China: Region Focus
“Consumer confidence has a big effect on airfreight export volumes from China,” Woodrow says. “The big issue facing the Shanghai market is the current imbalance between supply and demand, with Europe and the U.S. suffering from significant slowdowns that are expected to continue.”
Fortunately, Scott Aubuchon, director of international airfreight marketing at UPS, doesn’t think it’s an insurmountable problem. To him, it’s simply a matter of carriers improvising and increasing frequencies to areas with rising cargo volumes, such as Western China.
“One of the beautiful things about airfreight is that if there’s business to be picked up, carriers will very quickly move assets to meet demand,” Aubuchon says. “Carriers are more than willing to move aircraft to where there is freight to be lifted.”
It’s a trend that was just seen as Cathay Pacific launched twice-weekly freight service to Chengdu on October 12. And, this month, the flag carrier of Hong Kong will increase its number of weekly cargo flights to Chongqing to four. What’s more, Woodrow says, these routes will likely rise in frequency over the next 12 months.
In addition to the movement west, increasing wealth among China’s residents is also affecting airfreight operations. The stereotype buttonholing China into the role of the world’s factory has slowly been turned on its head, as China’s middle class continues to emerge. “In the future, China won’t just be an export-driven market — it will become an import and export market,” Aubuchon says.
Handel Jones, CEO of International Business Strategies and author of “Chinamerica: The Uneasy Partnership that Will Change the World” (McGraw-Hill, 2010), concurs. As China’s middle class continues to grow, consumption patterns will change, Jones says. One key manifestation of this will be the increase of luxury goods being imported into Southeast Asia, he envisions.
This projection is echoed by the global management-consulting firm McKinsey & Co. According to a recent report, China will overtake Japan as the No. 1 luxury market in the world by 2015. In fact, McKinsey & Co. analysts found, luxury sales in China reached $12 billion last year; that number will surge to $27 billion in the next four years, they project.
“This will continue to drive import volumes into the many growing cities throughout China as the middle class increases year by year,” Woodrow says.
Carriers are also responding to this anticipated growth by renovating their fleets. Cathay Pacific, for instance, recently agreed to purchase eight B777 freighters — a procurement aviation officials believe will boost the region’s cargo operations tremendously. Woodrow says much of the decision centered on the aircraft’s fuel efficiency. “Fuel remains Cathay Cargo’s single biggest cost,” he says. “In an era of expected high fuel costs, an efficient, duel-engine freighter has great economic appeal.”
Boosting China’s infrastructure to prepare for the growth is another sound investment, numerous experts say. Jones, for one, thinks China needs to build a FedEx equivalent, albeit one with a lower cost structure. It’s all about streamlining operations, he explains. “China will need to continue to expand its infrastructure to reduce costs and make logistics more efficient,” Jones says. After all, he maintains, “air transportation is fast and clean, but the support infrastructure has to be efficient.”
DHL’s Li agrees that China still has infrastructural challenges, but he believes that the problems are clustered in certain regions. Airports in inland and Western China, for instance, need to develop their handling capabilities, he says. Standardization and implementation of technological initiatives, such as e-freight, are other areas for improvement. “There isn’t a nationwide operational standard when resources, time and costs need to comply with local policies and regulations,” Li says.
After all, if China is expected to lead the global economy by 2020, it needs to implement trade policies that sustain growth. Not that Aubuchon is too concerned about operational barriers to success. “[Chinese authorities] are very good at investing in infrastructural improvements to ensure that there’s no bottleneck to commerce,” he says.
As import and exports levels in China continue to grow, investment is a good thing, indeed.