Air cargo panel: China overcapacity keeps Asia rates soft

Air cargo panel: China overcapacity keeps Asia rates soft Air cargo experts on Tuesday said they worry that overcapacity in China will lead to a continued soft market and dwindling rates, which should come as good news for shippers and bad news for carriers as more airlines add new freighters to their fleet.
   At the Air Freight Asia conference in Hong Kong, panelists also said the main hubs of Shanghai, Guangzhou and Beijing remaining as China's dominant air cargo locations, despite the rise of domestic airlines and increased interest from foreign carriers in direct services to China.
   'Overcapacity in China was so easy to see,' said Stan Wraight, chairman of CargoItalia, a new all-cargo airline that launched earlier this year. 'Singapore Airlines just announced they are getting involved with China Eastern and they have 11 freighters on order. Capacity will exceed demand for the at least five years.'
   Aside from overcapacity, airlines are grappling with trade imbalances that somewhat mirrors those faced by steamship lines — full loads moving from Asia to Europe and North America and a struggle on the backhaul.
   'Exports have been increasing for us to China from North America, by about 30 percent in 2006 and 16 percent the first half of 2007, albeit on a low base,' said Neel Shah, vice president of sales and marketing for United Airlines Cargo. 'But it will be 2009 before you see any real structural change in the trade balance beyond the incremental growth of backhaul cargo. After the Olympics next year, Beijing will have to do something with its currency.'
   Meanwhile, China's current biggest air cargo hubs will continue to reign supreme because airlines simply can't figure out how to be profitable by providing direct services to growing inland cities in China.
   'You can't make it work economically,' Wraight said. 'You could fly 747s into interior cities because you have cheap labor and the manufacturing is locating there, but they don't have the spending power to drive imported products into the region.'
   Shah said United, which is a combination carrier — meaning it only moves cargo in the belly of its passenger services and doesn't operate all-cargo flights — said flying into the interior won't work now.
   'There's no way we'll go to the interior cities because there are no passengers there,' he said. 'But we set up agents in these cities to drive cargo to Beijing or Shanghai.'