Ian Putzger finds out more about the growing cargo appeal of central and western China.

China’s westward drive to spread development from the country’s coastal region to the interior appears to have acted as the catalyst for international cargo development.

Last December, Kashgar joined the ranks of China’s aspiring cargo gateways with the launch of freighter service to Islamabad, courtesy of Rayyan Air.

The authorities in distant Beijing bestowed special development zone status to the area, coupled with an investment package for infrastructure development.

It remains to be seen if, and how soon, Kashgar will emerge as a significant gateway for international cargo flows. What is beyond doubt though, is that the government’s ‘Go West’ campaign is drawing international freighter operations to new entry points.

“We have been talking about the western region for ten years. This is the first year that we are seeing solid results,” remarks Titus Diu, chief operating officer of Air China Cargo, the recently minted joint venture between Air China and Cathay Pacific.

The migration of manufacturing from the Pearl River and Yangtze River deltas has stretched supply chains and transit times for international airfreight shipments, generating a growing demand for flights to points closer to the emerging production centres in China’s interior.

According to freight forwarders, there is no clear pattern of settlement, as provinces and cities compete aggressively for business, and investment is driven by incentives rather than logistics considerations.

Nevertheless, a number of strong gateway candidates has emerged. Having attracted multi-national IT giants like Intel and Hewlett Packard, Chengdu and Chongqing are widely regarded as the front runners, followed by Zhengzhou and Wuhan.

“Chongqing, Chengdu and Zhengzhou are becoming more prevalent,” notes Michael Drake, managing director for the Asia-Pacific region at TNT Express.

TNT was the first international operator to mount scheduled widebody freighter service to Chongqing, which kicked off at the end of last October. The express company runs three B747-400F flights a week between the Chinese city and its European hub in Liège.

“We went there on the back of a few clients. It’s not a massive market, but it’s growing rapidly,” Drake says.

Large multi-national logistics providers are also moving in. Having set up a branch in Chengdu last year, Panalpina opened an office in Chongqing in February. Air China Cargo is looking to increase its sales presence in the city, Diu says.

Chongqing’s international cargo volumes soared 580% year-on-year to 18,000 tonnes in the first four months of this year. In May, Chinese cargo airline, Yangtze River Express, started a twice weekly B747-400F flight from the city to Luxembourg via Moscow.

More carriers are expected to move in, spurred by the announcement in May that PC manufacturer, Acer, will follow the lead of Hewlett Packard, Foxconn and Cisco and open a manufacturing plant in Chongqing.

Initially, TNT could not maximise the B747-400’s payload, as Chongqing’s runway was not long enough, but it has since been extended, a move that reflects the airport authority’s determination not to lose momentum.

“We are working with an airport authority that wants to make things happen,” Drake comments.

In June, the airport announced plans to build a 1.8 million square feet cargo terminal to accommodate projected growth. According to estimates from the Chongqing Economy and Information Technology Commission, some 30 million laptops will
be produced in the city this year, with one-third of them likely leaving by air.

Chongqing’s business development group is aiming to increase IT production capabilities to produce 80 million laptops and 50 million cell phones by 2015.

Air China Cargo added Chengdu to its freighter network in April with a twice weekly B747-400F run from Milan, which continues to Shanghai, one month after Korean Air mounted freighter flights from its Seoul base via Chengdu to Europe.

“We carry cargo from Chengdu to Shanghai and on to North America. This has helped with our operation, increasing loads out of Shanghai both on freighters and passenger flights,” says Diu.

Zhengzhou’s first foray into the international arena was short-lived, but it is about to be revived. AirBridgeCargo Airlines had launched B747-400F flights to Europe via Moscow last September, but suspended the operation after a few months, citing lack of capacity at the airport’s warehouse.

However, the opening of a larger cargo facility in early August has technically paved the way for the service to be relaunched, according to Robert Song, vice president for the Asia-Pacific region.

“We have two planes in D-check at the moment, which are due back in August. Then we will resume Zhengzhou flights, starting with three flights per week,” he says.

Christian Hein, vice president for airfreight for Asia-Pacific at forwarder DBSchenker, sees good potential in the area. “Zhengzhou will be coming up,” he comments.

And he could well be right because it appears as if quite a few leading international cargo carriers are waiting for the “right moment” to launch services to China’s up and coming gateways.

“We are looking at it closely. It’s all about timing. If you move in too early, you lose your shirt, if you’re too late you miss the boat,” remarks Robert Van de Weg, senior vice president of sales and marketing at Cargolux.

“There are a few big shippers that have moved over, but compared to the massive volumes in the Yangtze River Delta, this traffic is still relatively small. They are trendsetters, but we don’t see the volumes yet to drive the market,” he continues.

One concern is the imbalance in traffic flows. “The question for carriers is what cargo they can get on the import side. These points are export-driven,” notes Charles Kaufmann, senior vice president for airfreight, North Asia Pacific at DHL Global Forwarding.

Over the past year, the gap between imports and exports has shrunk, propelled by Chinese consumers’ growing appetite for luxury goods and brands from overseas, particularly European brands. However, the consumer markets in the coastal areas of China are vastly larger than those in the emerging manufacturing centres in the interior.

For his part, Drake stresses the industrial component to generate incoming volumes. “Manufacturing needs input, which will drive inbound traffic. We see that in Chongqing,” he says.

For all the recent momentum, inbound yields are still significantly lower than margins on exports to Europe or North America. Faced with the prospect of load factors in the 60-70% range in the sluggish days after the lunar New Year holiday,
Chinese airlines cancelled a number of freighter sections to North America, even though freight was piling up on the other end.

In the new markets in China’s interior, the advantage lies with the Chinese airlines, as they can feed traffic from the up and coming production areas to their international gateways, as Air China Cargo is doing.

Moreover, they can utilise their domestic passenger flights to ferry cargo between gateways and emerging manufacturing points.

Cathay Pacific has tried to tap Chongqing traffic with all-cargo charters, supplemented with bellyhold lift out of the city and other emerging production centres by its sister company Dragonair.

Belly capacity is limited, though, as Dragonair operates chiefly A320 aircraft, admits Nick Rhodes, director and general manager of cargo at Cathay.

“We try to upgrade our passenger flights to those cities to A330s, which can carry a lot more cargo, but there aren’t that many in Dragonair’s fleet,” he says.

However, both Cathay and Air China Cargo have run charters to Chengdu on a regular basis. “We are thinking of serving Chengdu with scheduled freighters, but we have not worked out the best approach yet,” admits Diu.

Rhodes sees benefits in a scheduled Chengdu freighter, but points out that the bureaucratic hurdles make this a somewhat challenging process.

Asia-Pacific Airports 2011 Issue 2