AIRFREIGHT IN THE ASIAN POWERHOUSE

Editor: James Graham

Associate Editor: Chris Lewis

Director of Operations: Kim Smith

International Sales Director: Rosa Bellanca

International Sales Executive: Zainab Khalid

Finance Manager: Rachel Burns

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Directors: Norman Bamford • Dawn Jolley

The Asia-Pacific (APAC) region, although lacking a definitive dictionary definition, encompasses countries in East Asia, Southeast Asia and Oceania that are situated near the western Pacific Ocean coastline. The term gained popularity in the late 1980s in commerce, finance and politics. Despite the diverse range of economies within the region, many individual nations are classified as emerging markets and are experiencing rapid growth.

Within the Asia-Pacific region, there are three prominent airfreight gateways: Singapore, Hong Kong, and Shanghai. These world-class gateways, three of the top 10 cargo airport operations and the world’s number one gateway Hong Kong, serve as crucial hubs for air cargo transportation to, from and within the region.

In contrast to the weakening transatlantic corridor, the outbound cargo market in China has shown resilience this year, bouncing back from global market downturns earlier in 2023. Supported by positive manufacturing activities in the country, with expanding Purchasing Managers’ Index (PMI) readings for two consecutive months, cargo volumes from mainland China grew by 30% from February to March, experiencing only a 2% decline compared to the previous year. However, the growth of air cargo capacity outpaced the growth of volumes. For example, the capacity from mainland China to Europe saw a 63% increase compared to the previous month and a substantial 155% increase compared to the previous year in March.

In March, the airfreight spot rates from mainland China to the United States and Europe were $5.07 per kg and $3.65 per kg, respectively. These rates represented a 7% decline compared to the previous month and a significant 43% decline compared to the previous year. It is important to note, though, that for both corridors, the downward pressure on rates started to ease from the second week of March, resulting in more stabilised rates until the end of the month.

Looking ahead, Hong Kong is expected to experience a boost in air cargo as the government eases a ban on transhipments of e-cigarettes and vape products via the city. This restriction, which was implemented in April of 2022, had prevented approximately 10% of Hong Kong’s annual export volumes in cargo.

Boeing’s forecast indicates that global air cargo will grow at an average compound rate of 4.1% per year over the next two decades.

The robust market growth in East Asia, the acceleration of global e-commerce and the evolution of supply chains are expected to be key drivers of this growth. Moreover, the pricing ratio between air cargo and maritime containership cargo transport has reached historically low levels since early 2021, further enhancing the advantages offered by air cargo. This is particularly important to airfreight operators in the region as sea, sea/air shipments through the Middle East and surface modes such as road and rail and even coastal shipping all have major roles to play in the region’s logistics and freight business.

Off the rails

Rail transportation provides a cost-effective alternative to airfreight and a faster option than shipping by sea. The New Silk Road, a modern rail link connecting Western Europe to China, is gaining traction. However, progress on this alternative route has been hindered by the impact of the war in Ukraine and international sanctions against Russia. A significant portion of the route passes through Belarus and Russia, which are affected by these geopolitical factors.

Sanctions against Russia have resulted in businesses refraining from transporting goods by train. Several freight forwarders have ceased transporting goods over the northern part of the New Silk Road. Even for those continuing to use this route, insuring the goods may pose challenges.

Home, sweet home

The Asia-Pacific region is home to a population of 2.57 billion, with China alone accounting for 1.4 billion people. This demand, both for manufacturing products and domestic, consumer products, fuels much demand for airfreight in the region.

Among the top cargo airports globally situated in the Asia-Pacific region, Hong Kong International Airport (HKG) stands out as the world’s busiest airfreight airport, handling 4.1 million tonnes of cargo last year. Other notable airports include Shanghai Pudong International Airport (PVG); Incheon International Airport (ICN) in South Korea; and, Taiwan Taoyuan International Airport (TPE), which serves as the main international airport for Taipei and northern Taiwan. Additionally, Tokyo Narita International Airport (NRT) is one of the two international airports serving the Greater Tokyo Area.

On the other side of the Pacific, Los Angeles International Airport (LAX) plays a significant role as a major cargo airport, serving Southern California and partnering with Asia-Pacific countries to facilitate the transportation of thousands of tonnes of cargo.

Collectively, excluding LAX, these major APAC airports handled approximately 15.16 million tonnes of cargo, demonstrating the substantial airfreight activity in the region.

Changes afoot going forward

Oslo-based Xeneta, the leading air and ocean freight rate benchmarking and market intelligence platform, considers that mounting geopolitical tensions, shifting alliances and changes in the flow of foreign investment threaten to gradually remould global trade patterns, including in the APAC region. The platform points to evidence in the rise of ‘friendshoring’ and evolving freight volumes between key markets to map what may be a “new world order.” China, the US, Vietnam and Russia appear to be some of the key players in a slowly unfolding plot.

“In the aftermath of the US-China trade war, the global pandemic and the invasion of Ukraine, amongst other on-going factors, there’s been renewed focus on supply chain security,” comments Emily Stausbøll, market analyst at Xeneta. “There’s a new appreciation of how easily everyday operations can be disrupted, and the growing geopolitical uncertainty is only exacerbating that.

“As a result, we’re seeing more signs of friendshoring, whereby investments, manufacturing links and facilities are moved to countries that are deemed to be ‘friendly’ –essentially sharing the same values or geopolitical outlooks. This is a gradual process. The impact of this should not be underestimated.”

“If we look at the IMF’s analysis of foreign direct investment (FDI) flows the movement is crystal clear – in short, we see friendshoring in action,” Stausbøll states.

Declining investment into China

The International Monetary Fund found that investments by foreign companies into China fell to their lowest level in close to two decades in the second half of 2022. They collapsed by 73% year-on-year, down to $42.5 billion. Putting this into context, between the second half of 2020 and first half of 2022, foreign investments averaged $160 billion in each half year.

By way of contrast, Vietnam has seen FDIs grow by 61.2% year-on-year across the first three months of 2023, including a 62.1% increase in the number of new foreign-invested projects. The processing and manufacturing sectors attracted the most investment here, accounting for around 75% of the total.

Stausbøll comments: “It takes time to build new production bases and make port infrastructure investments, as we’re seeing in, for example, Vietnam, Cambodia and Singapore, so the impact of investments today won’t be fully appreciated until tomorrow. This implies that the changing trade patterns we’re seeing now could just be the beginning of a far greater realignment.”

She concludes: “Moving forwards, the evidence suggests we’ll see more trade and investment decisions based on geopolitics rather than, say, availability or price. How this progresses, and the speed of change, will be dependent on a range of uncertain factors – not least the escalating tension around Taiwan. So far, Europe has maintained its share of imports from China, with key leaders taking a more conciliatory approach than the US, but another major geopolitical ‘event’ could transform that.

“The only sure thing is change, and friendshoring is bound to influence how that unfolds.”