Singapore’s Changi Airport is trying to make freighters feel welcome. In March, Southeast Asia’s preeminent gateway extended financial incentives to freighter airlines that it had first unveiled the year before. These offer a 50 percent rebate on the landing fee for scheduled freighter flights, which will be changed to 30 percent in the first quarter of 2014. In addition, the airport has offered tenants in its Changi Airfreight Centre rebates of up to 20 percent off their rentals, based on freight tonnage handled on the premises.
Such rebates have usually been deployed by small airports trying to establish themselves as alternatives to crowded gateways, not by the large hubs themselves. Changi announced the fresh round of incentives after an 8.9 percent drop in throughput in February.
Tonnage has since improved somewhat. July saw a 1.1 percent rise in volume, bringing the airport’s total for the first seven months of the year to 1,056,002 tonnes, 1.3 percent more than in the same period in 2012. In terms of attracting freighters, though, Changi’s efforts have not borne significant fruit.
The national carrier itself has cut back its freighter activities. In June, Singapore Airlines Cargo took a second B747 cargo plane out of service in an effort to shore up yields. Management plans to keep the aircraft parked for a year, holding its freighter line-up at 11 747s for the time being. SIA’s cargo traffic was down 9.1 percent in July, while capacity had been cut back 6.7 percent.
As in most other parts of the world, yields have been under pressure by the familiar convergence of lackluster demand, overcapacity and high fuel costs. Also, there has been a considerable push by shippers to convert traffic to other modes, from ocean and sea-air to truck and rail, notes Thomas Lehmann, senior vice president, airfreight, South Asia region of Kuehne + Nagel.
This is not to say that there has been no growth. “Overall we have seen net growth, despite the slowdown elsewhere in the market. We have still been growing across all countries in the region, particularly strong in the Philippines, Vietnam and the smaller Indochinese countries,” reports Yasmin Aladad Khan, senior vice president, Southeast Asia at DHL Express.
She adds that DHL recorded growth both on the inbound and outbound side, and both with long-haul and intra-regional flows. The latter stand to receive a significant boost in 2015, when regional economic integration among countries in the Association of Southeast Asian Nations is supposed to kick in, she says.
Some markets have not shown much momentum overall, but instead displayed strength in specific segments, Lehmann says. He points to Singapore, where Kuehne + Nagel’s pharmaceutical logistics business has done well.
“Life sciences and pharmaceutical traffic has really been growing,” Khan says. She adds that other sectors showing growth include the automotive industry, aerospace and the garment sector, which has been well entrenched in the region. Mining, oil and gas have also shown strong momentum. To capture these engines of growth, DHL has set up “centers of excellence” in the region – health care in Singapore, oil and gas in Malaysia and Indonesia, mining in Indonesia and automotive in Thailand.
Geographically, the latest focal point for expansion is Myanmar. Lehmann reckons that some low-end production such as garment or footwear manufacturing will likely move there in the initial phase. Kuehne + Nagel established a full legal entity there this year.
Bee Logistics, a Vietnam-based forwarder, has also pushed into Myanmar, but initially airfreight will not be a priority. “We focus more on ocean now. There is high demand for that,” company president Henry Dinh Huu Thanh says.
He reckons that air cargo will take off in Myanmar in about two years. At this point, demand is low and the passenger airlines that serve this market fill about 20 percent of their capacity, he says.
In terms of growth, the Philippines has been one of the strong performers in the region. The service sector has been the strongest single driver of growth, but manufacturing – notably electronics and aerospace – has also been on the rise. Semiconductors and perishables have also done well, Lehmann observes. Unlike some other emerging economies that have been buffeted by downdraft recently, the Philippines appear to have kept their momentum, operators report.
Vietnam has also been going strong. Bee Logistics, which was established in 2004 and joined the World Cargo Alliance five years later driven by strong international growth, has been adding offices to its network. “We still see demand increase in Vietnam,” says Dinh, pointing to investment by multinationals such as Samsung, Nokia and Foxconn.
Some of this is part of a migration from the established production areas in China, which have been faced with rising costs, prompting manufacturers to look for alternative locations. Northern Vietnam in particular has been the target for high-tech and electronics manufacturers that have so far produced in China, Lehmann says.
It remains to be seen if this is a lasting phenomenon, he adds. “We have seen over the last few years numerous attempts by buyers to move away from China. It is a bit of a high tide, low tide scenario, with production flowing out of China, then flowing in. Some companies shifted elsewhere and then found that their production deadlines could not be met, so they went back to China,” Lehmann says.
Indonesia has been another magnet for foreign investment, which brought forays by logistics providers in its wake. German forwarder Dachser, which set up shop in Malaysia and Vietnam in 2012, has Indonesia in its sights next, according to Thomas Reuter, managing director of the company’s Air & Sea Logistics division, although no date has been set for this move. DHL Global Forwarding opened a branch in Makassar, Indonesia, earlier this year and intends to bring two more offices on stream in Indonesia before the end of 2013. The new locations at Manado and Palembang will boost the company’s footprint in Indonesia to nine offices and 40 terminals.
DHL Express has been ramping up its capabilities in the automotive sector in Indonesia. “A lot of automotive companies are interested in Indonesia. We have seen growth there over the last 12, 18 months,” Khan notes.
For all the positive signs, Indonesia has lost some momentum recently. “Indonesia came a little bit off the boil. It was developing faster in recent years,” Lehmann says.
Other markets that used to generate good growth in air cargo, such as Thailand and Malaysia, have been less successful for a while, producing tepid growth at this point. As a result, most operators’ expansion plans are in a holding pattern at the moment. For the most part, Kuehne + Nagel is moving in response to customers’ actions.
There has been no rush by carriers to new markets, although some destinations rolled out the welcome mat for new freighter services. Korean Air mounted a twice-weekly 747 freighter flight to Dhaka at the end of July, which serves the Bangladeshi capital in conjunction with Hanoi, Vietnam. Cargolux added a third weekly flight to Hanoi in March and subsequently upped its lift out of the Vietnamese capital by putting a 747-8F on the route. DHL boosted its capacity out of Penang, Malaysia, by 30 percent by upgrading its regional freighter serving the city to an A300F.
For the most part, capacity expansion has come in the shape of new wide-body belly-hold lift. The Middle Eastern carriers have especially been pouring capacity into the market. On some sectors, frequencies are up to two, three or four daily flights, Lehmann observes.
As a result, forwarders have not experienced any serious bottlenecks in capacity, despite some cutbacks in main-deck lift. In the absence of massive changes in the demand landscape across the region, operators see little cause for a change in their gateway and hub strategies. Over the long-term, the rise of markets such as Indonesia or Vietnam could prompt some changes, but for the time being such consideration would be premature, Lehmann says.
DHL Express uses two gateways in Southeast Asia, Singapore and Bangkok. “I don’t foresee a third hub in the region,” says Khan, adding that the winter schedule will not bring any significant changes in the integrator’s regional network.
Bee Logistics has taken advantage of the rise in flights to Da Nang, Vietnam, and Nha Trang, Vietnam, which offer alternatives to routing traffic through Hanoi or Ho Chi Minh City, Dinh says. His company already uses Vietnam as a transit point for cargo to Cambodia and Laos.
“A lot of airfreight to Cambodia moves over Vietnam,” he says. Trucking time is about 6-8 hours, but a new highway that is under construction should cut this to four hours, he adds.
This traffic could grow faster if the Vietnamese government were to lift restrictions that hamper transit cargo. Current regulations on transshipment cargo are an obstacle to utilizing Ho Chi Minh City as a transshipment hub for consolidations, Dinh says.
While getting lift has not been an issue, loading freight can take a long time at the airports, he says. This is because forwarders cannot build pallets themselves but have to hand their cargo to the airport company to do this. Owing to limited supply of equipment, this process can take a long time, he says.
Bee opened a branch in Cambodia and is looking to add a second one. There are no plans for an office in Laos, as that market is relatively small and can be covered from Vietnam or Bangkok, Dinh explains.