Air cargo backlog building up in Asia

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Air cargo backlog building up in Asia 
: 16 Dec 2009
Squeezed by Success: The air cargo dilemma

Over the past month a huge backlog in air cargo has developed that is affecting many Asian airports, leaving forwarders and exporters struggling for space, mainly on flights to Europe. The problem reflects surging demand for Chinese products which has outstripped the available air cargo capacity required.

After a year in which a depressed global economy has kept many businesses operating on minimal inventories, airlines had removed or consolidated cargo capacity. Now with increasing demand - particularly for products sourced in China - capacity across the region is in short supply.

No more space available:

Most recently, all available air cargo capacity out of China has been backlogged until the New Year, creating opportunities for transshipment of cargo through other hubs such as Korea, Singapore and Thailand. According to several reports from Inforam Cargo and International Freighting Weekly (IFW), from which this article is largely drawn, rates out of Thailand have increased to around $4 per kilogramme during the last two months (almost double that of the previous six months), as domestic shipments have competed for capacity with cargo originating in China.

Over the last two weeks there was a backlog of 3,500 tonnes at Hong Kong Air Cargo Terminals (HACTL), the equivalent of 35 Boeing 747 freighters - which meant freight was waiting seven to 10 days for uplift.

Surging volumes out of Thailand:

"We saw volumes jump by 20% in October over September and November has been very busy and is projected to be 9% up on October," said Stewart Sinclair, managing director of Bangkok Flight Services, the leading ground handler at Suvarnabhumi, speaking to IFW. "September is usually the peak but this year it was flat, then October just took off. It's mostly driven by China; there's no capacity anywhere at the moment." The cargo buildup that started in October has continued with demand spiking over the past weeks.

Embargoes on transshipments:

At Bangkok's Suvarnabhumi Airport, several carriers have placed embargoes on transshipment cargo in the last two weeks because Thai origin and destination demand is so great. However, according to another report by IFW, Thai Airways International's cargo business has received a major boost from China's air freight capacity squeeze over the last few months, with around 60% of the cargo shipped by THAI in the pre-Christmas rush to capitalise on freight originating in China, arriving as belly freight in passenger aircraft at Bangkok for onward shipment to Europe. THAI had even stopped accepting local bookings over the past weeks as it sought to clear its own backlog.

Air cargo as a barometer for global turnaround:

Although the surge in demand for air cargo capacity is being seen a barometer or a turnaround indicator in the global economic crisis - it is causing serious impacts among the various industries competing for space. Having faced appalling financial results over the past 12 to 18 months, airlines have increased their freight rates in an attempt to recover lost revenue, so a deeper problem has arisen.

Carriers have focused on increasing volumes of dense high-tech cargo (such as electronics) to increase revenue. There has been little or no space available for fresh produce which has been traditionally shipped in low-density expanded polystyrene boxes.

Fresh produce shippers squeezed out:

Despite having sufficient and time to make necessary changes, many Thai fresh produce exporters have failed to change their packaging away from polystyrene, which could allow denser loading and more environmentally responsible packaging methods.

International retailers are now shunning Thailand as sourcing location for one main reason - it is too hard to get operators here to change their uncompetitive logistics and packaging habits. At a time where fresh produce exports to Europe should be peaking, there is only limited activity with the major exporters. By adopting alternate packaging and improving cold-chain logistics, Thai fresh produce exporters could lower their costs of freight and compete for limited air cargo capacity more effectively.

Not a short-term solution:

With air freight it is very difficult to book short-term capacity or to accommodate increased demand for products. Long-term cargo space is usually acquired by freight forwarders or shippers many months ahead on a contract basis, and usually the forecasted demand is unreliable. This results in highly volatile or ad hoc freight pricing during times of increased demand or where additional space is required.


Weekly Link is co-ordinated by Barry Elliott and Chris Catto-Smith CMC of the Institute of Management Consultants Thailand. It is intended to be an interactive forum for industry professionals; we welcome all input, questions, feedback and news at: bjelliott@abf1consulting.com, cattoc@cmcthailand.org

www.bangkokpost.com/business/economics/29343/squeezed-by-success-the-air-cargo-dilemma