The announcement last month of the establishment of a new air services agreement between the US and China, which will more than double the number of passenger fl ights by 2012 and offer airfreight operators “greatly expanded commercial freedom” constitutes, for the air freight part of the deal, a lot of hot air.
“It is absolutely historic,” declared US Transportation Secretary Mary Peters in a conference call after reaching agreement with her counterpart, Chinese Minister of Civil Aviation Yang Yuanyuan. “We’ve achieved a breakthrough agreement that opens the way for more frequent, more affordable and convenient air service between China and the United States.” Peters added that the two countries agreed to begin talks in 2010 on an “open skies” agreement, something the American side had hoped to achieve in this round of talks, which formed part of the broader Strategic Economic Dialogue led by US Treasury Secretary Henry Paulson and Chinese Vice Premier Wu Yi.
Apart from the evident benefi ts for the passenger side of the industry, one has to question what is so “historic” about the deal for the folks who fl y freighters to China? Or better, those who manage to continue to fl y to China despite the fact that the air cargo rates are dropping out of the sky because of a massive overcapacity.
In fact, several cargo airlines are scrambling to adjust their networks to this part of the world with some of them, including Lufthansa Cargo and Martinair, moving capacity to the transatlantic and Latin America where the rates are slightly better.
Admittedly, the lifting of all government-set limits on the number of cargo fl ights and cargo carriers serving the two countries will only become effective by 2011 and by then exports (and hopefully some imports into China) may have resumed their healthy growth, but the signs are not encouraging.
As long as there are some bucks to be made by, what one industry veteran describes as “predators”, the over capacity will remain, or possibly even increase.
Far from being predators, new entrants will also include the established Chinese carriers – Air China, China Southern and China Eastern – who have seen the Chinese air cargo market being dominated by foreign carriers in the past ten years and are now demanding their part of the pie. Ironically, the issue of market share is becoming increasing fuzzy as all three carriers are involved in various stages of joint venture talks with European and Asian carriers, exemplifi ed by the successful Jade Cargo alliance between Shenzen Airlines and Lufthansa Cargo.
If and when Cathay Pacifi c, Air France/KLM, Korean Air and Singapore Airlines, just to name the main players, manage to set up their respective joint cargo operations with the three leading Chinese operators, not much imagination will be needed to predict that thousands of additional tonnes will fl ood an already saturated market. Whether all these new ventures will be able to follow the example of Lufthansa Cargo, which has allowed Jade Cargo to start European and transpacifi c services, while shifting some of its own freighter services to other parts of the globe, remains to be seen. At the end of the day, one must assume that the pressure on rates and yields will remain.
Add to this fl ood of capacity, the belly holds of existing combination carriers plus the expected new US entrants in the Chinese market, such as Delta and US Airways, and the “historic” claims by Ms Peters should be taken with a grain of salt, particularly as far as air freight is concerned.
As with the fl awed "Open Skies" agreement between Europe and the US earlier this year, the main benefi ciaries of the new China-US air services agreement are likely to be the US integrators, FedEx and UPS, which will be further expanding their networks in China and offer additional capacity to the market.