As the recent trickle of reports of improved results from Asian airports and carriers gained momentum and converged with word of charter inquiries from the likes of Apple and Sony in preparation of new product launches, the spring seems to have returned to the step of many industry executives. Suddenly, there is talk of a proper peak season out of Asia again, after many had given up the concept for dead.
Thomas Mack, senior vice president and head of global airfreight at DB Schenker, does not share this optimism. “I do not expect any large peak surge in volume,” he says, adding that the much-hyped new product introductions in the smart phone and entertainment electronics segments have not had a profound effect on the market.
After declines in airfreight traffic during the first half of the year and modest gains in July, August and early September, Mack expects to see small growth for the remainder of 2013. He does not anticipate serious capacity bottlenecks. “There is still capacity in the market,” he comments. Only some sectors pose challenges to find lift.
Whereas demand has staged a modest recovery after a sustained period of decline, capacity has been expanding thanks to the arrival of the 747-8 freighter and the proliferation of B777s in passenger service. The latter development has eroded demand for freighter capacity, but the volumes shipped out of Asia’s major gateways, such as Shanghai and Hong Kong, cannot be carried by passenger planes alone, so there remains a need for freighters, Mack says.
So far, DB Schenker has retained its five dedicated freighter routes, which include two Asian sectors – from Hong Kong to Chicago and on to Sao Paulo, and a return service between Shanghai and Frankfurt. When the first of these contracts expire in 2014, they will come under critical scrutiny, Mack says – not that he questions the concept, but to see if they remain attractive on price.
“It is still a unique selling point if you have dedicated capacity. The quality differential is there. It is only about cost,” he explains.
DB Schenker has reduced its block space agreements and fixed allocations to take advantage of better pricing on an ad hoc basis. However, this has not removed traffic from the group of preferred carriers that the company uses. Shifts have been within this group, as some of these carriers responded faster than others to changes in the market, Mack says.
On the intra-Asia lanes, he has noticed a shift from electronics to consumer goods. In part this is driven by the rise of online shopping, a sector that Mack views as hugely promising in the future. To some extent, though, the growth of consumer goods’ share of the intra-Asian airfreight volumes overall is due to the migration of electronics traffic to slower modes brought about by new developments there, he adds.
“Today, there is regular trucking between Singapore and China, which did not really exist two years ago,” he says.
Rail freight, on the other hand, has not made much headway within Asia, whereas it has grown from China to Europe. In August, DB Schenker ran its first train service from Zhengzhou, China, to Germany, opening a new connection to central Europe with a 15-day transit window.
There is also a rail-air service, which moves the cargo by land from China to Central Asia for transit to freighter flights to Europe. Mack calls it a niche product with negligible volumes so far. The yield erosion in airfreight over the past two years has narrowed the price differential, undermining the appeal of the slower alternative, he says.
Predictably, pharmaceuticals have been going strong for DB Schenker in Asia and look set to continue their momentum. The much-hyped aerospace industry in China, on the other hand, is not yet an engine for growth in airfreight.
“I don’t see yet much shift of aerospace production to Asia, but it will happen,” Mack says.
In the coming year, the logistics firm is looking to boost its footprint in Asia further.
“We will continue to expand our network in Asia,” Mack says.
In some locations, new branches will open up, in some countries where it is today represented by local agents, the logistics giant is looking to establish its own country organization, often by taking over the existing partner, he adds.