Making Waves

International shippers are moving from air to ocean, compounding airline misery on weaker Asian lanes

By Ian Putzger

sian carriers are used to doing much better than this. In April, members of the Association of Asia Pacific Airlines recorded a paltry 0.7 percent rise in international freight ton kilometers, while their load factors declined 1.7 points to 65.8 percent. The cumulative picture for the first four months of the year is little better, showing less than 2 percent growth.

Air cargo growth around the globe has been sluggish, trailing increases in the airlines' passenger business. The International Air Transport Association said passenger traffic for the January-April period showed a 6.7 percent rise over last year while cargo advanced a more sluggish 2.6 percent.

"The cargo business is still growing, but competition with other modes of transport is severe," said Giovanni Bisignani, IATA's director general and chief executive. "And sea shipping is taking a greater proportion of the benefits from the economic boom."

Forwarders confirm that some traditional air cargo has been diverted to ocean transportation, and operators on Asia-Pacific routes have felt the impact the most."This shift has been going on for a few years now. Over the last nine months to a year it's become more noticeable," said Giorgio Laccona, chief executive of IJS Global Logistics.

Steve Dearnley, president for the Asia-Pacific region of BAX Global, said the modal shift has been discernible throughout the area and across a range of commodities. "If I had to single out a country, Korea seems to have suffered badly. Historically it's been a big maker of LCD panels, and flat screen TVs, monitors and panels have been very much affected by this," he said.

Garments have shown a predictable swing from air to ocean, as shippers made the move as the high landed cost of air freight hit hard once the surcharges are factored in. Elsewhere, some commodities have vanished entirely from the air cargo scene, such as the leather that used to be flown from Argentina to the United States.

Row, Row

But this time, even higher value goods haven't resisted the move to the water. Consumer electronics, for instance, have shifted to marine transportation.

"Electronics still move by air, but more and more is going by ocean. The trend is just more noticeable with garments than with consumer electronics," Laccona said.

Perhaps most concerning for the air operators is that beside display panels and flat-screen TVs, a large chunk of Asian cell phone production has been diverted from air over the past year. In part, this reflects the price erosion of this once-dependable air transport commodity, forwarders pointed out, but it is also a result of stronger competition from the marine side.

First and foremost, this is a cost issue. "There is simply too wide a discrepancy in rates," said Claude Morin, president of Air Canada Cargo. At the same time, the marine carriers have improved services, making containership transport more attractive to shippers.

"Ocean is gaining in efficiency, growing in capacity, and providing services that compete in time-definite (delivery) with the low end of the air freight service quality spectrum," said Paul Forster, a professor at the Hong Kong University of Science & Technology. "For price-sensitive routine bulk shipments, ocean may provide an attractive alternative to the higher price and quality of air freight services."

Robert Imbriani, vice president of international operations of forwarder Associated Global Systems, said that improvements in ocean container technology, namely the proliferation of units that allow temperature and humidity control, have made ocean transportation viable for electronics shipments.

And Roger Haeussler, global chief operating officer of Hellmann Worldwide Logistics, is following experiments by Chilean salmon exporters with interest. The high surcharges have forced most of them to send their output frozen by ocean vessel rather than fresh by air, but now trials are underway with new ocean containers. "You can save 70 percent of the cost versus air," he said, "but the question is, Will U.S. consumers buy 'fresh fish' that's two weeks old?"

Surface Value

But ocean operators are flexing some of their service muscle, and they are striking agreements to advance their reach toward shippers looking for more than straightforward general ocean transport.

An agreement struck last year between container line APL and U.S. trucker Con-way offers shippers a premium service from China to the United States. Several other American truckers are pushing logistics and surface transport operations into China and they are turning to the ocean carriers they've worked with before in creating targeted services.

Improvements on the shipper side are also helping the migration to ocean cargo.

"We're seeing buyers earlier in China now, trying to book block space for ocean. People are becoming more astute in their planning, and they have better technology to do it," Laccona said.

How far can the exodus go?

"There is a limit to the airfreight business that can be diverted to ocean," Forster said. "The high value-added of mainstream airfreight cannot, at this time, be easily replicated by ocean services. Smaller shipments, express shipments, high-value shipments, time-definite shipments are less likely to shift to ocean freight."

… Briefly

Freight traffic for Asia's carriers grew 0.7 percent in April after falling in March but that was sharply behind a 3.3 percent expansion of capacity, according to the Association of Asia-Pacific Airlines. Freight was up 1.7 percent on 4.3 percent more capacity over the first four months of the year. … Israel Aerospace Industries' Bedek Aviation Group delivered the first of four 747-400 combi-to-freighter conversions to Asiana Airlines. … UPS expanded its "around the world" flights program with five added frequencies connecting Singapore to major trading markets in Europe, the Middle East and the United States from its European hub in Cologne. … British Airways started 747-400 freighter service between Munich and Hong Kong through Delhi. … Menlo Worldwide's Singapore Logistics Center became the regional logistics hub for parts warehousing for Brazilian aircraft manufacturer Embraer, the third largest maker of commercial airline jets. … Korea's Asiana Airlines is the latest carrier to sign up for Cargo Community Network, an Asia-Pacific Internet portal services provider to the air freight industry. … China's Yangtze River Express named Asia Airfreight Terminal as its cargo handler in Hong Kong. … Singapore Airlines started weekly 747-400 freighter service to Nairobi. … As part of its $14 million investment in Vietnam, DHL will put $6.5 million into service centers in Dong Nai and Hanoi as well as two courier depots in Da Nang and Haiphong. … MASkargo is projecting a pre-tax profit of $58.5 million for 2007, helped by new revenue management measures. … Cargoitalia started twice-weekly MD-11 freighter service between Milan and Ho Chi Minh City, the cargo carrier's sixth destination in Asia and one the airline said includes strong demand for exports to the United States.