Monday, January 30, 2012

Airfreight Overcapacity in the Asian Export Market

The traditionally strong Asian airfreight export market is in a state of change. Through the first eleven months of 2011, the Association of Asia Pacific Airlines (AAPA) reported a 4.8% decline in cargo and for all of 2011, Hong Kong Air Cargo Terminals (Hactl) reported a 5.2% decline.

The declines in Asian exports have been noted by air freight providers.  For example, during third quarter 2011, UPS noted this trend too late and as a result suffered single-digit declines. This led to the company cutting capacity by 10%. However, after determining this was just an isolated case, the company announced it would increase capacity on flights between Asia and North America during fourth quarter. FedEx, in their recent earnings report (reported Dec. 15), noted they were adjusting the company’s network, particularly in Asia, “as recent destocking trends have impacted demand for our FedEx Express services”, according to CFO, Alan Graf.

Other providers, such as Air France-KLM reduced capacity out of the Asian market and are reportedly deciding whether to take more out. Lufthansa Cargo has also hinted that it may reduce capacity.
The anticipated lead up to the Christmas holidays appears to not have been as strong for airfreight providers as anticipated. This, as well as an overall disappointing 2011, resulted in several providers suspending operations such as Cargoitalia, Jade Cargo and Air India Cargo.

Also, reports that a lead up to the Chinese New Year failed to materialize. This lack of demand does not bode well for the beginning of a new year.  Particularly as many forecasters expect a continued decline in airfreight demand for the year.  Still, it is quite possible especially with early restocking noted in the US prior to the Christmas holiday, that the need to restock will pick up in late first quarter as Asian manufacturing resumes operations after the Chinese New Year holiday closures.

Due to Asian declines in exports, the need to adjust capacity from Asia is needed.  It will remain to be seen if UPS was successful with additional capacity during the last quarter of 2011 when the company reports its year-end earnings this week. 

However, 2012 should not be all gloom and doom for many providers if they do their homework. To remain viable and profitable in 2012, airfreight providers will need to remain agile in their ability to not only adjust  capacity as needed but also to shift capacity to those tradelanes that have need for such.