FROM MAGAZINE: Transpacific, an ocean of opportunities

Air cargo demand is largely a reflection of global trade. While the transpacific air cargo business exhibited robust growth in 2017, the air cargo players are hopeful for a similar 2018. Collaboration, as well as free trade policies are the keys.
Shreya Bhattacharya

In a latest set of data released by the Airports Council International (ACI), it has been noted that the air freight market has shown remarkable resilience to disruption in 2017, on the back of a strengthened global economy and trade. This comes despite the uncertainty regarding the protectionist rhetoric that swept across many countries. ACI is hopeful to see continued high growth in air freight volumes becoming a trend at least in the near future. The data reveals that at the regional level, nearly all regions posted growth reaching 8 percent or more for the month of January.

Notably, in the major markets, North America led the way with 8.8 percent, closely followed by Asia-Pacific at 8.3 percent. At the national level, the United States with 8.8 percent drove most of the increase in North America, with Canada growing at a slower pace of 3 percent. In the Asia-Pacific region, Indonesia (26.2 percent), China (12.5 percent), and India (9.7 percent) all contributed to the region's high figures.

While these data reflect a strong economy in these regions, they also speak volumes about the growing trade across the transpacific route. Air cargo players in the Western and Eastern countries say they did brisk business during 2017 and were hopeful that the trend would continue on this particular trade route.

When enquired about US-based Delta Cargo’s business in 2017 on this route, Eric Anderson, director, Asia cargo sales, Delta Air Lines said, “2017 was a very successful year for Delta Cargo on the transpacific. While demand strength had improved versus prior years, we directly benefited from investments which Delta is making in the Pacific, such as the deployment of our new Airbus A350-900 and the launch of our non-stop Seoul-Incheon to Atlanta. While 2018 has been different than 2017, we think 2018 will be another successful year for Delta Cargo in the transpacific.”

“We are seeing healthy growth from across Asia, with Northern Asia demand from China, Japan and South Korea, as well as Southeast Asia. Our global network allows Delta Cargo to tap into growth as export demand fluctuates across the region,” Anderson further informed.

Another major player American Airlines Cargo emphasised on the “changing consumer habits” as it sees air freight outpacing other modes. “We operate a global network of 6,700 flights per day and utilise more than 150 fuel-efficient, widebody aircraft on our international routes, which includes our transpacific destinations. All of that gives us an unrivalled ability to connect cargo across the world, especially from Asia to Latin America through the United States (and equally to and from Europe). Our network will further expand in 2018,” shared Joe Goode, MD, cargo sales – western division, American Airlines Cargo.

In addition to its Beijing services from Dallas/Fort Worth and Chicago to China, the airline has recently commenced a daily service between Los Angeles and Beijing. It also has a seasonal service between Los Angeles and Auckland, New Zealand, which started in late fall and runs to the end of March. “We are seeing shippers in China have the need to send their goods on American's service to the United States. At the same time, we have opened up new markets to them through onward connections with our vast Latin America network, where there are many opportunities for Chinese exports,” added Goode.

Airports in the region also reported record business on the back of cargo demand coming across the transpacific route. The San Francisco Airport informed that around 45 percent of cargo it handled amounting up to 218,755 tonnes was transported on this route in 2017. “As for this year, while we see around 3.8 percent increase for the CYTD February, it is too early to predict how it will perform, as there are lots of factors that can impact the shipment to Asia such as politics, economy, etc.” the airport, however, noted.

Meanwhile, Canada’s Halifax Stanfield Airport informed that approximately 53 percent of its cargo volume is exported to the Asia Pacific region. In 2017, around 6,965 tonnes of cargo was shipped to Asia from Halifax Stanfield. “The industry and logistical supply chain is working on additional air capacity into Asia. Demand for seafood product, particularly live lobster, continues to be strong in Asian markets. China is our top market for live Nova Scotia lobster, with the volume of exports to this country increasing by 63 percent over the previous year, double the average growth of all export destination countries,” informed Bert van der Stege, VP, business development & CCO, Halifax International Airport Authority.

Air Canada, the flag carrier and largest airline of Canada operates into Japan, Korea, China, Taiwan and Hong Kong in the East Asia region. Tim Wong, director, cargo sales and services, Asia-Pacific said, “Each market, based on its trade practice, is unique and presents business opportunities that allows Air Canada Cargo to serve the cargo community between Canada and various Asian countries in the region. Air Canada has developed strong partnership with both local and global freight forwarders connecting them with Canada as well as points beyond. In addition, our gateways in Asia also form an internal network within the region. By ‘connecting the Air Canada dots’ in Asia through interline partnership, we are able to maximise our capacity and be able to expand our presence in areas where we don’t fly through GSA representation.”

Air Canada operates daily flights from Asia to various Canadian hubs. In June, it will introduce Tokyo to Montreal direct service flight from Narita Airport. With this, Japan will be able to connect with all major hubs in Canada. From China, it currently serves Vancouver, Toronto and Montreal. Wong also adds that the airline’s overall network is not just about flights but is it also being supported by a strong cross-border trucking capability.

The increased volume of cargo has roused the requirement of improved infrastructure in these regions. “Halifax International Airport Authority (the operators of the airport) recently submitted an application to the Government of Canada under the National Trade Corridors fund to gain access to financial support that would allow the airport to continue its growth and support of the cargo logistics chain through the development of a proposed Air Cargo Logistics Park. If realised, this project will enhance transportation infrastructure, improve cargo handling, increase trade and expand international capacity to foster exports. Additionally, the ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which will provide enhanced market access to Asian countries, is expected to drive future growth,” added van der Stege.

Other players like the US-based Flexport is investing heavily in high-tech warehousing facilities in Hong Kong and Los Angeles, the city pairs chosen for most of its transpacific flights. The digital freight forwarder has also inked a three-year deal with Florida-based Western Global Airlines, under which Western Global will operate regular 747-400F flights between Hong Kong and Los Angeles on behalf of Flexport. Flexport’s SVP and global head of air freight Neel Jones Shah said that in order to protect its clients from capacity shortages and volatile prices, Flexport decided to invest in its own private air service, with a 744 freighter dedicated solely to Flexport clients flying round trip between Hong Kong and Los Angeles.

“Consumers may be surprised to learn that the rapid growth of global e-commerce drove air freight rates to record highs last year. The reason for this surge is simple: products take up more space as individually-packaged parcels (as e-commerce shipping requires) than when they’re bundled into bulk pallets of cargo. Picture all the extra space in the average Amazon box, and now multiply that to fill an entire airplane. Flexport currently flies cargo whose volume is more than the capacity of 500 747s, and we plan to grow more than 250 percent in 2018. That means we need to find capacity equivalent to 750 empty 747s to meet our clients’ demand. There simply isn’t enough excess air capacity in the market to meet our needs. In theory, every time we win a client’s air freight business, we are taking that cargo from a competitor, and in the process freeing up capacity on an airplane somewhere in the world. But the competition for space is constant. This is acutely the case in Asia where demand far outstrips capacity with the gap only expected to widen in 2018 given the positive trends,” explained Shah.

Beginning on 5 April, Western Global will operate twice-weekly round-trip flights between North America, and Asia. A third weekly frequency will be added ahead of peak season, beginning next September.

Meanwhile, similar kinds of network and capacity expansion programmes are in process on the other side of the globe. According to the Association of Asia Pacific Airlines or AAPA’s latest report on cargo traffic in the month of February, buoyant demand in Asian economies, coupled with further expansion in export activity contributed to further growth in trade activity in the region. Correspondingly, the region’s carriers registered a 7.3 percent increase in freight tonne kilometres.

Riding on the high business confidence levels across the services and manufacturing sectors in major advanced and emerging economies, air cargo stakeholders are hoping to see surge in demands.

Japan’s Nagoya Airport is hopeful of a positive and steady growth trajectory in 2018 in wake of few favourable situations. These include talks about opening new routes between Nagoya and the US this year, Japanese multinational automotive manufacturer Toyota’s proposed plans of opening a new factory in Mexico in couple of years and local economy’s stable growth after witnessing strong demands since last year.

Talking about the key commodities transported on the transpacific route from the airport, Takuya Nakatsu, head of cargo marketing, Central Japan International Airport said, “Many of the global industries from motors, aircraft parts, machinery, electronics and ceramics are accumulated in our region. For instance, from Nagoya to North America the main destinations are Chicago and Atlanta, thanks to Nagoya's huge automobile industries, such as Toyota, Honda, Suzuki, Mitsubishi and variety of its subsidiaries. In addition, there are huge demands of transport aircraft components. For example, parts of Boeing 787 such as main wings and fuselage manufactured in the factory in our region are transported to Nagoya Airport by sea and then transported by the Boeing 747LCF named ‘Dreamlifter’ to the Boeing's assembly factories in the United States.”

The airport transported around 43,399 tonnes of cargo to US and 520 tonnes to Canada last year. These figures exclude cargo volume of non-direct flight. For example, flights on the Nagoya-Seoul-US routes.

The Hong Kong International Airport (HKIA), meanwhile, handled 850,000 tonnes of cargo in 2017, which were shipped to and from Hong Kong and transpacific destinations. This volume accounts for about 17 percent of HKIA’s total cargo volume. “The boost in air cargo for the transpacific route is benefited from the surge in trade between Asia (in particular the Mainland China) and the North America. With its strategic geographical location at the centre of Asia, HKIA can reach half of the world’s population within 5 hours’ flying time. The excellent connectivity, serving by more than 100 airlines with over 1,100 daily flights to 220 destinations (including 50 in Mainland China), makes HKIA a leading international aviation hub for the region and the preferred gateway to and from the Mainland China,” said a spokesperson from the Airport Authority Hong Kong.

In other major developments, Japan’s All Nippon Airways (ANA) and the United Airlines have recently confirmed the addition of westbound transpacific routes to their cargo joint venture, in their bid to capture volumes between Asia and North America via Japan. Launched in July 2016, the same arrangement in the other direction has benefitted many customers. The recent extended agreement that was confirmed in late January this year is likely to offer customers more destinations and quicker transport times. ANA has also unveiled plans for “large size freighters” in addition to an upgrade for its Okinawa cargo hub.

Korean Air Cargo, meanwhile, announced a second weekly flight to support their existing scheduled operations to Halifax Stanfield, beginning in May. A joint venture partnership with Delta Air Lines in the transpacific market is also in the pipeline that is likely to increase belly cargo cooperation. Regulatory authorities in Korea and the US have approved the JV, including the US Department of Transportation, and the Korean Ministry of Land, Infrastructure and Transport.

“With the recent relocation to Terminal-2 at the Incheon Airport, along with Delta Air Lines, we will be able to provide seamless service to our customers. Korean Air will provide extensive support to develop a successful partnership with Delta Air Lines,” said Yang Ho Cho, chairman and CEO, Korean Air. The expansive combined network formed by this partnership will offer Delta and Korean Air customers access to over 90 destinations in the Americas, and more than 80 destinations in Asia.

Industry experts believe that the firm demand for manufactured products, particularly pharmaceutical goods and technological equipments, are the prime reason for a strong growth in air cargo trade between these regions.

“Cathay Pacific is the one-stop shop for all pharma needs right from planning to transportation. Operationally we are able to provide the entire range of active containers, enabling us to offer our customers the best possible air-cargo solution. We recently announced our partnership with va-Q-tec that will provide our customers with advanced passive thermal containers. We are also the first Hong Kong airline to be awarded IATA CEIV Pharma Certification and are committed to transporting high-value, time-sensitive and temperature-controlled pharmaceutical products with speed, consistency and efficiency,” said Anand Yedery, regional cargo manager – South Asia, Middle East and Africa, Cathay Pacific. “When it comes to perishable transportation, this requires fast and reliable handling by professionals who are experienced in cold chain management. We are able to provide specialised perishable shipment handling to facilitate and extend the shelf life of fresh goods.”

The national carrier of Hong Kong also reported strong demand on the transpacific in 2017, particularly on Eastbound from Asia including India into Americas, boosted by good demand of various consumer products as well as stimulated by growth in e-Commerce traffic. “For Westbound traffic from Americas back to Asia, movement of perishables had also been very robust. Like 2017, this year too we are highly optimistic about the growing demand on the transpacific route,” Yedery said.

The airline flies a mix of belly and freighter capacity. In September 2018, it will launch a new passenger flight to Washington DC. Its A350 on long haul routes carry huge amount of cargo in their bellies. While Washington DC would be its eighth passenger destination in North America, it also operates dedicated freighters to Mexico City and Guadalajara in Mexico and Calgary in Canada.

Today in countries like Japan, government is encouraging producers to export more and more agricultural produce. This is besides the huge demand for Japanese auto products in North America. China’s huge consumer power is only growing. A number of Asian currencies continue to strengthen against the Dollar, while US demand is driving a strong flow of goods from Asia Pacific, specifically IT, e-commerce, machinery and automotive. From Manuka honey to the highly-prized Kobe beef, all of it is in high demand and can give world trade a big boost. Amid this backdrop, there should be no place for trade barriers in the form of tariff threats which could lead up to a trade imbalance. Industry experts vouch for free trade policies and globalisation, and want protectionism policies to be at the back foot.