Tightly controlled airport operating regimes across Asia have made it difficult for global cargo handlers to gain a significant foothold in the region, and the recession didn’t help those that had already made tentative moves east.
Swissport, for example, was awarded a concession at Singapore’s Changi Airport in 2005 and provided a full range of ground handling services at the airport, including new warehousing. The company won business from four major airlines, with one former client describing it having “a credible business plan”. However, as the trading environment grew tougher, two long-established competitors cut their rates and Swissport was forced to pull out of Singapore in 2009.
It pledged to focus on the Japanese and South Korean markets, with China also on its wish list. But while the company today offers cargo handling at Tokyo Narita, Osaka and Seoul, it has still not penetrated China.
Bangkok Flight Services (BFS), a joint venture between Worldwide Flight Services and Bangkok Airways, is WFS’s only cargo venture in Asia to date. WFS is active in India, but on the ramp and passenger side only, in Delhi and Cochin, in partnership with Bird Group as BWFS. WFS was awarded one of the two cargo handling franchises in Delhi in 2009, but pulled out as the global credit market collapsed. This project was eventually picked up by local operator CSC India (see separate India article).
“Circumstances have changed as time has passed. We’re very keen on the cargo handling market in India, and we’re following a number of opportunities very closely,” says WFS chief operating officer Barry Nassberg.
“We’re actively pursuing cargo projects in Indonesia, a couple of the emerging countries of south-east Asia, and in the Indian sub-continent, other than just India itself. Bangkok has proven an excellent showcase, and we’re seeing much interest from other airports in introducing a high standard independent cargo handler to their growing markets.”
Set up in 2005, a year before Bangkok’s new Suvarnabhumi airport opened, BFS saw throughput of 315,000 tonnes last year. Its top three airlines by volume were Hong Kong Airlines, Emirates and Qatar Airways.
“Over the past two years we’ve made significant changes, including installation of an automated storage and retrieval system, which have allowed us to increase terminal capacity by 20% within the same footprint,” says Nassberg.
“Further changes are in planning for 2014/15, which should give us another 10% to 15%. Discussions about expanding the terminal itself are part of our longer-term view, and are already underway with the airport operator.”
Among the other international cargo handling groups, Menzies has joint-venture activities at India’s Bangalore and Hyderabad airports as Menzies Aviation Bobba, along with a station at Macau, although it withdrew from a joint venture in China’s Chengdu four years ago because it did not have sufficient management control of the company. Singapore’s SATS has an Indian 50%-owned joint-venture company Air India SATS, in partnership with Air India, operating cargo and passenger handling services at airports including Bangalore, Delhi, Hyderabad, Mangalore and Trivandrum, while Turkey’s Çelebi is also present in Delhi.
Outside of India – which freed up its market several years ago, to invite tenders from internationally reputed companies – most of Asia is white territory on the maps of the international cargo-handling operators. So how well are airlines’ cargo-handling needs in the region being served?
Competition will raise the bar
A decade ago, Lufthansa Cargo itself set up two joint-venture cargo handling companies in China: Pactl at Shanghai Pudong Airport, and ICCS at Shenzhen. Although cargo handling outside of Germany is no longer part of the company’s core activities, back then, as well being seen as commercial opportunities in themselves, the intention was also to help provide an international-class handling operation for the airline’s own operations, which at the time was unavailable in mainland China. Cargo handling and IT infrastructure at both locations are now of international quality, although customs regulations have been slower to change.
Outside of Shanghai and Shenzhen, Lufthansa Cargo outsources almost all of its handling in Asia to GHAs. “The service level varies in such a large and heterogeneous region,” says Lufthansa spokesman Michael Göntgens. While Hong Kong and Japan benefit from good infrastructure, he sees “room for improvement” at airports in India and south-east Asia.
“The entry of global players would definitely benefit the airlines in terms of quality, processes, productivity and in the end also cost,” Göntgens says. “But local regulatory bodies or airports are reluctant to grant additional licences, except in Japan. Asia is dominated by one handling agent per station, or two at most.”
Testing handling capabilities
Meanwhile, fellow European carrier Cargolux has tested the abilities of some of its cargo handlers in Asia by adding extra sections on its Asia-Europe routes last year as the air cargo market began to recover. A Vienna stop was introduced en route from Hanoi and Hong Kong to the carrier’s Luxembourg hub in August, and within two months the frequency was increased to two per week.
With a schedule that now incorporates stops at Barcelona and Budapest on services to and from Luxembourg, these complex routings limit the time the carrier’s freighters can spend on the ground. At Shanghai’s Pudong airport, for example – the most frequent call for Cargolux in Asia – turnaround time may be just 90 minutes to two hours.
“Often we are only unloading 20 pallets. It is only in Hong Kong that we unload a full aircraft. But Pudong can be a challenge because of remote parking slots,” explains Michel Fiorani, Cargolux’s manager for ground handling contracts.
The carrier serves Beijing and Xiamen in China, as well as Shanghai and Hong Kong. “The overall infrastructure at these airports is excellent. We get good service both in the warehouse and on the ramp, and the equipment is to the highest standard,” Fiorani says.
“In Pudong there are a couple of handlers and the same in Beijing. They’ve got to be able to handle a 747, equipment and staff-wise. The bigger the airport, the easier it is to find alternative handlers.”
Elsewhere, if there is a performance issue, carriers have no alternative but to have a polite discussion with the handler. “Making a change in a monopolistic market is near impossible,” says Henrik Ambak, VP ground services and commercial IT. “There are a number of political or legislative barriers in the way of international handling organisations. It’s hard to find the right partner and secure a licence.”
Cargolux sees an opportunity to open a new region of China after HNCA, based at Zhengzhou in Henan province, agreed to take the 35% stake previously held by Luxembourg government. The new partners are reported to be planning to develop mutual cargo handling, maintenance and pilot training operations, though Ambak says he “knows of no decision” about establishing a joint venture airline.
As airports develop in inland Chinese locations such as Zhengzhou, new handlers will be attracted or invited in. However, as in other industries, that might cut both ways. Local handlers could expand out of China in future after building their own competencies, Ambak believes.
Cargolux serves two markets in Vietnam. Fiorani, a native of the country, says Ho Chi Minh was Vietnam’s main centre for production of textiles and shoes until the government decided to stimulate development in the north there. Now, with big global names such as Samsung, Honda and Nokia establishing themselves, Hanoi is “catching up quickly”.
The main export flow for Cargolux is over Hong Kong to the US. The carrier operates three freighters a week through Hanoi, and could add a fourth frequency later this year. By contrast, after expanding Ho Chi Minh services from one to three per week, it has now cut back to two.
Saigon Cargo Service Corp (SCSC) has a facility in Ho Chi Minh built “to the highest standards you can get,” Fiorani says. Tonnage to November 2013 was 56,800 tonnes, an increase of 78% on the first 11 months of 2012.
The cargo terminal opened in 2010 and has a capacity of 350,000 tonnes. Facilities include a temperature-controlled perishable centre designed for seafood, flowers, fruit and short-life vegetables.
After the certification of Ho Chi Minh City’s Tan Son Nhat International Airport for Boeing 747-8 operations, Cargolux operated the first flight with its larger freighter in July 2013. Hanoi had begun taking the 747-8 in March at Noi Bai International.
“There is a choice of handlers in both airports, which gives us flexibility,” Fiorani says. “They’re fast learners with a strong service culture and will correct procedures when there is any mishap.”
Cathay Pacific has one of the densest Asian route networks of any carrier, giving it a good overview of the region’s cargo handling landscape. “Cargo handling service varies from market to market. But in general, we believe that quality will further improve with more investment in infrastructure, more cargo handling operators in the market, and alignment with international industry standards,” says Albert Fung, cargo services manager, contracts, claims & services planning.
Other than at its hub in Hong Kong, where it opened a new in-house cargo terminal last year, Cathay Pacific operates through ground handling agents working in accordance with local service level agreements (SLAs).
Growth markets include India, where Hyderabad was launched in 2012 as both a passenger and freighter destination; Dhaka, Bangladesh, now served by three freighters a week carrying garments and fashion goods; and Colombo, Sri Lanka, which has seen freighter frequency double to two per week.
Hanoi, Vietnam, is a strong market for high-tech goods. “Samsung has a huge factory there. Currently, we operate six freighter flights per week out of Hanoi and will increase frequency as demand continues to build,” Fung comments.
“We have increased freighter services out of Xiamen, China, from two to three per week and we have added frequencies to western China, with particular focus on the ‘three Cs’ – CTU (Chengdu), CKG (Chongqing) and CGO (Zhengzhou), to cater for the massive manufacturing boom in the region.”
Cathay’s old handling partner, Hong Kong Air Cargo Terminals Ltd, (Hactl) handled 1.2 million tonnes of cargo for Cathay Pacific and almost 1.6 million tonnes for other carriers in 2012, making it the second best year on record.
The total fell back last year after Cathay Pacific completed its new facility, which also handles group subsidiaries Dragonair and Air Hong Kong. But Mark Whitehead, Hactl CEO, says non-Cathay volumes increased by 5% last year thanks to a recovering market for established airlines supplemented by some new regional customers.
“The Gulf carriers have all shown very impressive growth and the US trade has come back,” he says. “The last quarter of 2013 was pretty good, though we’re not kicking the ball off the planet.”
With handling capacity at Hong Kong International now at a whopping 7.4 million tonnes, way ahead of the current 4.5 million tonne throughput, Whitehead admits: “It has become an extremely competitive market. The airlines are in control.”
Hactl remains the biggest cargo handler at Hong Kong International, ahead of Cathay Pacific Services, Asia Airfreight Terminal and the integrators with their in-house facilities. Operational stability will be the initial priority for Cathay Pacific, but it will soon be actively seeking third-party business.
Some observers have suggested that Hactl could export its know-how to the Chinese mainland and help fast-growing inland airports such as the ‘three Cs’ to reach western handling standards. China National Aviation Corp, a 16% shareholder in Hactl, has investments in mainland airports.
Whitehead says: “We have discussed opportunities over the last 12 to 18 months. These airports have built modern cargo facilities but they’re not set up like us, and not as highly automated.”
He continues: “They have an abundance of land and people, so they can rely on manual labour and a few forklifts. Apart from Shanghai, Beijing and one or two others, they have no need to look at heavy investment in technology.”
Any mainland move by Hactl “would have to make commercial sense for our shareholders”, Whitehead says. “We would love to make sensible inroads, preferably through an equity stake rather than on a management contract – but the question is what value we could add at airports that don’t share our operating model.”
Return to growth for India’s international hubs,
but its smaller airports are left behind
India’s air cargo exports and imports totalled around 1.3 million tonnes in 2013, according to leading handler Cargo Service Center (CSC) India. Delhi, with 390,000 tonnes last year, is growing the fastest. Mumbai (415,000 tonnes) is still the country’s major gateway, but because of the development of new airports in the south of the country, such as Bengaluru and Hyderabad, it has been steadily losing market share to Delhi. In third place is Chennai with 221,000 tonnes.
CSC Group CEO Radharamanan Panicker believes India’s air cargo exports and imports will grow in 2014, following a relatively flat few years. “The Indian economy has started looking up now,” he observes. “The government has cleared $19 billion worth of infrastructure projects in the last few weeks, which were earlier stuck in a bureaucratic muddle. With a general election in April likely to bring a new government, this could further spur industrial growth.”
There are many regulatory hurdles that impact on freight handling service levels, Panicker says, and pricing regulation has exacerbated the problem. “One cannot quickly develop new products and services in response to customer demand,” he observes.
One issue is that export cargo is usually delivered to the airport as “huge numbers of pieces per AWB” rather than palletised, making for highly inefficient handling. “You can miscount or lose pieces,” he admits.
Ground and cargo handling is highly regulated, and India’s competition commission has not defined what constitutes a competitive landscape.
“It is left to individual airport management to determine what concessions they will give out and how,” Panicker says. Typically, an airport will award a concession on a build, manage and operate model, which obliges the concessionaire to develop its own facilities. “This creates its own inherent risk as cargo handlers are not infrastructure developers,” he explains. “Investing in a cargo terminal is highly risky, given the volatility of the aviation industry.”
Airlines, keen to ensure minimum operating standards, service quality and safety levels, now mostly insist that a service level agreement is signed along with the handling agreement.
Panicker says clients are highly attuned to the cost of the service they are receiving. He welcomes the idea in principle of more competition between handlers, but says this must be in proportion to cargo volumes. Airlines must be realistic in their expectations, he adds. “If you have to develop new infrastructure, costs will go up and not down. You cannot ask for a Mercedes if you’re paying for a Nano [the small Indian car].”
GSA Global Aviation India (GAI) sells cargo for a number of major carriers, including Emirates, El Al, Air Canada, Continental Airlines and Qantas, and also supervises cargo handling and aircraft loading on behalf of its airline clients.
MD and chairman HK Vithalani says Hyderabad was one of India’s best performing airports last year, recording 11% growth. GAI has activities including handling supervision at Delhi, Mumbai, Cochin and Ahmedabad, and is set to add Hyderabad’s Rajiv Gandhi International Airport to its portfolio.
GAI shares CSC’s concerns about creaking infrastructure. “Frequent systems breakdowns, with no manual back-up, greatly hamper efficiency and punctuality. The processes in place slow down operation,” Vithalani says.
“Another issue that needs to be addressed is the paperwork. Automation is a must,” he adds. “It is over a decade since customs’ supposed introduction of EDI, and while there has been progress in moving towards paperless working, we still have a long way to go. There has to be greater interconnectivity and uniformity of implementation by customs across India.”
Only Mumbai, Delhi and Bangalore airports benefit from an open, competitive handling market. Global players have been reluctant to go for concessions, fearing the costs involved and the likely constraints on space.
This has left smaller airports far behind India’s main international hubs. “Even Chennai and Kolkata need to be improved upon,” Vithalani says.
Local media reports last year suggested Chennai is losing 40% of potential traffic to airports such as Bengaluru and Hyderabad because delays in processing cargo. Cargo agents blamed inefficient management of an air freight station, built almost five years ago, which in principle can clear goods in 24 hours instead of the three to four days more usual at Chennai.
Jo Feiks, director for corporate product management air cargo at Austrian freight forwarder cargo-partner, who also sits on the company’s board in India, says the country’s infrastructure is far behind that of China, with no more than 2% of roads suitable transporting cargo.
The development of greenfield airports complicates this issue, he adds, and the slow pace of customs declarations also makes life difficult for forwarders.
On the upside, India has an enviable 5% GDP growth. “In 2013 we noticed the return of a peak season, which seemed to have disappeared for a while,” Feiks comments.