By Adina Solomon
Brazil is booming, due in part to the upcoming World Cup and Olympics. Mexico’s economy is expanding. Colombia, Argentina and Chile are getting a heaping helping of growth.
The question for airlines and forwarders is not why they should increase air cargo infrastructure in Latin America. The question is why wouldn’t they.
“Certainly we will want to grow our business in Latin America,” says Rodrigo Casal, regional commercial manager for Latin America at IAG Cargo. “We see that there is great potential.”
IAG Cargo began offering cargo services between Quito and Madrid in late October. During the same month, the airline also increased its freight capacity between Rio de Janeiro and London.
IAG Cargo operates more than 96 wide-body flights to Madrid and more than 28 flights to London each week, all coming from Latin America. The company’s biggest presence is in Brazil, Argentina, Colombia and Ecuador.
Lufthansa Cargo is expanding its Latin American services with new service to Lima, Peru, in October, with stops in Quito and Aguadilla, Puerto Rico. The route is flown twice a week with MD-11 freighters.
“While historically the growth of Latin American economies has been very volatile, the predominant direction has still been only one way, and that is up,” Andreas Otto, executive board member product and sales of Lufthansa Cargo, says.
Otto says the fastest-growing segment is intra-Latin-American traffic.
“Despite the current worldwide economic slump, most of Latin American economies are still growing healthily on average,” he says. “Favorable demographics with young populations, as well as more people accessing the middle class and getting access to credit, will provide lots of economic growth for years to come.”
DHL Express, a division of Deutsche Post DHL, has invested millions in its Latin American operations in the past few months, including for its Mexico City hub, its Colombia hub, a new distribution center near Santiago and a new operations center in Guadalajara, Mexico.
“The borders within the Americas have become friendlier,” says Mike Parra, senior vice president network operations for DHL Express Americas.
He says South American air cargo will continue to develop.
“We see continued growth into the South, primarily Argentina, Chile, with the e-tailers growing and the demand of B-to-C business – business-to-consumer business,” Parra says. “We’re seeing growth specifically into Chile as a result of that.”
Inbound into Latin America, DHL Express’ biggest trade partner is the Asia Pacific, especially China, Parra says. After that comes Europe and the U.S. Outbound from Latin America, the company’s biggest trade lane is the U.S. and China.
Cathay Pacific Airways hopes to capitalize on that same Asian trend. The airline, which has seen little cargo growth throughout 2013, launched its first-ever destination in Latin America with a Hong Kong freighter service to Guadalajara, the Silicon Valley of Mexico.
The route launched in October with a B747-8F, which has a 130-tonne payload.
“Trade between Asia and Mexico has been steadily growing, and Cathay Pacific sees our HKG-GDL service as a means of servicing the demand on the lanes between Asia and Latin America,” Mark Sutch, Cathay Pacific general manager, cargo sales and marketing, says.
Sutch says the airline is starting with twice-per-week service to Guadalajara, later increasing the frequencies as the company gains a better understanding of the market.
“Latin America and Asia both have many growing economies,” Sutch says. “With the GDL service, we also have the ability to serve other destinations further south in countries like Brazil through our extensive interline relationships and thereby strengthen the flow of goods from Latin America to Asia.”
Free trade agreements have helped facilitate greater opportunities for Latin American airfreight, Otto and Parra point out.
“Lots of Latin American countries are signing free trade agreements amongst themselves or with bigger economic partners like the U.S. or the EU,” Otto says.
For example, Colombia and Peru recently signed a free trade agreement with the EU. And the Pacific Alliance creates free trade between Chile, Peru, Colombia and Mexico.
“These are some of the fastest growing economies in the region,” Parra says. “With the Pacific Alliance, we’re going to see a lot more happening into those markets.”
And Latin America is churning out more than fruits and vegetables.
Casal of IAG Cargo says its core business is perishables, but the pharma industry has swelled.
“We also see that the pharma industry is growing at a fast pace, and we want to take part in it,” Casal says. “We have taken steps to ensure that we are in the market by opening stations in Latin America that are capable of handling the pharma business with our Constant Climate product.”
DHL Express’ fastest-growing product both into and out of Latin America is consumer technology, Parra says.
Lufthansa is shipping mostly consumer technology, semi-finished auto and machinery parts and pharma into Latin America, Otto says. The majority of the airline’s freight out of Latin America is perishables, though pharma and auto parts have been growing in importance.
On its Guadalajara flight, Cathay Pacific expects to carry a mixture of high-tech, perishables and automotive parts. Sutch also mentions the growing pharma export market.
“The perishable market ex-GDL is large and has potential to grow in Asia as the Asian markets demand a greater choice of fresh food products,” Sutch says.
Casal says the Chinese market has provided a significant boost to the Latin American fruit industry.
“It can be made an argument that Asia is buying more perishables or more fruits from Latin America, but I have noticed that China in particular is buying more and more fruits and berries and asparagus from Chile, Peru and Argentina,” he says.
But the perishable market is evolving as source markets change, Casal says.
“For example, five years ago or six years ago, you see that Chile was the only country producing and exporting blueberries in large quantities,” he says. “Now Argentina is one of the biggest producers.”
Some of the biggest challenges for companies who want to move Latin American air cargo are the constant changes to regulatory and Customs affairs, the whims of weather in the perishables business and intensifying competition.
But even with the hurdles standing in their way, non-Latin-American companies continue to expand airfreight services in the region.
In addition to expanding frequencies to Guadalajara, Cathay Pacific is considering adding Mexico City to the route in the future.
“Further south in Latin America, there may well lie opportunities in Brazil and other strong emerging economies,” Sutch says. “As we operate into Mexico, we will build our interline relationships with South American carriers and further strengthen our proposition to our clients.”
Lufthansa Cargo now serves 10 Latin American destinations with scheduled freighter services, and four to five more with seasonal and ad-hoc flights.
“Lufthansa Cargo has all major airfreight markets in the region covered for now,” Otto says.
DHL Express is planning air service in Campinas, Brazil, beginning February 2014, Parra says. It is also expanding its Central American hub in Panama.
“Our expansion is being driven right now basically by the inbound volume and demand from a changing customer base,” Parra says. “Our customer base has gone from a B-to-B business base to a business-to-consumer model, so where we see ourselves delivering today, is we’re going into parts that are less business-centric and more residential-centric.”
Parra says small- to medium-size entrepreneurial businesses are growing.
“There is still significant potential,” Otto says, “for further development of airfreight volumes to and from Latin America.”