US drives air cargo rebound, but crystal ball hazy into 2015

Greg Knowler, Senior Asia Editor | Nov 17, 2014 5:39AM EST

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HONG KONG — The strong rebound of trans-Pacific trade will ensure the air cargo industry enjoys a happy festive season this year, but few are prepared to forecast the robust growth will continue much past Chinese New Year.

With up to three weeks remaining of the peak season, volumes remain buoyant. Yet years of poor yields, parked freighters and unpleasant balance sheets have made some air cargo executives wary of making sunny predictions that extend too far out.

James Woodrow, director of cargo for Cathay Pacific, was prepared to go as far Chinese New Year in February.

“I expect that market to remain strong right up until Christmas and am also cautiously optimistic that 2015 will start strongly with good loads up until Chinese New Year. After that my crystal ball goes a bit hazy,” he toldJOC.com.

Woodrow said overall, 2015 would be a better year for air freight than 2014 as the recovery continued. He predicted the trans-Pacific routes would remain strong, having a knock-on effect on intra-Asia, and rates were improving on Asia-Europe.

His carrier, and smaller sister airline Dragonair, are enjoying an impressive run this year, carrying 1.4 million tons of cargo from Jan. through Oct., up almost 12 percent year-over-year. Importantly,  cargo demand and capacity supply are almost in balance, giving impetus to rising yields. In the nine months, tonnage rose by 11.9 percent while capacity was up 11.4 percent.

The two airlines carried 156,590 tonnes of cargo and mail in Oct., an increase of 14 percent compared to Oct. last year. Load factors rose 3.5 percent to 65.1 percent.

“The airfreight markets remained buoyant in October and we saw a continued surge in demand out of Hong Kong and mainland China, which was still being driven by shipments of consumer IT products,” said Cathay Pacific general manager cargo sales and marketing Mark Sutch.

“North America remains the focus of our business and we strengthened our network further last month with the launch of a new freighter service to Calgary and increased frequencies into Mexico. Intra-Asia freight is an increasingly important part of our business and we will launch a new twice-weekly service to Phnom Penh this month to capture more of the demand.”

An All Nippon Airways spokesman said the Japan carrier was seeing strong demand this year and also pointed to North American routes as engine room of the business.

“Automobiles and cell phone related cargo, which are going from Asia to U.S. via Japan, are doing very well and as a result of that, the first half of 2014 is generating good results for the cargo business (ANA’s fiscal year is from Mar.-Apr.). ANA forecasts this trend to continue for a while,” the spokesman said.

ANA’s cargo network uses a hub in Okinawa that caters to the growing demand between Asia and the U.S. via Japan.

Gerhard Blumensaat, DB Schenker director of airfreight, North and Central China, said the trans-Pacific would be busy into Dec. as the route enjoyed a strong peak season.

“There were two different scenarios this year: Business as usual into Europe and a chaotic scenario across the trans-Pacific. Space was tight on trans-Pacific but we believe the worst is over,” he told JOC.com.

Interestingly, Blumensaat said from what he has seen in the market, the demand on the Asia-U.S. trade was because of new product launches and not related to the West Coast port congestion.

“We have not seen someone from our ocean freight clientele diverting cargo to air. It is possible among our air freight clients that some may have had cargo that was initially planned for ocean freight but was then diverted to air freight because of the port congestion, but that is not something we would even know about,” he said.

Air freight was still related to Christmas up to early Dec., Blumensaat said, but ocean freight crossing the Pacific in early Nov. was not Christmas cargo and there was no need to send it via air. 

However, capacity constraints on the trans-Pacific had a beneficial effect on Asia-Europe air routes. European airlines began picking U.S.-bound cargo in Asia and flying it via their European hubs, and Blumensaat said this led to a increase of RMB5 per kilogram in free sales as the capacity tightened.

On average, an airline contracts 75 percent of its total capacity in block space agreements. The remaining space is known as free sales capacity.

Cargo terminals have also been enjoying a purple patch, with Sino-German joint venture Pudong Air Cargo Terminals Ltd. (PACTL) steadily breaking monthly throughput records. In Oct. the terminal handled 153,000 tons of air freight, the most ever and a year-over-year growth of 17.1 percent.

“Overall, we saw tonnage rise by 16.61 percent to 1.34 million tons in the first 10 months of this year. I therefore expect a new record at the end of this year by reaching a figure of 1.6 million tons of air cargo for the very first time,” said Lutz Grzegorz, vice president PACTL.

Hong Kong Air Cargo Terminal Ltd. has not yet released its Oct. throughput volumes.