In May, Cargolux started a twice-weekly freighter service to Chongqing in western China. The European all-cargo outfit joined a slew of international carriers that have added cities in China’s interior to their freighter networks during the past nine months, a list that includes FedEx, Korean Air and Singapore Airlines, not to mention the Chinese carriers.
A few of these carriers have jumped into several emerging points. Lufthansa, which had been one of the first carriers to fly freighters to Chengdu, started MD-11F flights to Chongqing this spring; Cathay Pacific boosted its presence in the interior, which had consisted of scheduled freighters to Chengdu and regular charters to Chongqing, to scheduled cargo flights serving Zhengzhou and Chongqing; AirBridgeCargo, which resumed flights to Zhengzhou last fall after a brief hiatus, added Chongqing and Chengdu to its roster this spring.
Cathay Pacific and ABC have ambitions to ramp up their capacity at the newly developed points as soon as possible. ABC currently runs seven flights a week to Zhengzhou — five are routed over Chengdu, and two fly through Chongqing. “We’re planning to make that 14 flights a week. Ultimately, we should have daily service out of all three points,” says Robert Song, the Russian carrier’s vice president, Asia-Pacific.
Zhengzhou was the most recent addition for Cathay Pacific. It is currently served twice a week, but the plan is to eventually go up to four or five frequencies each week. The carrier’s weekly routings to Chongqing and Chengdu stand at four and three, respectively, at the moment. James Woodrow, the carrier’s general manager of cargo sales and marketing, says that management is considering adding up to six flights a week to each point.
The migration of manufacturing from the coastal provinces to the interior has pushed these new gateways onto the global stage. “Volumes from the interior have been increasing as more high-tech customers moved inland,” notes Li Wenjun, head of airfreight for China at DHL Global Forwarding.
First and foremost, the production of notebooks and smartphones has driven the rise in airfreight demand out of the new points. In addition, the automotive industry is ramping up production in the areas around Chengdu, Chongqing and Zhengzhou. Chongqing — a manufacturing base that includes Hewlett-Packard, Cisco and Acer — is a city about to turn into a center for IT development in China. Airfreight volumes have been somewhat erratic so far, though. “Loads are up and down. It’s feast or famine in Chongqing. It helps that we route our flights over Zhengzhou,” Song says.
Chengdu has a strong contingent of auto manufacturers aside from Foxconn and Intel, leaders in the city’s phalanx of high-tech producers. In Zhengzhou, Foxconn has been the main driver of development. The Taiwanese contract manufacturer has doubled the export volume of the Henan province. “Zhengzhou is one of the fastest-growing centers for electronics manufacturing in the mainland,” remarks Nick Rhodes, director and general manager of cargo at Cathay Pacific.
Song agrees with Rhodes’ assessment of the area. “Our load factors out of Zhengzhou are high,” he says. According to Song, ABC, which was the first international freighter operator in Zhengzhou, carries about 70 percent of the international volume in the market. But, perhaps, not for long, he says.
Others have focused more on the two emerging gateways in the Sichuan province, where they see stronger traffic. “We have volumes out of Zhengzhou, but it is 30 percent of what we have out of Chongqing and Chengdu,” says Gerhard Blumensaat, director for airfreight, central China, at DB Schenker. He found the available main-deck capacity sufficient to cover demand out of the emerging regions. The slump in exports from China has hit the interior as well as the established coastal gateways. Moreover, the pace of the migration inland has slowed.
“A year ago we were of the opinion that the migration would be faster than we had anticipated two years ago. Now it seems not so quick. It looks like we are back to the pace that we expected two years ago,” Blumensaat says.
At their new feeding grounds, freighters also have to contend with rising belly capacity, most of which comes courtesy of the Chinese carriers. “Belly capacity is a good supplement to our freighter operations in the interior,” remarks Titus Diu, chief operating officer of Air China Cargo. The airline’s belly capacity has grown considerably with the introduction of B777ERs, which started coming on stream last year. For the most part, though, Chinese carriers are using narrow-body passenger planes to the emerging markets, which limits the scope for belly-hold cargo.
“Chengdu has wide-body belly space connecting with Beijing and Shanghai. Chongqing and Zhengzhou’s belly capacity is not sufficient ,as the flights to Beijing and Shanghai have only narrow-body aircraft, which are not suitable for pallet shipment,” DHL’s Wenjun says.
The large Chinese carriers have all deployed freighters at the new gateways and plan to increase capacity when demand goes up. China Southern Airlines earlier added a stop in Chongqing on the Guangzhou-Amsterdam route. When the time is ripe, it will look at putting freighters into Chengdu and Chongqing, remarks Luo Laijun, senior vice president of China Southern Cargo.
The Chinese carriers have shown significant improvement in their transit capabilities, moving further away from their traditional focus on point-to-point traffic, Blumensaat observes. This, and the arrival of more direct lift to European destinations, has improved transit times. For freight heading to North America, the relative scarcity of capacity means that transit times from China’s interior are still markedly longer than those from the coastal gateways. “For Europe and the Asia-Pacific, the transit time is still the same level as for traditional gateways, but for U.S. lanes, the transit time will be one to two days longer due to few direct solutions there,” Wenjun says.
ABC has ambitions to mount a China-U.S. operation on a trans-polar route, a plan that would bring down transit times between the two markets. This scenario is not going to materialize in the near future, however, as the carrier lacks the requisite number of aircraft. “We are not interested in operating anywhere twice a week. We want daily or twice-daily,” Song says. He describes Zhengzhou as a leading candidate for such a service. ABC is bullish about the city’s export volumes, but even more so about imports. With two populous provinces next to each other, a well-developed rail and road network, and ample space for warehousing facilities, Zhengzhou would make an excellent distribution point for imports into central China, he argues.
Moreover, distribution costs would be significantly lower than in the coastal areas, but this argument has not cut a lot of ice with importers so far. Even for companies that have moved production inland, most distribution and supply-chain management is still managed from the coastal regions, Blumensaat observes.
At this point, Zhengzhou would probably be struggling to assume a large role as a distribution hub. The airport’s cargo infrastructure has serious limitations, although a recently built facility for domestic cargo has given operators some breathing space. By the same token, forwarders report that the cargo infrastructure at Chengdu and Chongqing is insufficient to handle the projected growth on their doorstep.
“Chongqing and Chengdu will experience some problems on the facility side. They are already short of space. There is not sufficient land to park freighters. On a long-term basis, that is a worry for us,” Song comments. “Zhengzhou still has a lot of land available.”
Blumensaat is not concerned about the infrastructure shortcomings. Previous infrastructure development drives in China suggest that infrastructure development will not lag far behind the pace of growth, he says. Moreover, the airport authorities at Zhengzhou, Chongqing and Chengdu have been eager to draw in more freighter flights. However, sluggish conditions for imports and exports suggest that these airports are facing an uphill battle for the foreseeable future. Forwarders and carriers expect some improvement in the second half of this year, but nobody is predicting a strong peak and a surge in volumes.
Toward the end of the second quarter, the market was very quiet. According to some sources, Cargolux suspended its Chongqing service only weeks after it started. A spokesman for Cargolux confirmed the cessation of services, but says flights will resume once an operational issue is resolved.
More capacity is bound to come into the picture. Air China Cargo will get two final B747-400BCFs from Cathay Pacific soon, and it has no intention of parking them, Diu says. Meanwhile, the carrier’s contingent of B777-ER passenger planes will go up from the current fleet of seven to 16 by the end of next year. ACW