Crucial to any discussion of the future of air cargo is Asia, reminded Andrew Herdman, director general of the Association of Asia Pacific Airlines (AAPA) as he highlighted the significance of the region to the sector. In particular, he noted that a third of the cargo industry now touches China in one way or another.
“Th e future’s continued growth will be in Asia, it’s a huge market, so Asia is going to be at the forefront of those developments both in terms of the sourcing front, but also as a destination market where consumers are located, ” he said. Like the growth in the Asian air passenger sector which is being driven by outbound travel, meaning it’s not just a destination anymore, so too for the consumers of Asia.
This means, he went on to say, that when we talk about logistics and in particular, multimodal competition, it’s important to not only think of Asia as a factory that ships to North America and Europe. Asia is increasingly the source of consumers who want to buy consumer goods, IT gadgets and luxury goods.
“We have to think of growing numbers of consumers in Asia and a lot of the logistics investments are to serve their needs, revolutionising retailing, logistics, warehousing, and ground transport. ” Far more than simply manufacturing, it’s also about the development of markets. “So when you’re in China you’re struck by the spread of the retail malls – the logistics behind that is the untold story of logistics development in Asia, ” Herdman said.
Air versus ocean
“I think what is interesting is if we had this meeting 10 years ago we would’ve talked about two products – there would have been ‘air’ and there would have been ‘ocean’, ” says Thomas Riber Knudsen, CEO, Damco Asia. Air he notes, was anywhere between 2-7 days, possibly a little bit longer in some cases and then you’ve got ocean which at that time was 25 days.
“Air hasn’t moved a lot since then and ocean has become 40 days. At the same time our customers are going the other way, so instead of having warehouse to warehouse they’re now looking at different business models. Some of that is going into a warehouse for distribution, but a lot of companies are now starting to look at final mile delivery into e-commerce.
“If we just take the mobile phone industry the phone which is now one-year old is going by train instead of by air and if it’s three years old it’s going by ship. So you’ve got all these different mixes from the supply chain and I think this is really the interesting part of what is happening now, ” Knudsen added.
But significantly he doesn’t see air and ocean as competing products – different products yes, but competing no. “I sometimes struggle with the supposed conflict between air and ocean because if we are just taking Shanghai to Europe by ocean, we’re talking about an average transit time of 32-35 days. Th en you add three days of operations at either end so we’re talking 40 days port-to-port compared to an air product. I realise there are some crossover products, but I see that is a very different kind of product, ” he said.
Extending this further he cited the example of looking further down the Yangtze River to Chongqing and Chengdu which would take 10 days to get to Shanghai by barge which would then extend the transit time to nearly 50 days.
“Clearly that’s very different products that are moving in these corridors, so I don’t necessarily see it as competing for most of what is happening. ”
An integrated approach
Giving a European example Steven Verhasselt, business development manager, Liege Airport noted the benefit of being an all-cargo airport is that planning from the very beginning took into account integrated logistics. With TNT establishing its hub at Liege a number of years ago, substantial infrastructure and services were built up which tended to attract other companies to the point now where the airport handles 600,000 tonnes of cargo a year.
“And 600,000 tonnes of cargo, it doesn’t all fl y. It arrives by truck, it goes out by truck and we’ve been working on a project for 15 years – a high speed cargo train network that would connect CDG, Liege, Amsterdam and Cologne, ” he says. Unfortunately, because it involves government-run railways the plan has never quite moved to reality. ”
Europe’s roads are congested and there is a need to get trucks off the roads. Rail would help as would some degree of multimodal by river using barges from Antwerp into Liege, which Verhasselt notes the airport actually does but only in very small volumes.
“Today as far as multimodal is concerned, it’s tail-to-tail inside the airport, truck-to-airplane and airplane-totruck – we connect to the world by plane and we connect to Europe by truck, ” he said adding that a “little bit” is going by rail and even less by river. “We want to improve it, but we’re only the airport.”
From the beginning the design of the airport was premised around modal integration to ensure that the freighters can park nose into warehouse on one hand and on the other hand all the warehouses are easily connected to enable the cargo to pass through as quickly as possible to get it on the road. Th is multimodality was also build with the rail in mind, with a rail cargo terminal at the airport itself.
According to Verhasselt, Liège’s masterplan solidly revolves around cargo, “it’s all about airfreight number one and number two logistics and everything that comes with that can help to develop this airfreight. ”
He notes that this is has attracted the attention of companies in Asia, citing the example of SF Express who have received approval to build their own airport in China somewhere close to Wuhan and have been tapping Liège’s expertise. “They have been to our airport to see what we are doing and we are acting as advisers to them in the master planning of their airport, ” Verhasselt said.
This type of strategy is also being planned for the new Istanbul airport according to Halit Anlatan, VP, Turkish Cargo. “Th e new airport will enable us to increase in a sustainable way our tonnage and allow us to handle cargo volumes up to six million tonnes a year, ” when the hub is completed.
Th e hub will also cater to multimodal connections and while Anlatan notes Istanbul is not an airport hub like Dubai, Singapore or Hong Kong which are all connected to the world by sea, “we are also connected to the sea but it is not an open sea like the other airports. So we can use this airport for the Black Sea connection from Istanbul to do some eastern countries like Romania, Bulgaria, Ukraine, Russia and also Georgia, ” he said.
Currently Turkish relies on multimodal transportation, combining flights to 84 cities in Europe with trucking services from those points and it’s also using trucking to reach other eastern countries like Serbia, Hungry etc.
The rail story
Rail freight rail services, while struggling to fully gain momentum in Europe, have made substantial progress from China to Europe. These freight services are now established from three main hubs in China – Zhengzhou, Suzhou and Chengdu, spanning across central, eastern and western China. These routes make their way into Europe by one of two primary routes – the West Corridor which essentially follows the old Silk Road and the North Corridor which follows the old Trans-Siberian Railway after leaving China.
While a number of forwarders are using these services to move a variety of commodities including high value pharmaceutical products and electronics, Knudsen cautions over believing too much in the rhetoric of the service providers. “If you look at 14 days I’ll still have to see that before I believe it, ” he says.
“That’s probably realistic from rail head in China to rail head in Moscow, but to believe they can do 14 days from railhead in China to a distribution centre in central Europe, in my view it’s not realistic based on what we’ve seen. ” He adds that 22 days is a more realistic figure, “so there is a differentiation” from air.
But what Damco is seeing, according to Knudsen, is more people looking at the trade-off s, more people coming with both full container loads – 40 foot containers – but also LCL (less than container load) loads into central Europe. “So there’s getting to be more of a balance between different products and air and ocean. ”
He points to Zhengzhou in east-central China as a good example because of the fact there is both an airport and railway in the same location and therefore having LCL consolidation warehouses etc. “It makes a lot of sense because of the dual modes and the same goes for the big ports Hong Kong, Shanghai and so on, but we also look at the location of the manufacturers when we look at where we place are our assets, ” he said.
But it’s also getting a lot more complex he notes. While primarily the goods are being shipped from Asia to Europe or North America, now the customers are coming to the forwarders because of a growing customer base amongst China’s population of 1.4 billion. As a result, says Knudsen, “our traditional warehouse locations are not necessarily where they would be in the future and we’ve got to be a lot more oriented towards customers rather than just the manufacturers. ”
Asian road network
The growing road links within Southeast Asia are also fostering another modal opportunity, that being road transport which now opens up the ability to truck cargo from Singapore through to China.
Indeed, Damco is now trucking what Knudsen says is a substantial amount of cargo from Myanmar, Cambodia and Laos across the border into Thailand to use Bangkok as an export air hub. The question is he says, as intraregional trade grows will this cargo be flown, or will it move by truck.
“It’s not clear yet how things will develop, but I do think we’ll have to let it be driven by our customers, because our customers are ultimately the ones who will decide which is the best supply chain for them. I think if we can give them the options that will help facilitate trade that should, long term, be good for us whether you’re ocean, air or something else. ”
He also noted that the trade intensity in Europe is 13 times that of China, meaning that if you have a product, it goes back and forth across the borders of Europe up to 13-15 times. Th at hasn’t been the case in Asia in the same way because of border issues, distances and infrastructure.
“What happens 25 years down the road? ” he asks. “Will we see the same trade intensity as Europe and the US? Th at could be a huge opportunity for air, ocean and rail and so on, but it very much depends on the regulations of governments, but I can see it going both ways and the trade becomes the opportunity to to see even more inter-regional and global flows as a result. ”
But Herdman cautions there’s a lot of work to be done on cross-border processing and the Bali Agreement on Trade Facilitation was a big step forward as is the recent announcement of the Trans-Pacific Partnership (TPP). Th e TPP still must be ratified by the 12 signatory countries which together represent 40 per cent of global GDP, but it is another big step forward, in part Herdman says, because it’s not just about tariff s, but also has elements of cross-border formalities, business visas, etc.
Threat or opportunity
Traditionally there has been big airport infrastructure in Hong Kong and Singapore and places like Frankfurt in Europe, notes Knudsen, adding: “If you were looking today, or even five years out we’re starting to get airports like Zhengzhou, Chengdu, Guangzhou and so on, coming up.
“Not only do you have the traditional seaport to airport, but you also get a mix of more inland in China which is being driven by various government policies and that is also creating more multimodal opportunities.
“So for instance in Zhengzhou is being driven by the rail, but is also being driven by air infrastructure, so today we truck cargo from northern Vietnam all the way into Zhengzhou to connect to the rail link, or the air link into Europe.
“We’ve even looked at flying cargo from North Vietnam and then putting it on the rail. So we now have endless opportunities to do air-rail, rail-air, sea-air, air-sea and trucks at the end of everything. ”
Pointing to this diversity and flexibility that exists in supply chains today, Jim Edgar regional director cargo marketing, Boeing Commercial Airplanes cautioned, “not to get too segmented in our thinking, ” saying it’s all about efficiency and profitability for the entire supply chain.
“We have to be very, very nimble. Our most successful customers, operating very expensive airplanes are those following the market. They follow where the trade is going that has to be primary, we have to keep all of our options open, ” he added.
In agreement Herdman added that: “There’s always a role for air cargo, but we can’t be complacent because it’s not a static world. ” The products, where they’re manufactured, the people who want to ship them and where they want to ship them are all changing, he notes.
“So you’ve got to be adaptable and that’s what keeps the airlines on their toes. ” “I think the traditional perspective of either air, or ocean is not sustainable, ” said Knudsen, “because we’re seeing a lot of customers who are saying they will move to because they’re nearer to the markets in Europe and because they can’t live with the high cost of the supply chain when they need to fl y their cargo, so they move to get close to their markets.
“I think having complementary supply chains with different transit times, whether it’s one day or it’s 45 and in something in between, might enable the retention of manufacturing in lowcost areas like central China. When it comes to air versus rail – which I think is the right place to look, we see them as complementary for customers because they will often be looking at both modes for their different products. ”