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China: Building up the hinterland

By Staff Reports on July 1, 2013

Faced with lackluster growth in the established Chinese gateways, carriers have been ramping up their presence in the emerging hubs in the interior. However, even there profits are elusive.

In April, Silk Way Airlines began a weekly freighter service linking Frankfurt-Hahn Airport in Germany with Zhengzhou via its home base in Baku, Azerbaijan with B747-400F equipment. The same month saw the start of B777-200F service by China Southern Airlines from Shanghai over Zhengzhou to Chicago. Barely a month earlier, the Guangzhou-based airline had launched twice-weekly flights with B777-200 freighters from Zhengzhou over Guangzhou to Los Angeles. Also in March Cathay Pacific started twice-weekly B747-400F runs into Zhengzhou, having launched freighter flights to Chengdu, China and Chongqing, China earlier on.

Buoyed by the influx of international freighter operators, Zhengzhou has clocked up strong growth in throughput. In the first quarter of this year, the airport’s volumes were up 39.4 percent, the fastest growth rate among Chinese airports. To accommodate projected growth, the airport authority embarked on an expansion drive December 2012 after it had received the green light for its plans to develop an on-airport economic zone to build its logistics business and establish itself as a key gateway for international cargo flows. The expansion will boost its capacity to 580,000 metric tonnes per annum.

As in the emerging gateways of Chengdu and Chongqing in Sichuan province, the electronics industry, led by Foxconn churning out products for Apple, has been the chief driver of Zhengzhou’s airfreight throughput. The automotive sector has been another engine of growth, albeit less than in Sichuan. Most of Zhengzhou’s automotive traffic moves by surface transportation, says Gerhard Blumensaat, director of airfreight, Central China at logistics company DB Schenker. He adds that inbound flows of auto parts may take up more airfreight lift, but this should take a few months to gather momentum.

More capacity is poised to enter the rising hubs of Sichuan and Henan.

“We will further beef up our presence in Zhengzhou and Chongqing,” Titus Diu, COO of Air China Cargo, says.

On the other hand, the airline is going to retire its 747-400 Combi aircraft before the end of this year, which will mark the end of its main deck presence in Chengdu. In terms of belly hold lift, the airport will receive more international capacity in September, when IAG is due to start passenger flights to London, operating three days a week with B777-300ER aircraft.

Forwarders have had no difficulty finding lift out of the rising gateways in China’s interior, usually at low rates.

“The market is highly competitive, not to say like a bazaar,” Blumensaat notes.

James Woodrow, general manager of cargo sales and marketing at Cathay Pacific, says Zhengzhou, Chongqing and Chengdu have been difficult for airlines.

“All three are very challenging. Export demand is volatile, and imports are currently still very low. This makes it very tough to make money on these routes; longer-term incomes in these areas will continue to grow and with that, import volumes. In the meantime, business remains a challenge,” he says.

Somewhat ironically, there have been bottlenecks on the import side, both from North America and Europe. These were caused by ad hoc cancellations of intercontinental freighter flights by Chinese carriers in response to insufficient loads on the export side.

“The Chinese carriers tend to focus heavily on one-way traffic. They are not so strong on selling out of the U.S., so if their exports are light they are more inclined to cancel flights,” Shawn McWhorter, president for the Americas of Nippon Cargo Airlines, says.

The sluggish global economy has taken its toll on China’s airfreight growth.

“Everyone’s volumes are down. Airfreight volumes are very static,” Andrew Jillings, CEO of Hong Kong-based logistics firm Tigers, says.

But there have been signs of growth. Both HACTL and PACTL, the main handlers at Hong Kong and Shanghai, reported increases in throughput for April and their cumulative volumes for the first four months of the year are up on the same period in 2012. On the carrier side, China Southern’s FTKs rose 6.2 percent in the first quarter, while tonnage was up 6.4 percent.

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