China's air cargo industry is in need of radical changes if it is to compete with the rapidly developing international market, according to Zhu Qingyu, director of market research at the China Air Transport Association (CATA). Insiders added that the industry in China needs further integration within the international market if it is to meet rising challenges.

Zhu told a recent conference in Guangzhou that the integration of the international air market would bring about better control of air traffic, more efficient services, more advanced technology and a broader market base.

Despite a global jump in civil aviation transport over the past decade, Chinese carriers' market share of international cargo has declined.

The solution, according to Zhu, lies in consolidating and strengthening China's integrated supply chain networks. "Chinese companies are behind their foreign competitors when it comes to air-to-ground links," he said.

"China's air cargo industry has reached a critical point in its development," said Zhu. "China should follow historic trends closely, developing both the domestic and international markets, so as to satisfy needs at home and get a proper foothold in the global industry."

"Domestic airlines gain most when they maximise public interest on the domestic scene and commercial interest on the global scene," Zhu said, adding that this builds up both corporate power and social recognition.

Zhu further believes that the Chinese industry has not paid enough attention to market transactions, particularly regarding the domestic end of international routes.

"Precise information regarding landing and take-off times at airports account for some of the most valuable data in the air cargo industry. Information is competitive power," said Zhu.

He Zongkai, vice-president of China Southern Airlines, also believes that compared with the speed of the global trade growth, the air cargo market in China is lagging. Furthermore, between 200 and 300 wide-bodied aircraft are set to begin operations in the next few years, putting increasing pressure on operators.

Despite the Chinese government's encouragement of high-value exports, as well as expansion of imports, which will help to consolidate and expand sources of air cargo within China, the industry must still surmount many obstacles. These include rising fuel costs, which may lead many cargo owners to choose alternate methods of transportation.

He Zongkai also noted that local operators face further pressure due to the relaxation of policies and increased number of foreign operators who will be flying on similar routes as a result of the US-China air services agreement. This agreement will eventually remove all government limits on the number of air cargo flights and carriers that can serve the two countries.

In an earlier conference, US Secretary for Transport-ation Mary Peters estimated that the US-China air services agreement would generate some US$5 billion in new business over the next few years. She said that by 2011 restrictions on air cargo flights between the two countries would be erased, and by 2012, US carriers would be able to operate up to 23 passenger flights daily into China.

He Zongkai fears that this could lead to overcapacity on certain routes as well as a decline in revenues. The drop in air cargo rates in China is expected to be higher than the world average over the next few years.

To meet the challenges in lower cargo rates, China Southern is trying to secure more clients through value-added services, favourable rates, faster delivery times and better logistics solutions. The company is expanding its flights at both Guangzhou and Beijing and in the coming years will further integrate its air and ground services.

"We are building an air cargo network that mainly evolves from air cargo routes supported by passenger flight destinations," He Zongkai said.

He added that the company has placed orders for six Boeing-777 freighters and plans to add three more at a later date. The first of them will be delivered in November. A transformed A-300 freighter will be delivered this year as well.

The increased capacity will be backed-up by diversified products, improved marketing and efficient ground processing. Last year, China Southern increased its cargo volume by 6.5 percent to 872,000 tonnes.

Similar strategies are being carried out at China Cargo Airlines, according to vice-president Derek Chen. The company attributes the decline in market share to stronger input from ov.erseas airlines, smaller fleet size of domestic operators coupled with fierce over-competition, shortages in cargo sources on China-bound flights, as well as weak network and information platforms.

Chen said his company would increase its fleet, improve management, and build up network centering on Shanghai.