In the current state of international trade where anyone who’s not in China is an anomaly, it’s quite remarkable that many of the biggest growth opportunities in the air cargo sector are in other trade lanes, particularly the trans-Atlantic trade lanes.  

It’s not that China, and Asia in general, isn’t expanding. Rather, the problem is too much capacity.

Earlier this year, Lufthansa Cargo (www.lufthansa-cargo.de) removed some freighter capacity from Asian routes and redirected it to the North Atlantic, and also began offering more freighter flights into Atlanta, Chicago, and Dallas-Forth Worth. As for its European operations, Lufthansa Cargo is discontinuing freighter flights in and out of Cologne and will shift those services to the Leipzig-Halle Airport starting at the end of October. According to the carrier, the freighter flights are being transferred in conjunction with the opening in Leipzig of the DHL Express Europe hub.

In 2008, Leipzig is scheduled to become the DHL Express (www.dhl.com) central hub in its European express network. DHL Express and Lufthansa Cargo have been jointly operating a route network between Europe, Asia and the U.S. with their Aerologic intercontinental joint venture since March 2004. Cologne will remain a DHL and Lufthansa Cargo base. But, Lufthansa Cargo will only offer capacity out of Cologne for belly cargo on Lufthansa passenger aircraft or by road feeder services.  

“With the flight transfers to Leipzig, DHL and Lufthansa Cargo are continuing their long-standing cooperation. Henceforth, Leipzig will be playing a major role for Lufthansa Cargo – alongside our hubs in Frankfurt and Munich,” explained Lufthansa Cargo Chairman Carsten Spohr.   

The intercontinental joint venture between DHL and Lufthansa Cargo is the industry’s biggest operative partnership between a cargo carrier and an express and courier company.

Last year, Air Canada Cargo cut back its Toronto-Shanghai freighter service from five to three weekly flights, while Air France, Europe’s largest air cargo carrier, put much of the blame for poor fourth-quarter performance in 2006 on over-capacity in the Asia-Europe trade lane.   

Nonetheless, Boeing (www.boeing.com) predicts that the world’s freighter fleets will more than double to 3,980 all-cargo planes over the next 20 years. Moreover, “The proportion of cargo carried in the belly holds of passenger airplanes will decrease,” which means freighters will be carrying more cargo than ever.  

 

Delta, Northwest back in the cargo game

The adversity experienced by Delta and Northwest has seemingly positioned both carriers more favorably in the market, now that they have emerged from Chapter 11.  

Delta Cargo (www.deltacargo.com) has slashed millions of dollars in costs and trimmed its aircraft fleet and operations. In addition, it has invested in a capacity- and revenue-management system that will substantially improve planning and efficiency.  

At the same time, the U.S.-EU ‘open skies’ pact, signed in April, is a major step towards a completely deregulated trans-Atlantic aviation market. Already, carriers are preparing to take advantage of market openings in the cargo sector. Delta is hoping to add six daily pairs of takeoff and landing slots at London’s Heathrow. The carrier is also adding five new routes this year, including flights from New York to Bucharest, Hungary, and Pisa, Italy, and from Atlanta to Dubai, Prague, and Vienna. The U.S.-EU pact takes effect in March 2008.

Furthermore, an aviation pact between the U.S. and China, reached in May, will give U.S. carriers rights to operate six new non-stop flights to China over the next three years. Delta is hoping to add an Atlanta-Beijing flight, and is applying to the Department of Transportation, which will make its decision over who gets what routes this fall. Delta is one of only two major U.S. airlines that currently offer no flights into China.

Industry analysts say the new accord will spur competition among air cargo carriers serving the Chinese market, opening up the market significantly by 2011. The accord also requires both countries to resume negotiations in 2010 with a goal to eventually forge an ‘open skies’ pact similar to the U.S.-EU agreement.

Like Delta, cutting costs was also part of NWA Cargo’s (www.cargo.nwa.com) strategy to successfully emerge from bankruptcy protection. The airline ranked as the most profitable U.S. airline during the first quarter of the year, and is pretty much on track with previous plans to upgrade its fleet. The carrier has secured contracts for the delivery of 14 Airbus A330s out of an original order for 32, along with 68 Boeing 787s, the first of which is set to arrive in a year. The Airbus A330s are mostly serving Atlantic routes and are replacing the carrier’s old DC-10s.

 

Don't count China out

Although air cargo carriers acknowledge the current overcapacity in the Asian market, there’s still plenty of activity and anticipation for the future. In August, UPS (www.ups.com) broke ground on a new air hub in Shanghai that’s scheduled to open next year. The 1-million square foot property, located at the southern end of the West Cargo Terminal Area at Pudong International Airport, will be able to handle 17,000 pieces per hour and will serve as a link between all of China and the UPS international network. Yangtze River Express, a Chinese all-cargo airline, will provide dedicated service from the facility to points within China.

Earlier this year, UPS placed an order for 27 Boeing 767-300 extended range freighters, which will be delivered between 2009 and 2012. The company said the wide-body 767 can be used on routes to and from Europe and Latin America as well as on lanes within Asia and Europe. 

FedEx (www.fedex.com) is also planning a hub in China, this one in Guangzhou. The carrier is closing its hub in Subic Bay, the Philippines, and will open the Guangzhou hub in December 2008. The transport hub will have a capacity of 179,000 express packages, or more than 1,800 tons per day by the year 2010. Guangzhou is considered a prime location for FedEx’s Asia-Pacific hub since the city serves as the gateway to the Pearl River Delta, a manufacturing region that accounts for 30 to 40 percent of China’s foreign trade. 

Meanwhile, FedEx Kinko’s also plans to embark on its most aggressive international expansion effort to date by opening 20 new centers outside the United States during fiscal 2008. The new centers will be focused in the Asia-Pacific region with 12 in China, four in Japan, two in Korea, and one in Australia.  In addition, one new center will be opened in Canada. Currently, the company has 159 locations outside the U.S.

“The tremendous economic growth of the Asia-Pacific region is fueling an increase in demand for our services,” said the senior vice president of international at FedEx Kinko’s. “As a result, we are almost doubling our current presence in China and enhancing our strong presence in Japan.” 

And while U.S. carriers are looking to expand market access into China, Chinese carriers are busy adding more routes to the U.S.

Jade Air Cargo (www.jadecargo.com) has started a twice-weekly 747 freighter service to Houston that originates from the carrier’s home base in the Pearl River Delta via Shanghai and Vancouver, British Columbia. The carrier (a joint venture in which Lufthansa Cargo hold a 25 percent stake) plans to eventually add a third flight each week into Houston. According to an executive with Jade Air Cargo, the carrier may alter the return routing to China with stops in Europe. Future plans are likely to include new routes to Chicago and New York.

Shanghai Airlines, which operates 747 freighter flights into Los Angeles, is also seeking possible expansion in to Chicago, while Yangtze River Express is serving the Boston and New York markets with its own 747 freighter flights. Other air cargo giants, such as Korean Air, are also plotting an expansion strategy with more flights from Asia to the U.S. While the news bodes well for shippers, the challenges of overcapacity continue to mount. wt

Sidebar: Anchorage Keeps 'em Flyin'

The Ted Stevens Anchorage International Airport prides itself on its strategic location-in just under nine and a half hours flying time, carriers can reach 90 percent of the industrialized world. It ranks as the world’s third busiest cargo airport and handles over 600 cargo plane landings from 25 international cargo carriers each week. What’s more, the airport has never had to close due to snow, and in the past 15 years has not closed once on account of inclement weather. In terms of economic contribution to the city, 15,776 jobs are connected to the airport, which amounts to roughly 1 in 9 jobs in Anchorage.

Anchorage is a primary stop-over for U.S.-Asia and other long-haul cargo flights. FedEx, UPS, and NWA Cargo all maintain key operations at the airport. The FedEx hub began operations in 1990 and now employs more than 1,350 employees plus a staff of 150 regulatory personnel. The hub operates 24/7 year-round, and more than 90 percent of all FedEx packages that transit Anchorage are pre-cleared through U.S. Customs before arrival.

Currently, the airport is in the midst of a $55 million project to expand air cargo facilities. Specifically, the project includes construction of a ramp to accommodate seven aircraft and a 29,000-square foot building for de-icing equipment and other cargo handling equipment. Kalitta Air will be the first tenant of the 41-acre Anchorage Global Logistics Airpark Development, which is part of the expansion project.

Trade between the U.S. and China continues to be an important economic driver for the city and airport. In August, officials from Anchorage and Beijing signed several agreements aimed at increasing the nearly half-billion dollars in exports Anchorage delivers to China annually. Last year, Alaskan exports to China totaled over $474 million, up from $337 million in 2005. Nearly one-third of the exports were seafood-a sector that has massive potential for growth in China. 

Anchorage officials are also hoping to attract free trade zone business from China. For instance, Chinese companies can fly goods and materials to Anchorage, perform manufacturing and final assembly in the free trade zone, and then pay duty only when the finished goods are withdrawn for distribution to the lower 48 states. 

Another agreement was signed between the Anchorage Economic Development Corporation (www.aedcweb.com) and its Beijing counterpart, formalizing a commitment to continue working together to explore trade and investment opportunities.