It is finally the weekend and time for me to catch up on some blogging. There are a few articles I plan to run through, some of which are just random stories on events in the Asia logistics world, and others more broad in nature.
The first story is via Cargonews Asia, written by Raymond Duan out of Beijing, and titled "China gives top priority to cargo traffic growth." Moving cargo by air is obviously one way China can temporarily adapt to the reality that building up efficient ground infrastructure takes a significant amount of time, and when driving forward with current initiatives aimed at opening "the West," air cargo can literally "carry the load" while ground catches up.
As Mr. Duan leads off:
China will take a phase-by-phase approach to opening its aviation market further in the next few years, with top priority being given to air freight, government officials said at a recent air cargo summit in Beijing. The minimum aircraft requirement for air cargo operators may be reduced to just one freighter and carriers with foreign investment would be allowed to apply for international flights.
That second line I highlighted is very interesting to me, as I believe such a move could create a more competitive yet fragmented industry. Capacity may increase substantially as the barriers to entry are lowered dramatically, but this could come at the price of logistics efficiency. It will at least be interesting to see how this plays out.
Quoting Chinese officials:
Liu Shaocheng, policy department director of the Civil Aviation Authority of China (CAAC), said China would set a ceiling for cargo rates as well as encourage airports to lower freight charges. "Both foreign and private airlines, in particular all-cargo carriers, will be encouraged to boost freight transport,'' said Liu.
It seems that setting a ceiling for cargo rates is aimed at increasing access to air freight services by those who, until know, have not been able to always afford it. At least air cargo firms will need to focus on reducing costs or adding peripheral, value-add services as a way of increasing margins versus raising prices. In this sense, it may force air cargo firms to seek new efficiencies, but hopefully not at the sacrifice of quality.
An example of entry into the international air cargo market is then covered:
Great Wall Airlines, based at Shanghai's Pudong airport, was the first foreign and domestic venture to take off with its launch on June 22. Great Wall Airlines is a joint venture between China Great Wall Industry Corporation, Singapore Airlines Cargo and Dahlia Investments, a wholly owned subsidiary of Singapore's Temasek Holdings. A joint venture between Shenzhen airport, Lufthansa Cargo and a German investment company, is expected to be launched next month. Several more ventures are in the pipeline.
China is not just thinking planes, but entire logistics networks:
"Priority will be given to the opening of the international air cargo transport market," Liu stressed. Air cargo operators will be encouraged to strengthen their service network, distribution centres, information systems, fleets and ground facilities.
Foreign firms have dominated, and will continue to be wooed by the government:
Sha Hongjiang, deputy director of the planning development and financial department of the general administration of CAAC, told the summit China would upgrade its airlines and airports and open its skies to more foreign airlines, particularly all-cargo carriers. Foreign carriers already account for majority of China's international cargo traffic. In 2005, foreign carriers, including Hong Kong and Macau operators, accounted for 76 percent of China's international cargo volume.
But like I mentioned above in regards to competition and margins, a Mr. Zhang concurs:
Zhang Zhifeng, cargo president of China Southern Airlines and general manager of Guangzhou Air Cargo Terminals, was optimistic of growth in international air cargo, estimating it to rise by 14 percent annually by 2010, but expressed concern about the number of carriers entering the international air cargo arena. "It will definitely arouse drastic competition and further thin profit margins,'' he said.
Clients may become more choosy and prefer "delivered as promised" operators instead of "flown as booked" ones, while shippers may increasingly outsource consignments to third or fourth party logistic providers, he warned.
Basically, Mr. Zhang is saying not only will he have to compete at higher service levels--"delivered as promised" vs. "flown as booked"--but also perhaps witness decreasing margins as logistics services are run through integrators such as 3PL and 4PL firms. This is a reality in Japan and South Korea as well and will gradually force increasing consolidation/partnership to improve profitability via added scale efficiencies and service offering diversification.
And that is just what Mr. Zhang has in mind:
Zhang said China Southern will expand its freighter fleet and enrich its cargo products on international routes. "China Southern will join the Skyteam Alliance to strengthen co-operation with foreign airlines," he added.
With ground inefficiencies as they are, there is also inefficient consolidation of cargo in the air prompting many of the above initiatives:
Wang Boxue, deputy institute director of the Aviation Industry Development Research Centre of China, told the summit that a shortage of freighters was forcing mainland carriers to rely too much on bellyhold cargo carried on passenger flights and limited China's air cargo growth. Freighters only handle 26 percent of total cargo and mail in the country, he said. "There is an urgent need for exclusive air cargo carriers, including those that carry oversized or heavy products," Wang said.
For a look at air cargo hubs that provide links into and out of China, please see one of my earlier posts.