Asia’s air cargo ascent

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As per the Boeing 20-Year Forecast, while global air cargo would reach 509 billion revenue tonne-kilometers (RTKs) by 2035, i.e. twice that seen in 2015, at an annual average rate of 4.2 per cent, Asia will lead the growth with China, intra-Asia, and Indian market expanding at the highest rates of 6.2 per cent, 5.5 per cent and 6.7 per cent per annum respectively. Asian countries will also strive to establish more air routes to promote tourism, trade, and enhance greater connectivity.

Upamanyu Borah

Over the last two to three decades, Asia has become the epicenter of economic gravity and a major manufacturing region, with more and more carriers opening up new destinations to serve growing appetites of European and American consumers. Industries that require transport of time sensitive and high-value commodities such as perishables, consumer electronics, high-fashion apparel, and pharmaceuticals, depending on the unique capabilities that air cargo provides is offering a new phase of air cargo growth in the Asian region.

Asian airlines have an outsized role in air freight, accounting for nearly 40 per cent of the global market as the region is a major manufacturing hub and growing e-commerce. Strong e-commerce demand is fueling Asia’s air cargo market. The sector is growing at a tremendous pace, driven by Chinese behemoth Alibaba Group and rival JD.com, as well as others such as Japan’s Rakuten Inc, Amazon, and India’s Flipkart.

“E-commerce is changing the way people are buying stuff, especially in countries such as Indonesia and the Philippines,” says Jean Francois Laval, Executive Vice President – Sales Asia, Airbus Group. It is coming from China, Korea, and other parts of the region. Therefore, the need is a huge amount of cargo space.

During 2019, Andrew Herdman, Director General, Association of Asia Pacific Airlines (AAPA) says, they have witnessed stable demand for exports from Asia (up 12 per cent), but what is even more important is that the growth rates for imports to Asia to the majority of stations have reached double digit growth and reached 20 per cent from Europe, including high growth of automotive goods and medical equipment, as well as healthcare products.

Expressing similar sentiments, William Flynn, Board Chiarman, Atlas Air Worldwide Holdings Inc informs, “Growth in Asia and an expansion of the global middle class are transforming the global economy. Increased disposable income will support a strong future for global trade and the consumption of goods. Our strategic focus on express and e-commerce service and the faster-growing Asian markets position us for further business growth as we carry through the balance of 2019, into 2020 and beyond.”

India’s strategic preparedness

India seemingly has all the ingredients to be one of the world’s great air cargo centers. Rapid growth of international trade, a huge manufacturing engine and a population of more than 1.2 billion all bode well for the industry. And with the recent launch of the National Air Cargo Policy Outline 2019, India is set to realise this great potential.

India’s Air Cargo Policy will aim is to leverage the country’s geographical location as a transit hub between Europe and South East Asia and a gateway to the South Asian region, making India a transit cargo hub of choice to-and-from other parts of the world. The policy covers all three categories of air cargo transport: domestic cargo to ensure efficient flow of goods across India; international cargo facilitating all indigenous export and import of products; and transit international cargo by making India the transit cargo hub of choice to and from other parts of the globe. The policy covers the development and growth of all types of cargo. One of the strategic objectives of the policy is to invest in emerging cargo markets like Africa, South East Asia, etc. The potential in the new markets needs to be explored with long term infrastructure creation to sustain cargo growth in the next 10-15 years at least.

Since the last few years, there has been exponential growth in India’s air cargo traffic. The country is working with partners around the world to create aviation logistics hubs. Besides, the government also plans to develop Nagpur as the central location for global MRO (Maintenance, Research, and Operations) in aviation.

“The air cargo market in India has the potential to become a global hub,” also feels Shailendra Seth, Director and Country Manager- India for charter cargo specialist Chapman Freeborn. The Indian charter market is rapidly growing. Trade has increased over the past five years as a greater share of it moved toward finished goods. Products driving the growth include pharmaceuticals, gems and jewelry, transport equipment and ready-made garments. We feel the long-term growth potential is quite positive.

Airports/Airlines march towards innovation

Airports and Air cargo carriers alike need to differentiate themselves. One unique advantage can be realised by embracing technology to leverage the full customer experience throughout the air cargo life-cycle and streamline processes for efficiency. The second is the optimisation of all available assets. This requires having deep insight into how all those assets work together and how each affects the bottom line.

Fatih CIĞAL, Senior Vice President- Cargo Marketing at Turkish Cargo agrees that air cargo industry needs to cooperate and integrate data and material flows as this will lead to transparency, speed and customer satisfaction. “Players in the market are looking for ways to integrate Blockchain, Internet of Things (IoT), Artificial Intelligence (AI), machine learning and big data to their processes. On the other hand perishable, temperature controlled and e-commerce shipments are on the rise. Shippers shape the industry by educating themselves and demanding the best service with the lowest possible cost.”

According to Fatih, “Turkish Cargo grew above 16 per cent in 2019. In 2019 we had been focussing on improving our services even further to meet the needs of our customers in the Asian region. The order of three additional B777 freighters was confirmed recently to keep up with developing trend. Our fleet had a total of 8 Boeing 777F cargo planes by the end of 2019.”

With the view that air cargo must evolve to adapt and improve its value proposition, Sanjay Khanna, CEO at Ras Al Khaimah International Airport opines, “The airfreight industry is evolving faster though it continues to face challenges of sustainability, profitability and customer satisfaction. It is far from being immune to global shocks such as Brexit. Competition is stronger than ever with other transport modes such as shipping, rail and road offering new products. Customers are also looking at mixing transport options to balance costs and speed. In parallel, the industry has been slow to adapt to an increasingly electronic world that demands more transparency, speed and efficiency. Airlines and airports together have to be a part of this transition and adapt to the changing dimensions of the air cargo industry. Paper airway bills are being fast replaced by electronic way (e-Way) bill to increase the efficiency, speed and precision. Although, global implementation of e-Way bill to date is just around 50 per cent. Besides, StB Cargo- an industry transformation program to make air cargo easier, smarter and faster, by IATA, is an effective programme in this direction.”

Khanna feels that with the increasing shift of freight from air to ocean, shippers are increasingly opting deferred air services and multi-modal transport system; airlines and airports need to provide the facilitie needed for this transition. According to Khanna, “The air cargo landscape is changing with more freight forwarders taking control of freighter operations and hence the traditional ways are changing. Amazon leasing aircrafts from Atlas Worldwide and DHL, Panalpina and Danzas leasing freighters from Cargolux are a few examples of the changing pattern. Many major cargo GSAs in the Middle East prefer to operate their own freighters, and the association of the airport with the GSA and freight forwarders is key for any airport to grow.”

Meanwhile, P Balasubramanian, Founder & CEO, Air Cargo Consultancy International Services (ACCIS) explains that collaboration and digitalisation will drive the future of the air cargo logistics chain, and that stakeholders need to move from an ego-system into an eco-system. “Advent and almost compulsion of getting into the digital way of doing business has created three large distinct groups: one leading the charge by using all modern techniques such as e-freight, Blockchain, AI, AR/VR, drones, and so on. The other extreme of the spectrum has players who still struggle and resist embracing basic digital techniques, whether it is e-AWB, e-CSD or similar initiatives. Then there are players trying to embrace the digital world with varying levels of conviction and application. This period of great change can claim some place in history if all these initiatives lead to cost, time and process efficiencies in air cargo chain leading to a significant reduction in cargo transportation times.”

From Bottlenecks to Opportunity Pluralism

High-tech production facilities are growing at a very high speed in the Asian region, including aerospace, automotive, medical, etc. and this pushes airfreight volumes to/from Asia, while raising the bar of quality performance for airfreight transportation by implementing latest industry technologies and adapting best practices and more highly skilled personnel. Even though the 2019 market grew at a slower pace compared to the robust 2018, a solid and stable growth was seen in the first months of 2019, after backlogs were cleared, while the Europe-Asia trade lane continued its momentum and generated needed volumes.

According to Balasubramanian, “Asia-Pacific airlines saw demand for air freight contract by 4.9 per cent in July 2019, compared to the same period in 2018. It is true that 2018 witnessed an overall good performance in air cargo growth in the Asian region, despite the late 2018 marginal decline. This is commendable given that International Civil Aviation Organisation (ICAO) had dubbed 2018 as the year of ‘solid passenger and moderate air cargo growth’. The ever-challenging US-China trade talk’s scenario, particularly its direct effect on the tariffs, especially retaliatory tariffs, did not help the cause either and still, markets did a brisk business. However, those tariffs related issues have a larger significance for ocean freight than air. A view exists that this uncertainty associated with the potential fallout triggered more air cargo movement, either to beat the calendar or to overtake the uncertainty curve, thus showing a healthy upbeat growth trajectory.”

It is a child’s knowledge that e-commerce has played a stellar role in this growth story further keeping the graph gaze towards the sky rather than the ground. “China is the engine of the world is an oft-repeated but irrefutable cliché. However, the direction of US-China talks, any resultant currency volatility – not just normal movement, the progress of its belt and road Initiative would determine the rate of growth of air cargo in Asia. E-commerce is expected to continue to dominate Asian air cargo growth story, partly due to unintended political challenges on the other side of the globe, be it Brexit or protectionist tendencies,” explains Balasubramanian.

Increasing production fueling air cargo demand

Growth prospects in the emerging-market economies are collectively projected to be steady over 2020-21, but this masks diverging developments in the major economies. A gradual slowdown appears set to persist in China, despite renewed policy support, and substantial adjustment challenges are continuing in those economies hard hit by the COVID-19 pandemic and financial market stress seen last year. In other countries, including India and Indonesia, downside risks from financial market tensions have eased, and strong investment, improving income growth and past reforms are helping to support domestic demand.

“Correspondingly, world trade activity continued to expand, underpinned by increased investments and higher manufacturing output in the region, in response to increased new business orders. These positive factors continued to support growth in both air passenger and cargo demand for Asian airlines,” says Herdman.

Looking ahead, Herdman says, “Asian carriers overall saw a significant improvement in earnings in 2018, on the back of the strong growth in air passenger and air cargo demand. However, the US-China trade war and weaker manufacturing conditions for exporters in the region have significantly impacted the market. With the region accounting for more than 35 per cent of total freight in tonne kilometers (FTKs), this performance is the major contributor to the weak industry-wide outcome. Air freight capacity increased by 2.5 per cent over the past year. Besides, the airline operating environment remains challenging, with competitive pressures including higher fuel prices and labour expenses.”

Khanna agrees that production is fueling demand, and that air transport is vital for manufacturer’s trade, particularly trade in components which is a major part of cross-border trade today. Khanna says, “Moving perishable goods from one side of the world to the other would not be possible without air transport. The pharmaceutical industry relies on air transport for its speed and efficiency in transporting high-value, time and temperature sensitive cargo, particularly vaccines. Most people have personal electronic devices that were built using a global supply chain linked by air. Amazon, Alibaba, eBay, and other e-commerce companies rely on the express delivery services made possible by aviation to get those devices, and so much more, to their customers.”

On the real opportunity challenge, Fatih says, “Most carriers have tight freighter schedules, so it is hard to supply enough capacity to increasing demand. We are moving our current facility comprising an area of 75,000 square meters to our new Mega Hub, which is built on 165,000 square meters. Besides, we will continue reaching new destinations in Asia in 2020.”

However, highlighting the bitter prospects, Gohar Ali Shah, Business Development Executive- Commercial, Sharjah Airport expresses, “Production industry, world trade and transportation are deeply connected. There will be an obvious adverse impact on air cargo business, when cost of production increases. When demand for airfreight will drop, airlines will have to adjust their pricing to lower market trends and that will eventually result in lesser yields and this all will leave a negative impact on the airfreight industry.”

2020 and beyond

With the volatility of the air cargo landscape over the last four to five years and with a dependence on one-off events, it has become quite hard to forecast where the market is headed. However, air cargo is likely to witness in 2020 given the COVID-19 pandemic and high uncertainties associated with political developments globally, both in the developed and not so developed worlds.

“So far, air cargo growth in 2020 looks confident with the growth in e-commerce, pharma and perishables trade increasing across continents, especially in Asia,” says Khanna. “Besides, the transport of pharma and other premium cargo services will drive output for the year.Also, during the current year, the overall market seems to get more segmented into freight forwarding, warehousing, express delivery, third-party logistics and e-commerce markets. Thereby, the leading players of each of these segments will be the crucial associate of air cargo industry.”

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