Freighter influx fails to clear Vietnamese backlogs

Freighter operators looking for markets to fill their planes at juicy rates could do worse than head for Vietnam – provided they can fly past bureaucratic hurdles. Vietnam’s airfreight market is on a roll, fueled by surging exports. According to consulting firm IMA Asia, the country enjoyed double-digit growth in exports in each of the past four years, with a compound annual growth rate of 25 percent. The country is now expected to average growth of 13 percent a year between 2015 and 2020, which would make it the star of Southeast Asia. Agility’s Emerging Markets Logistics Index, which was published in January, shows freight volumes between the U.S. and Vietnam soaring by 42.7 percent.

At the same time, Vietnam’s image as a provider of low-end goods is fading, with more sophisticated products that are complimentary to airfreight gaining ground. At a recent supply chain conference in Singapore, Richard Martin, managing director of IMA Asia, declared that the country now turns out US$25 billion worth of high-tech goods, up from zero just five years ago. He attributed much of this to the likes of Samsung shifting production over from Korea. The Korean electronics giant announced by the end of last year that it would invest $3 billion in Vietnam to ramp up mobile phone production there.

Even more of an impact overall on Vietnamese exports has been the migration of manufacturing from China to neighboring countries, especially Vietnam. The purchasing manager’s index, calculated by HSBC, indicates that this momentum accelerated in 2014.

Freighter operators have been eager to feed on this bonanza. The most recent international entrant was Turkish Cargo, which launched twice-weekly flights between Istanbul and Hanoi, with A330-200Fs, in May. The flights move via Delhi on the westbound leg, stopping in Tehran and Lahore, respectively, on the eastbound sectors. The previous month saw AirBridgeCargo begin twice-weekly flights between Moscow and Hanoi. The carrier’s 747Fs are routed via Hong Kong.

Despite the influx of international freighter operations, forwarders are still scrambling for lift, as capacity to a number of markets remains tight. “There is still a shortage of space for airfreight from both main cargo hubs of Vietnam – SGN and HAN airports,” despite the fact that the number of freighter flights has increased to more than 90 a week in total, reported Henry Dinh Huu Thanh, president of forwarder Bee Logistics. “Demand is still very high and space is tight, which leads to an increase in express airfreight demand. Rates are high, but it’s still not easy to get a space,” he added.

According to Dinh, the capacity crunch is most pronounced on the sectors to the U.S., Japan, Korea and Europe, with the backlogs for U.S.- bound cargo the worst. Airlines would love to boost their lift but are facing a slow-moving bureaucracy. “Some airlines want to increase more frequency but face difficulty in getting licenses,” he noted. He pointed to Cathay Pacific, which has applied for permits to ramp up its Hanoi flights from currently seven per week but is still waiting for the green light from the authorities. Sven Mueller, head of airfreight, Vietnam, at DB Schenker, reported that lift from Hanoi to North America had returned to normal, but from Ho Chi Minh City there were still challenges.

The government signaled this spring that it intends to boost air cargo activity, especially in key economic zones and remote areas. This is supposed to entail sweeping change in policies and administrative processes, the development of multimodal logistics capabilities, improved infrastructure and connectivity, and a framework to entice private investment in air cargo. Details have yet to be announced, though.

The current situation, coupled with the prospect of solid growth, offers an opportunity for local carriers. Vietnam Airlines, which recently took delivery of its first of fourteen A350 XWBs, has shown little inclination to venture into the all-cargo market, but low-cost carrier VietJet is bullish on this. Its management is looking to embark on freighter operations with a mix of 737 and A330 cargo aircraft, with the former providing regional feeder service and the latter operating on intra-Asian routes.

According to VietJet Cargo CEO Do Xuan Quang, this could get underway as early as this year. “In case VietJet will invest in a regional freighter solution, Schenker will support this. We believe this can be very successful,” commented Mueller. After an initial spell of leasing cargo aircraft, Quang intends to build up the carrier’s own freighter fleet. He is looking to team up with international carriers for longhaul sectors. These account for a substantial chunk of Vietnam’s airborne exports. According to Cargolux, which added a fifth weekly Vietnam frequency last December, about 48 percent of all exports from Hanoi are headed for the U.S. or Europe, and 33 percent go toAsian destinations. Out of Ho Chi Minh City, 50.5 percent of all exports move to the U.S. or Europe.