Cautious Optimism for Transpacific Air Cargo
Americas Supplement: Cautious Optimism for the Transpacific Air Cargo. By Karen E. Thuermer
September 20, 2017
There’s some cautious optimism about transpacific air cargo demand.
Tom Crabtree, spokesman for Boeing, points to new aircraft orders. A big one: UPS’s 14 747-8 freighter order in October with options for 14 additional aircraft. While there is no indication whether or not these aircraft, scheduled for delivery between 2017 and 2020, will be flown on transpacific routes, that market does represents the world’s largest for freight ton kilometers (FTKs).
Another positive, says Crabtree, is the quickly dwindling number of parked 747s. “If healthy growth is sustained, we are confident there will be more freighter orders in 2017,” he says.
The International Air Transport Association’s (IATA) data for global air freight markets shows global demand grew by 10.4% in first-half 2017 compared to first-half 2016 — the strongest first half-year performance since air cargo’s rebound from the Global Financial Crisis in 2010. The data is nearly triple the industry’s average growth rate of 3.9% over the last five years. IATA also reported that year-on-year (YOY) demand growth in June increased 11% compared to June 2016. Freight capacity grew 5.2% YOY in June.
“Until this past year, the air cargo industry has had fits and starts,” comments Crabtree. “Because of the historic weakness over the last few decades beginning with the economic downturn in 2008-2009, however, a lot of airlines still are reluctant to purchase aircraft.”
“After what IATA has called the ‘strongest first half-year performance for air cargo since 2010, we are fairly optimistic this momentum will carry through to the holiday season,” comments United Cargo’s Jim Bellinder, vice president, Cargo Sales Americas. “Most indicators are similarly encouraging but, given the rise in global political tensions and certain trends in currency fluctuations, we’re not ‘counting our chickens’ regarding the peak.”
Vita Cerone, senior director of sales, commercial strategy, Air Canada, says: “Cargo volumes are up globally. Given our own increased volumes, we’re anticipating a robust fourth quarter.”
Eric Anderson, director for Asia-Pacific sales at Delta Cargo, sees over capacity as among one of the biggest factors impacting air cargo on the trade lane . The biggest impact to air cargo from North America to Asia is industry over-capacity relative to demand exit the USA and the strong US dollar,” he says. “This is contributing to an overall increase in imports, but is negatively impacting exports levels.”
He attributes the over capacity to the large number of widebody aircraft deliveries that have been introduced into service in recent years. “These large belly aircraft are capable of carrying 25 tons or more of freight depending on the destination,” he says.
A secondary contributor to impacting air cargo is the US dollar. “Currently the dollar is strong, making US-produced goods more expensive overseas leading to less exports and hence, less air cargo,” he says.
Finally a tertiary explanation is the nature of the US economy itself. “The U.S. economy is no longer a manufacturing-based market economy, but a predominantly service industry-based market economy,” Anderson stresses. “The rise of various service industries from food delivery services to ride share services like Uber or Lyft to IT companies have replaced much of the traditional manufacturing industry, and the US is now more reliant than ever on importing various commodities it used to produce itself.”
Still, most air carrier executives are optimistic.
Air Canada is seeing increased demand for perishables – like lobster and salmon from Atlantic Canada and fresh produce from the United States, South America and Canada. “Cherries and cranberries are some examples,” says Cerone.
Bellinder notes, however, that even with United’s long history in Asia and its extensive personal experience with importing to this region, it is still sometimes a struggle to navigate the nuances of policies and regulations in each country and airport.
“We continue to collaborate with industry associates to persuade governments and regulators to mitigate the issues that restrict air cargo’s growth and impact the value proposition we offer to worldwide customers around the world,” Bellinder says.
“Also, since our capacity is fixed – limited to the belly space on United’s passenger aircraft – it’s crucial that the dimensions and weight of shipments tendered to us closely match what was booked,” he adds. “This is particularly important on routes where demand for space is high. We rely on the cooperation of our long-term strategic partners in this area to enable us to keep our commitment to move shipments as booked.”
Keijio Ishii, regional managing director Cargo Sales – Asia, American Airlines (AA), reports that new aircraft on its Asia routes has made a positive difference. “They enable us to provide consistently reliable payloads to and from the region,” he says. “This is especially important in our efforts to boost our temperature-controlled products as we work toward becoming CEIV certified.”
“From Hong Kong (HKG), AA’s Dallas/Fort Worth (DFW) connection is popular with our customers with onward service to markets like Sao Paulo, Buenos Aires, Santiago and Mexico City being the primary end destinations,” Ishii says.
AA recently added Sydney (SYD) and Auckland (AKL) to its network, with more new options to come. In 2016, AA launched service to Haneda (HND), Auckland (AKL) and HKG from Los Angeles (LAX). “LAX is a very important gateway for us,” Ishii says. “It opens other markets to our customers with onward connections to more than 70 destinations.”
American takes a seasonal hiatus on some routes, such as that between AKL and LAX. “But we will be back on the route in early October with B787-9 aircraft that will provide additional cargo capacity and let us continue moving large shipments, such as the specialist Manuka honey we moved in early 2017,” Ishii reveals.
Ishii reports that the Korean market is performing steadily in both directions, while in Japan, the increasing volumes of transit shipments from other Asian countries and the current relative weakness of the Japanese yen is accelerating the upward trend on exports.
“Inbound from the US, we are at the peak of cherry season, and it looks like 2017 will be a record year as Asian demand continues to grow,” Ishii continues. “We’ve already seen an increase in demand from locations like Peru. The same can be said for fruit from South America, like mangoes and limes.”
The global airfreight market is consistently challenging. “But there are always bright spots,” Ishil adds. “The more global markets you serve, the less you are exposed to any issues affecting one particular route. I would say traffic from North America to Asia is one of those bright spots.”
Delta Cargo’s volumes YTD are up 10% through July. “Customers have been telling us of stronger demand for air cargo on the part of the shippers and we certainly see that in our own volumes at an entity level,” says Anderson
On June 3, Delta launched new daily nonstop service between ICN and Atlanta (ATL) in anticipation of its new joint venture with Korean Air, which was announced on June 23. “This will provide our customers with greater access to over 80 destinations in Asia,” says Anderson.
The service is served by a B777-200LR. “A large number of Korean manufacturers are located throughout the US states of Georgia and Alabama and combined with our extensive US trucking network, we can reach the entirety of the southern US utilizing overnight trucking for a next-day delivery,” Anderson emphasizes.
Later this year Delta will launch the first of its new A350 aircraft that will operate on its transpacific routes. The first, to commence in October, will be on the Detroit (DTW) – Tokyo-Narita (NRT) route. “We will take delivery of four additional A350 aircraft in 2017,” he reveals.
Delta is focusing on differentiated products and services offerings, and was recently awarded IATA’s CEIV Pharma certification at the headquarter level.
United Cargo’s volumes were up 20.5% through July over the same period in 2016. Key reasons, says Jim Bellinder, vice president Cargo Sales Americas, United Cargo, is the close bi-lateral partnerships the carrier built with leading forwarders throughout years of slow growth, and United’s leading position for transpacific service.
“Another reason is United’s position as the leading US carrier to and from China and the Asia Pacific,” he adds. “United Cargo’s steady growth in volume and market share since 2014 corresponds to the success of our efforts to deliver higher quality and more consistent results at all our stations worldwide.”
United Cargo is emphasizing its TempControl service for pharmaceuticals, healthcare material and other temperature-sensitive commodities. Chengdu, China is the most recent addition to the carrier’s list of 68 certified handling locations. Others include Beijing, Hong Kong and Shanghai.
An example of what this development can mean is the recent collaboration between United Cargo and DHL to transport a new treatment for hepatitis C from the US to China. China recently approved a US drug manufacturer’s all-oral treatment for hepatitis C – the first therapy of its kind to treat the liver disease to be sold in China. “TempControl’s role in its transport promotes access to this treatment for the estimated 10 million Chinese infected with hepatitis C,” Bellinder says.
Regarding new service, on October 27, United will launch daily nonstop flights between LAX and Singapore (SIN), which will set a new distance record for any airline operating a flight to or from the United States. In May, it re-launched seasonal service between SFO and Xi’an (XIY), the first transpacific flight to XIY operated by any airline.
“United was the first US airline to serve XIY,” Bellinder adds. SFO-XIY is served by 787-800 aircraft.
This summer Air Canada launched new direct service to Taipei and Nagoya, and increased service to Shanghai with a new route from Montreal earlier in February (in addition to the existing Toronto-Shanghai and Vancouver-Shanghai routes). “In total we operate over 100 flights per week to Asia,” says Cerone. “These are operated with either B777, 767 or 787 aircraft, depending on the route, which provide us with significant cargo capacity.”
Miami International Airport (MIA) is served by four Asian carriers: Korean Air, Asiana, Cathay Pacific, and China Airlines. “For the most part, Asian cargo services are carried out on B747F with some B777F service,” comments Chris Mangos, director, Marketing Division, Miami-Dade Aviation Department. Last year, the total volume from these carriers was 92,328 tons slightly below 2015’s total. “Collectively from January – June 2017, Asian carrier volumes were up 10.3% over the same period last year,” he says.
Mangos expects peak season this year to be very strong due to increasing imports and exports — the new iphone 8 in particular.
MIA recently completed the planning phase for its Cargo Optimization, Redevelopment and Expansion Program (CORE), a comprehensive, long-term plan to modernize the airport’s cargo operations. CORE will double its current capacity.
Anchorage International Airport (ANC) ranks No. 2 behind Memphis (MEM) for total cargo because it operates as a tech-stop for aircraft flying transpacific routes. ANC handled nearly 1.070 MT for the first six months 2017, up 5.1% per the previous period. For CY 2016, it handled 2.550 MT. Trudy Wassel, ANC Division Operations Manager, says ANC anticipates a good peak season. “This will begin next month and go through about January to the Chinese New Year,” she says.
ANC operates three runways that have never been closed, and has parking for 60+ wide body aircraft. A big advantage, Anchorage is located 9.5 hours from 90% of the industrialized world.
Through 2016, total cargo at LAX was about 2.2 million tons. In June 2017, year-to-date, LAX’s total cargo was 1,149,781 tons, a 10.35% increase over June 2016.
“Relative to other ports, LAX’s demand for international cargo is less sensitive to seasonality,” reports Frederick Badlissi, Los Angeles World Airports spokesman. “LAX has been a major gateway to the Pacific for at least 50 years and, according to freight forwarders, has enough daily scheduled capacity – by both passenger and all-cargo carriers – to accommodate all exports from the western US.”
LAX is poised to release a Request for Qualifications that may lead to a Century Boulevard cargo corridor redevelopment and construction of new state-of-the-art cargo facilities, over the next several years. In addition, LAX is investing more than $14 billion in airport improvements.
In 2016, Dallas Fort Worth International (DFW) handled more than 829,800 US tons of air freight, an increase of 12.8% from the previous year. As of July 2017, the airport handled more than 435,900 US tons of cargo, an YTD increase of 12% that puts DFW on track to surpass cargo volumes of 2016.
Currently, 10 freight carriers serve Asia from DFW (Korean Air Cargo, Cathay Pacific, Asiana Cargo, EVA Air Cargo, Air China Cargo, China Airlines Cargo, Nippon Cargo Airways, Singapore Airlines Cargo, Qantas Freight, and Cargolux Italia.) Most of cargo aircraft is B747-4 and 747-8 freighters.
“Nippon Cargo Airways (NCA) has added one additional frequency per week and has rerouted their DFW service so that DFW is now their first US entry point,” reports Milton De La Paz, DFW vice president airline relations.
DFW has non-stop service to more than 200 domestic and international destinations, including Seoul, Tokyo, Shanghai, Beijing, and Hong Kong. “This belly capacity provides an attractive alternative for smaller, more time sensitive products,” he says.
Contributing to cargo volumes is Amazon, which is expanding its distribution center at DFW to 446,000 square meters by end of 2018. A 3,400-square-meter cold chain facility will open in 3rd quarter. The 3,400-square-meter facility will be operated by Dubai-based Dnata.
At Houston International Airport (IAH), January-May 2017 already shows a 25.7% growth YOY, with 22,547,315 kilograms of air cargo moved to/from Asia. “Imports show a fantastic growth of 33.46% YOY, and exports have grown by 17.18% YOY,” reports
Luis G. Avilés, senior executive Air Service Development, Houston Airport System (HAS).
IAH benefits as a hub for imports/exports of energy equipment, and manufactured goods. Its Cargo Center is capable of parking 20 widebody freighters simultaneously. Currently, HAS officials are working with IATA for CEIV Pharma Certification for AirLogistixUSA, which operates an on-airport perishables facility next to the ramp.
“This is very relevant to us since we have in Houston the Texas Medical Center, the largest medical center in the world,” Avilés says.
Rickenbacker International Airport (LCK) in Columbus, Ohio, has seen a YTD 21% increase in total cargo. In June, imports were up 26% and exports were up 143% compared to the year prior,” reports David Whitaker, Chief Commercial Officer, Columbus Regional Airport Authority.
Freight forwarders contribute largely to LCK’s air cargo volumes to/from Asia. Nearly 10 million square feet of warehouse/ distribution space was constructed last year.
In June 2016, LCK opened its Air Cargo Terminal #5. Since then, LCK has moved over 101 million pounds of international air cargo. Contributing to the airport’s success, in October 2016, Etihad Cargo commenced weekly scheduled service with partner Trinity Logistics. In May, Etihad added two weekly scheduled flights.
“These flights originate in Colombo, Sri Lanka and transit over Europe en-route to LCK,” reports Whittaker.
Emirates SkyCargo also added an additional frequency in 2Q 2016 for three weekly scheduled frequencies to LCK.
“Cargolux is operating three weekly frequencies out of HKG and saw a 54% increase in June 2017 when compared to last year and have been consistently completing full turns out of LCK meaning they head straight to Europe with LCK being their only US stop other than fuel in ANC,” Whittaker says.
Key freight forwarders are primary factors contributing the LCK’s air cargo volumes to/from Asia. “They have started moving significant volumes of their import and exports through LCK, using all carriers given the worldwide lift we now enjoy,” Whittaker says.
A major contributing factor: nearly 10 million square feet of new warehouse and distribution space constructed in the last year.
Recently, Navitrans started using LCK, executing charters out of Shanghai (PVG). LCK also has a cooperative agreement with and a strategic interest in Zhengzhou (CGO) as well as very strong interest in Japan service.