Increasing imbalances in cargo volumes on China routes are causing problems for freighter operators in Europe and the USA
Last year was a good one for cargo growth, the best since the late 1990s, with IATA recording a 13.4% rise in traffic for the year. Even more cheerfully, capacity growth for once did not exceed traffic growth, staying at 12.1% for the year.
In 2005, the picture has been slightly less positive, with growth for January to August 2005 just 3.6%, while capacity carried on growing at 6.8%. Asia and the Middle East continued to be the powerhouse of growth, up 5% and 12.8% respectively during those eight months.
Even these figures conceal a growing problem for air cargo, however, which is that China, by far the best growth market for freight, is becoming unbalanced to alarming proportions as the country becomes the world’s largest manufacturer and pumps out exports.
According to Boeing, the imbalance is up to 7:1 on transpacific routes. “Air trade between the USA and China has risen on average 13.1% a year since 1993, and almost all of that has been exports to the USA,” says Thomas Hoang, Boeing regional director marketing – cargo.
He believes traffic to and from European markets such as France and Germany is more balanced, but the market disagrees, with carriers privately putting imbalance to Europe at as much as 4:1.
Imbalance is to some extent endemic to the air cargo market. After all, unlike passengers, cargo does not come back. But there is a widespread view that the problem in China is now reaching unprecedented levels.
True, transpacific freighter operators have long been used to flying their aircraft westbound with cargo loads that barely pay their operating costs, but in Europe now there are stories of carriers giving eastbound capacity away free, so long as the forwarder pays the fuel and security surcharges – now up to 50¢/kg. More regular eastbound rates are as low as 25¢/kg, compared with $2.20 or $2.30 in the reverse direction.
How can carriers cope? Many freighter operators just put up with the imbalance. “Our strategy remains the same. Be sure that the China origin traffic pays a very high price, because that traffic must almost pay for the full round-trip costs,” says Jim Friedel, president cargo at Northwest Airlines.
Cost control
In the reverse direction, Northwest keeps a sharp eye on variable costs – for example handling, trucking, booking, fuel, claims processing and breakdown costs at destination, to name but a few, to make sure it is not actually losing money on the US-China leg.
A few cargo operators have also held back from China expansion due to imbalance. One such is British Airways, which, despite having eight freighter flights a week to Hong Kong, only has two to Shanghai. Gareth Kirkwood, BA managing director cargo, admits that he would like to operate more, but cannot make the reverse direction pay.
European carriers have another possibility – a stop en route to China. Booming oil economies mean there is strong demand from both Europe and the USA to the Middle East. Yields are good enough to make it then worth flying lightly loaded freighters on to China.
“We are lucky in that we have traffic rights between Europe and the Middle East, whereas Asian carriers do not,” says Robert van de Weg, senior vice-president sales and marketing at Cargolux, although he adds that Asian carriers can sell beyond their hubs to the rest of Asia, which European carriers cannot.
Some carriers have also been getting creative in where they fly from in Europe. BA, which has for some time been routeing Hong Kong freighters via Frankfurt, also started in September to route one via Porto and Athens in search of eastbound cargo, using fifth freedom rights to China that it won under the 2004 bilateral.
Such creative routeing is being made more difficult by the high oil price, however. “It is harder now to justify extra stops because the operating costs of making the diversion have increased,” says Ron Mathison, director and general manager of Cathay Pacific Cargo.
Many carriers also resort to trying to get two-way deals out of forwarders, promising space on high-demand routes out of China in return for support in the opposite direction.
What carriers would like most of all, however, would be for traffic rights to be abolished, so they could fly routes that actually reflected trade flows. Whether that is the answer is open to question, however. “It would make competition much more intensive, because everyone could copy everyone else,” admits van de Weg. “We have to have a bit of self- confidence and be convinced we would win more than we would lose.”
PETER CONWAY/LONDON
Source: Airline Business
