China: Region Focus
China is a land characterized by growth. In 2010, the Asian nation overtook Japan as the second-largest economic powerhouse in the world, propelled by 10-percent annual gains in GDP and a booming manufacturing sector. China’s been so successful, in fact, that some experts predict it will usurp the U.S.’s title as the global economic leader by 2020.
This economic advancement is already seen in the airfreight industry. Last year, Hong Kong International Airport surpassed Memphis International Airport as the world’s busiest cargo airport, ending Memphis’ 18-year reign.
HKIA, which transported 4.16 million tonnes in 2010, experienced a year-over-year surge of 23.2 percent; Memphis only posted 5.9-percent, year-over-year, growth. Shanghai Pudong International Airport (PVG) also achieved considerable success in 2010, handling 3.2 million tonnes — a 27 percent jump from 2009.
Experts attribute much of this growth to the Far East region’s development as the commercial epicenter of Asia. This year hasn’t been as lucrative for PVG or HKIA, however, with the airports reporting mid-year cargo drops of 2.9 percent and 2.3 percent, respectively.
Regional airlines have also seen a number of challenges. Although International Air Transport Association officials project that Asia-Pacific carriers — of which China has the biggest stake — will return a $2.5 billion profit this year, it’s $5.5 billion less than they took home last year.
“While this is the largest absolute profit, the region has also seen the most dramatic downturn compared to 2010,” an IATA spokeswoman says. “The weakness of air cargo markets is disproportionately affecting airlines from this region, owing to the larger share of cargo in airline revenues.” She attributes much of the region’s collapse to the March earthquake and tsunami in Japan, which ravaged supply chains and freight markets.
At more than 9.59 million square kilometers, China is only slightly smaller than the U.S., but features some of the top manufacturing hubs in the world. These production facilities have spread from manufacturing mainstays, such as Hong Kong and Shanghai, to inland China.
“Manufacturing used to be mainly focused in the Pearl River Delta and Yangtse River Delta; it’s now dispersing over many cities in China with the move west being the most-noted phenomenon,” says James Woodrow, general manager of cargo sales and marketing at Cathay Pacific.
Credit China’s “Go West” campaign with this change. Launched in 2000, this program sought to attract foreign investment and industrialize the nation’s underdeveloped western region. The rise of Chengdu and Chongqing has been attributed to the initiative, with both cities emerging as electronics and IT hotspots. Chongqing has also distinguished itself as a key player in the automotive sector, boasting numerous production facilities for motorcycles and machinery.
In July, UPS gave the region another boost with the launch of express service to Chengdu. With foreign trade in this city surging to $32.78 billion last year — a 36-percent hike from 2009 — UPS International President Dan Brutto says the decision to address Chengdu’s growth was an easy one.
“China’s ‘Go West’ program is making it very attractive for companies to move production facilities to inland cities like Chengdu, and we believe the area is poised for accelerated growth in express shipping,” Brutto explains.
Still, some logistics experts have questioned whether Western China’s airfreight operations are equipped to handle such growth. Wenjun Li, head of airfreight at DHL Global Forwarding China, thinks not.
“The imbalance of airfreight-handling capabilities in different areas of China is one of the biggest challenges,” he says. “With more and more imported, high-tech products moving into inland China, airfreight gateways in West China, such as Chongqing, Chengdu and Zhengzhou, will face capacity constraints and a shortage of ground-handlers.”
PVG has the opposite problem, Li asserts. Too much freighter capacity, coupled with sluggish markets out of Europe and the U.S., has squeezed airlines’ profits in Shanghai. It has been such a problem, in fact, that Cathay Pacific — the region’s largest carrier — has suspended one-quarter of its freight routes to Europe.