exports by +26 percent, imports by +40 percent compared to 2013. In 2014 approximately 30% of our total imports and approximately 20% of our total exports are transported on routes from / to Asia. Therefore these trade lanes are highly important for Düsseldorf and the whole region,” said Thomas Schurrman of Dusseldorf Airport.
Thomas adds that many hundreds of Asian companies (more than 600 Japanese companies and over 500 Chinese companies) are based in the catchment area in and around Dusseldorf. The fact that their catchment area is one of the most powerful in the whole of Europe, producing approximately 20 percent of the whole German exports, the exports to Asia are less than imports coming from Asia. One reason for this imbalance in trade is the fact, Thomas believes, is that this area consists of approximately 18 million inhabitants, living in a radius of 100km around the airport. This is a huge important market, especially for consumer goods like fashion, electronics, house-hold products etc.
Talking about exports there are several commodities, which highly depend on the catchment area in Düsseldorf. Due to the density of manufacturing companies in the region, there is a lot of machinery, spare-parts and components being produced. In addition to that 16 percent of all German pharmaceutical companies are based in Düsseldorf Airport´s catchment area hence chemical and pharmaceutical products are exported as well.
For PACTL, their business features quite a stable and manifold mix of commodities. There are no major changes, neither on the inbound or outbound side, there’s just a slight shift of volumes occasionally. The increase in their import business from Europe is partly driven by the growth of temperature sensitive shipments such as pharmaceuticals and other healthcare products. PACTL does flexible network adjustments in the APAC (Asia Pacific) region to adjust to demand fluctuations and shift capacities flexibly to high-demand origins via re-routings of freighters or stop-overs. It also offers tailor-made customer services like emergency solutions or capacity adjustments for markets with short-term demand. Partner project/cooperation with ANA is designed to offer its customers out of Japan a wider and faster network to Europe with a combined sales NH/LH sales force.
Various airlines are doing their best to make this route profitable. Lufthansa Cargo has been doing flexible network adjustments in the APAC (Asia Pacific) region to adjust to demand fluctuations and shift capacities flexibly to high-demand origins via re-routings of freighters or stop-overs. “Also we offer tailor-made customer services like emergency solutions or capacity adjustments for markets with short-term demand. Partner project/cooperation with ANA is designed to offer our customers out of Japan a wider and faster network to Europe with a combined sales NH/LH sales force,” he added.
Cathay Pacific operates scheduled freighter services to Amsterdam, Frankfurt, Paris, London Heathrow and Milan. Its cargo business benefits from the belly capacity of its own 777-300ERs to markets such as London Heathrow (where it has 100 tonnes of belly capacity daily), Manchester, Amsterdam, Frankfurt, Paris, Rome, Milan and Zurich. Cathay is looking to launch passenger service to Dusseldorf, Germany in September.
Cathay Pacific provides a highly reliable service to and from Europe and carries a large variety of time critical and high value products ranging from iPhones out of China, Samsung products out of Hanoi to pharmaceuticals back from Europe into Asia.
A challenge for carriers in the Asia-Europe freight market is the growing presence of Gulf carriers. Gulf carriers can operate a dedicated freighter from an Asian manufacturing hub to their Gulf hub, where the cargo is then transferred onto the holds of more cost-effective passenger flights to the numerous European destinations they serve; Emirates has passenger flights to over 30 European destinations.
Asian carriers in comparison have only a handful of passenger destinations, limiting access, while dedicated freight flights from Asia to Europe are longer and more costly than from Asia to the Gulf. Additionally, the shorter sector lengths of Asia-Gulf and Gulf-Europe flights compared to Asia-Europe non-stop flights means Gulf carriers seldom see payload restrictions in that market. Dedicated freighter capacity is only 24 percent of Emirates’ network, 31 percent for Etihad and a small 14 percent for Qatar Airways. 