No spike in demand predicted for 2011
Spring brought airlines serving the Asian market harbingers of good business, as forwarders made tentative moves to line up charter capacity, chiefly for the peak season.
Nobody wanted to be caught in a repeat of the 2010 peak, when a rampant surge in demand met drastically reduced capacity (airlines had sidelined freighters or taken them out of service altogether). The ensuing scramble for lift drove rates up sharply.
Expectations of an encore in 2011 were dented slightly in the aftermath of the lunar new year holiday because many factories in China stayed closed longer than usual. However, March seemed to produce a return to the previous growth pattern, reinforcing forwarder interest in securing capacity.
By late June, however, the surge of 2010 and the need for charters seemed like a distant memory once again. Above all, exports from China have been softer than anticipated. According to the Association of Asia Pacific Airlines, demand weakened in April, resulting in a 2 percent decline in freight-tonne miles for its member airlines.
“The market is not as busy as people had expected earlier,” commented Robert Song, vice president, Asia-Pacific, for AirBridgeCargo Airlines (ABC).
The earlier optimism has largely abated, causing operators to downgrade their projections for the peak season. Pointing to flattening volumes in May, U.S. importers and port executives in California are now predicting a relatively modest peak season for the ocean cargo sector. These revisions are in line with projections of a global slowdown in cargo flows and economic activity.
Securing capacity is no longer an issue. “There is nothing in the forecast for the peak that would give me a major headache right now,” said Christian Hein, vice president for airfreight, Asia-Pacific, at DB Schenker. Hein added that he did not see “a new product that would shake up the market.”
Moreover, some products — from high-end PCs and notebooks to mobile phones and fashion items — that shifted to ocean freight during the downturn have not come back to airfreight, Hein observed.
While demand stopped growing, capacity continued to come into the market. The build-up of excess capacity will accelerate in the months ahead as more freighters are coming into service. This should include a number of B747-8Fs, although Boeing’s recent announcement of yet another delay in the program means that fewer than expected will be deployed before the end of this year. ABC, for one, now does not expect to be ready to mount U.S. flights on a transpolar routing with 747-8F equipment this year, as management had planned.
With yields under pressure from a growing gap between demand and capacity, and from high fuel costs, airlines desperately need to generate good loads in both directions. They have been encouraged by China’s rising appetite for consumer goods. Toward the end of the first quarter, a surge in Chinese imports of both consumer items and capital goods from Europe actually prompted some charters. Faced with some freighter cancellations across the Pacific, forwarders and shippers in North America experienced bottlenecks to China for a short while as well.
However, the improved balance in Chinese trade flows has yet to translate into a significant improvement in inbound yields. Having languished for years below the $1-per-kilo level, rates from North America to China have gone up to about $1.50, but this is still well below rates in excess of $3 in the opposite direction. Several Chinese airlines readily canceled freighter flights to North America in February that would have left China only 70 percent full, one cargo agent said.
With ample lift in the market and more to come, the prospect of juicy charter deals to boost yields has been receding fast. As things stand now, even space commitments on scheduled flights that were made a short while ago look rather shaky. One forwarder recently signed a block-space agreement with Air Canada but had to abort the deal after a short while because it could not meet its volume commitments.
Moving toward the peak season, Japan is the wild card in the equation. By some estimates, as much as 27 percent to 28 percent of intra-Asian business depends on Japanese companies or the Japanese economy.