PACTL targets China’s growing appetite

China’s growing appetite for fresh food and pharmaceuticals is prompting Shanghai Pudong International Airport Cargo Terminal (PACTL) to take a bigger shot at the perishables market. The handling company’s coolers and freezers at Shanghai Pudong Airport are adequate to handle present volumes, vice president Lutz Grzegorz says, but good growth prospects in this segment have prompted management of the Sino-German venture company to draw up plans for a perishable center with ambient climate control capabilities.

“I think in the coming years, pharmaceuticals will continue their disproportionately high growth,” he says.

Various drafts for the facility are ] under the microscope, and Grzegorz hopes to have the planning process completed by the summer to commence construction, so the perishables center can be ready in summer 2015.

Interest in premium handling services is high among PACTL’s clientele, 46 airlines including Lufthansa Cargo, Cathay Pacific, Emirates, Air France-KLM, Air China and American Airlines. However, their appetite for elevated service levels is hampered by their financial situation.

Last summer, PACTL introduced a premium offering that features faster handling times, dedicated staff and equipment and the option for clients to use their own branding. The concept evolved out of communication within the handling firm as well as with various clients on how to maximize performance and service levels. It has been met with lively interest but also with hesitation over paying a premium commensurate with the elevated service level, Grzegorz reports, pointing to the depressed yields of the airlines. Prompted by some carriers, PACTL is looking into the possibility of tweaking the offering into several modules that could be sold individually, but Grzegorz has reservations about diluting it too much.

Another service improvement launched in 2013 also struggled with market conditions. PACTL has been running road feeder service to altogether 36 points in China, reaching as far west as Urumqi in Xinjiang province. Many destinations are served on an ad-hoc basis, but on nine routes trucks operate on schedule. The latter include Nanjing, Qingdao, Hangzhou and Suzhou. Trucks are given flight numbers and equipped with GPS.

Airfreight trucking is on the rise in China, fueled largely by the growth in domestic volumes. As many routes within China are served with narrow-body aircraft, this opens opportunities for trucks, Grzegorz remarks.

In 2013, PACTL decided to develop the scheduled network further out of its own pocket by subsidizing the conversion of some sectors to regular service in an effort to stimulate growth. The results were mixed.

“On some routes, traffic is good and you can do scheduled trucking. Other routes show large fluctuations from small loads one day to full truckloads the next day. You cannot do network planning with that,” Grzegorz says.

As a result, PACTL stopped its push to add scheduled trucking routes for the time being.

“The airlines are under huge pressure,” observes Grzegorz, adding that this makes it tough to sell premium services. “This means you have to improve productivity, and you have to have your costs under control.”

PACTL has upgraded its handling management system over the past two years. This enables the handler to embrace new technologies, such as RFID when this becomes viable. IT software also has the capability to run simulations of bringing on new customers with their number of flights and aircraft types.

This came in handy with EVA Air, which switched over to PACTL in mid-October 2013. The Taiwanese carrier runs four freighters a week through Shanghai, besides 20 weekly passenger flights using various aircraft types, from MD-90s to B747 and 777 equipment.

EVA’s arrival helped boost PACTL’s volumes to scale new heights in the final stretch of 2013, which made up for slow international traffic earlier in the year. The handler’s tonnage in December 2013 was up 13.3 percent, marking four months of steadily increasing gains, which brought the tally for the full year to 1.25 million metric tonnes, up 3.7 percent from 2012.

The surge in exports tilted the balance toward outbound cargo, after previous months had produced a near equilibrium of imports and exports. For the most part, this is origin and destination cargo; transit still plays only a small role at Pudong, but Grzegorz expects this to pick up over the coming years.

As production – and some airfreight volumes – have shifted to China’s interior, PACTL is looking at the possibility of setting up shop at one of the emerging gateways to the west, but there are no concrete plans at the moment.

“You need to have the right local partner,” Grzegorz says.