Yields on freighters may be down, but handling cargo in China remains a feast

Lufthansa Cargo hardly could have imagined Jade Cargo International would become a partial ACMI business when it launched the Shenzhen-based freighter offshoot. But yields in the China market had declined to a point where it made more sense for Jade Cargo to wet-lease one of its 747-400 extended range freighters to Singapore-based cargo airline Jett8 than attempt to fill the aircraft itself.

Ground cargo seems to fare better than air freight for LH Cargo. Shanghai Pudong International Airport Cargo Terminal, the handling company in which the German carrier holds a 29 percent stake, has shown meteoric growth since its inception in 1999, rising from 689,460 tonnes handled in its first year to over 1 million in 2007.

The outfit handles close to 50 percent of Pudong's throughput, and is poised to expand further. In addition to the two terminals located at the airport's original two runways, a third PACTL facility was built on the west side next to the third runway, and new carriers have come on board. The most recent additions were Hong Kong Express and Gulf Air, which moved into PACTL's terminal in June.

Last year, Shanghai claimed the fifth rank in the international cargo airport hierarchy, thanks to a 15.5 percent surge in volume to nearly 2.5 million tonnes. According to projections by the Shanghai Airport Authority, throughput will climb to 3.7 million tonnes in 2010 and 4.5 million by 2015.

Nils Haupt, head of LH Cargo's corporate communications, rejects descriptions of PACTL as a license to print money but concedes it has been very successful for the stakeholders. Indeed, LH is spreading its handling activities in China to a third spot.

In addition to Shanghai and Shenzhen, LH Cargo set up a joint venture handling business in Tianjin with Hua Yu Air Cargo Terminal at Tianjin Airport. The facility can handle 360,000 tonnes a year initially, with adjacent space to more than double its footprint, said LH Cargo. The German carrier has a 46 percent stake in the venture, a reflection of its expectations in Tianjin, regarded as China's up and coming northern gateway.

Interest Parties

Korean Air Cargo thinks highly of Tianjin. Besides picking the city as the home base of its joint venture cargo airline with Chinese partner Sinotrans, KAL formed a joint venture handling company - also with Sinotrans, plus Korean and local partners - at Tianjin.

Under a 20-year contract, they've earmarked close to $44 million for the development of the facility, which is scheduled to come on stream in the second half of next year.

Multinational handlers are pushing into Asia as well. With a stake in the development of the airport's cargo infrastructure, Menzies Aviation secured a 15-year concession for the cargo warehouse at the new Hyderabad International Airport that opened in March. Singapore Airport Terminal Services struck a deal with Air India last year for a cargo-handling venture at Bangalore. Swissport is entrenched in Singapore and Seoul, while Worldwide Flight Services set up shop in Bangkok. Both Swissport and Worldwide Flights Services have signaled their intention to expand their footprint in Asia.

Increasingly, these multinational outfits can point to multi-station agreements with airlines, a step that promises uniform service standards across a network, they claim. Moreover, many carriers regard the expansion of these handling behemoths as a welcome fresh air of competition to end the stranglehold of duopolies at most of Asia's large gateways.

Slow Going

Progress for handlers in China is not likely to be swift. "A real liberalization and deregulation of the market could not take place everywhere. There are still too many reciprocity agreements in place," said a spokesman for Swissport.

Anthony Wong, managing director of Hong Kong Air Cargo Terminals, does not see a trend towards a significant expansion of multinational handlers in Asia. "Swissport is only in Singapore and Korea, and Worldwide Flight is only in Thailand," he said. With a few exceptions, Wong said, handling in the region is likely to remain in the hands of government-owned entities or the national carriers

HACTL will face increased competition by the second half of 2011, when Cathay Pacific's cargo terminal in Hong Kong is scheduled to come on line. Hong Kong's dominant handler - it commands about 75 percent of the airport's throughput - is looking to spread out to other airports and has held exploratory talks, but this is not going to happen soon, Wong said.

JAL Slimmer

The JAL Group will cut back international cargo flights as part of the company's plan to improve profitability and increase competitiveness in a very difficult market.

The Tokyo-Anchorage-New York-Tokyo route will be sliced from six to three 747-400 freighters flights per week, while the Tokyo-Los Angeles leg will be reduced from seven to six 747-400 weekly freighter flights, Japan Airlines said.

One freighter aircraft routing will be suspended and two new routings will be added. The weekly Tokyo/Kuala Lumpur/Manila/Osaka/Tokyo flight will be suspended indefinitely, while a Tokyo-Singapore-Bangkok-Nagoya-Tokyo routing will be added in late October, as will a flight between Tokyo, Taipei and Nagoya.

JAL's cargo numbers have been sagging for some time. International cargo traffic for the first quarter of 2008 dropped 2.8 percent, including a 3.2 percent drop in traffic in June, and has fallen every year since 2005.