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Carriers make push to China's interior cities

By Hpanchal on August 29, 2011

UPS is charging into China’s interior. At the end of July, it began flying daily with MD-11 freighter aircraft from its European hub via Warsaw to Chengdu in Sichuan province and on to Shanghai, its main Asian hub since July 26.

The carrier’s move inland reflects a growing trend; industry officials increasingly find that serving China through the three traditional international gateways — Shanghai, Beijing and Hong Kong (or Guangzhou) — is not enough anymore. The migration of production from the country’s coastal provinces to the interior, a long-cherished ambition of the government in Beijing, has visibly gathered momentum, with manufacturing plants for multinational technology firms like Intel, Cisco and Hewlett-Packard springing up in Sichuan.

The time is finally ripe, sources say, for direct flights to these emerging production areas, as distances to the traditional gateways stretch beyond transit times that are acceptable to shippers. “We have been talking about the western region for 10 years. This is the first year that we are seeing solid results,” said Titus Diu, COO of Air China Cargo.

Chengdu and Chongqing lead the pack of China’s burgeoning manufacturing cities by some distance, but others — such as Wuhan, Qingdao and Dalian —  are also drawing attention. Among them, the strongest contender seems to be Zhengzhou.

AirBridgeCargo commenced B747 freighter flights into Zhengzhou last fall, but the venture proved short-lived. According to Robert Song, the Russian carrier’s vice president for the Asia-Pacific region, it was suspended because of limitations of the existing warehouse. This is now being replaced with a larger structure. ABC is set to resume Zhengzhou flights as soon as this opens, which should happen before the fall, Song said.

The fledgling cargo venture between Air China and Cathay Pacific wasted no time in tapping into Chengdu’s potential. Back in April, even before it was formally launched, Air China Cargo inserted Chengdu into a freighter run from Europe to its base in Shanghai. This routing has enabled the carrier to feed exports from Chengdu to its intercontinental departures out of Shanghai, a strategy that has helped it to deal with slower exports out of the main gateways.

In late July, ACC opened the tap wider with the introduction of a weekly freighter run between Shanghai and Chengdu to feed more cargo from the area to its flights from Shanghai.

Now the carrier’s management is studying the viability of mounting scheduled freighter services to Chongqing, the second up-and-coming manufacturing center in China’s interior. ACC has been running regular charters to the airport in addition to the belly-hold capacity of Air China passenger flights serving the city.

TNT Express spearheaded the international push into Chongqing last fall with the launch of three weekly B747-400 freighter flights to its European hub in Liege. The integrator did not have the city’s main-deck market to itself for long, though. Yangtze River Express started twice-weekly B747-400F flights from Chongqing to Moscow and on to Luxembourg in May.

“It’s not a massive market, but it’s growing rapidly,” remarked Michael Drake, managing director for the Asia-Pacific region at TNT Express. In the first four months of this year, Chongqing’s international tonnage surged 580 percent to 18,000 tonnes. Chengdu reported 15-percent growth in volume last year to reach 432,153 tonnes.

One challenge for freighter flights to China’s emerging destinations is the lack of imports, notwithstanding the inbound traffic generated by the supply chains of manufacturers in the areas. Consumer demand for imported goods in the emerging regions is a fraction of what goes to Shanghai or Beijing.

“Contributions on return legs (to China) get more important, especially out of Europe,” said Diu, adding that traffic from Europe to China has been markedly stronger than imports from North America.

Despite some strengthening over the past year, yields into China are still a far cry from a level where they would make a substantial difference. Robert Van de Weg, senior vice president of sales and marketing at Cargolux, reckoned that from Europe they ought to be twice as high as their current level to drive capacity decisions.

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