Asian carriers confident on peak season capacity but worry about 1st Jan

AAPA Jeju, South Korea
(L-r) Walter Cho, Korean Air president; Andrew Herdman, director general of the Association of Asia Pacific Airlines; and Rupert Hogg, CEO, Cathay Pacific Airways.

Asian carriers expressed confidence that this year’s peak season is more manageable than last year because of the earlier rush to beat trade tariffs, alongside adequate capacity in the market, but fear an enlarged US-China trade war in the new year.

With the seasonal peak now reaching its zenith, Asian carriers remain confident of their ability to absorb the demand, but are very conscious of the threatened US trade tariffs and China’s retaliatory response, in the new year.

With shippers scurrying in the months leading up to the traditional Q4 peak season in a bid to beat the tariff clock, significant volumes of air cargo along with some cargo shifted from ocean to air, was uplifted on the transpacific prior to the start of the normal seasonal surge.

This they say, has helped spread out some of the peak season volumes avoiding the capacity calamity of 2017.

Sam Noh, senior VP head of Cargo Business Division at Korean Air said the tariffs actually had a beneficial effect for air cargo, he told AsiaCargoBuzz.com on the sidelines of the Association of Asia Pacific Airlines’ (AAPA) 62nd Assembly of Presidents in Jeju, South Korea recently.

“It’s had a positive affect because they were pushing cargo, both exports and imports, before the tariffs came into effect,” he says. Noh adds that he is aware of some cargo that had shifted from ocean to air, because of worries over meeting the tariff deadlines.

But however this year’s peak shapes up, it won’t be a repeat of last year’s capacity calamity, carriers say. “Not like last year,” Noh adds, saying he anticipates a more ‘traditional’ peak this year.

Similarly, Rupert Hogg, CEO, Cathay Pacific Airways told media attending the AAPA event: “I think the rest of this year it looks as though the demand will be quite strong… but the peak of last year I doubt we’ll find that again this year.

“For us we have a big widebody fleet as well, and we’ve got 20 freighters. If we talk volume in terms of our widebody passenger aircraft, and we recently expanded our fleet quite a bit so there’s a bit more capacity and new destinations, so I think the rest of this year will remain as per the traditional peak and going into next year obviously the future is unknown. There’s a bit of uncertainty,” Hogg added.

Similarly, Korean Air – one of the largest freighter operators in Asia – is confident of enough capacity for whatever eventuality may come before this year’s peak runs its course. But should the peak burst the seams of capacity out of Asia, Korean Air is ready.

“We have some reserve capacity, so we can utilise for peak season extra demand,” he says. “Every year we increase our capacity to the transpacific route especially,” with an extra three or four freighters for the peak season. Last year Korean Air Cargo added a full five additional freighters to the market that was clamouring for capacity.

While freight capacity leading up to the start of the peak season in mid-October was outpacing demand, Andrew Herdman, director general of the Association of Asia Pacific Airlines (AAPA), said Asian carriers were comfortable with that situation.

“These are uncertain times and it is now the peak season so I think it’s still healthy. The cargo industry knows how to adjust capacity very nimbly,” Herdman said. “Leading into the pre-peak season load factors were edging downwards which indicated adequate capacity was being put into the market,” he added.

Even up to mid-October – traditionally the beginning of the peak season – the overall cargo load factors were still relatively low, Herdman says. This, he adds, “reflects the amount of unusable capacity on routes where there is not much demand, but also additional flexible capacity on many of the major routes. There’re are still people operating big freighter fleets, so if there is demand, they will be happy to meet it.”

But while the industry is sitting comfortably in the warm embrace of the current seasonal peak, worries within the industry are deepening as 1 January approaches, bringing with it a new onslaught to tariffs and retaliatory actions as no end appears in sight in the ongoing trade dispute between the US and China.

“This year the cargo market growth was quite strong,” said Korean Air president Walter Cho said speaking to reporters in Jeju. “But we do have a lot of concerns about next year’s market, but it’s still unknown and we are hoping for better resolution between the countries in conflict right now and hopefully they can think in terms of consumers instead of ego.”

In the short term, the effects of the US-China trade dispute have not had a visible negative impact on the air cargo sector because the initial tariffs were on metals and other commodities not shipped by air.

But as Herman notes: “On the cargo side everyone has been listening to the political rhetoric that has been ratcheted up. Trade disputes, tariffs which are not good for trade, are also not good for transportation including air cargo.”

And things could take a more dire turn early next year if US President Donald Trump’s threats of a new round of tariffs turns into reality, as they will be far reaching, including a number of consumer goods carried by air cargo.

“The other thing about the trade rhetoric is that it’s a concern for businesses because of the uncertainty they have to think about readjusting the supply. It’s very difficult to know whether change your supply chain which you developed over many years in the response to the threat of tariffs,” he says.

Indeed, FedEx chairman and CEO, Fred Smith warned earlier this week in Singapore that shifting supply chains is not a simply matter. In an interview with Bloomberg Television Smith said: “I would say there’s a lot of adjustment going on out in the Pacific. A lot of our customers are telling us that they’re looking to shift some of their supply chains to Vietnam, Thailand, away from China.

“There’s a lot of talk about it, but it’s a lot easier to talk about it then to do it. The infrastructure been built up over years and Vietnam, despite the fact the wage advantage is almost 1/4th compared to China, you can’t just move the factory to Vietnam.

“So I think at the moment there’s more talk about it an advanced planning and everyone is hoping the tariff dispute will get resolved,” Smith said.

In agreement, Herdman says: “We know from the past that supply chains adjust, but supply chain adjustments when you have to redeploy production capacity – and we’re talking big scale nowadays given the scale of manufacturing in China – it’s a brave man who says we are going to move production.”

He highlights the dependence the world has developed on massive manufacturing capacity in China integrated with global supply chains which includes Korea, Taiwan, Hong Kong, Singapore, Vietnam and Thailand alongside other countries Southeast Asia who are part of the sub-component supply chain.

“So when you’re talking around the region they may not be subject to a tariff dispute with the US but they are conscious of being affected because they are part of the regional and global supply chains,” Herdman adds.

Summary
Asian carriers confident on peak season capacity but worry about 1st Jan
Article Name
Asian carriers confident on peak season capacity but worry about 1st Jan
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Asian carriers expressed confidence that this year’s peak season – now approaching its zenith – will be more manageable than last year because of the earlier rush to beat trade tariffs, alongside adequate capacity in the market, but fear an enlarged US-China trade war in the new year.
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AsiaCargoBuzz.com
AsiaCargoBuzz.com
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