China's air cargo sector is hit by slow volume growth, overcapacity

CHINA's airfreight industry has endured a "terrible" year on the back of weak volume growth and a rapid surge in capacity.

According to Shenzhen-based agent Airsupply International Logistics Group's team leader Scola Chen, forwarders with block space agreements (BSAs) have "been through a difficult time".

He explained: "This year some small bulk freight forwarding companies that did not sign too many BSAs made [more] money with target end customers."

Mr Chen told London's The Loadstar BSAs were still needed, but rates were dropping. Chinese cargo airlines have been feeling the effects too, and some had suffered "huge losses", Mr Chen was quoted as saying.

"Uni-Top Airlines recently grounded cargo aircraft to seek restructuring, while Longhao Airlines was sold to state-owned Henan Civil Aviation Development Investment. YTO Cargo Airlines and SF Airlines also face a dilemma of low airplane utilisation," he said.

Mr Chen noted that, during the first 10 months of the year, China's air cargo volumes rose by just one per cent to 6.1 million tonnes, the lowest rate since 2012.

"By comparison, the capacity growth trend in 2019 is extremely fast, with no less than 10 provincial capitals on the mainland racing to become world-class international air cargo hubs." They include Zhengzhou, Xi'An, Wuhan, Changsha, Nanchang, Jinan and Urumqi.

And, with a similar criticism to government subsidies distorting the China-Europe rail freight market, Mr Chen said the competing provinces were partly to blame for the overcapacity.

"During peak hours, all-cargo charter flights from mainland China to Liege in Belgium alone have no less than 30 flights a week.

"The blind policy leads to disorderly expansion of transport capacity, resulting in the oversupply in charter operators. In the bleakest time, air rates from China to Europe were less than CNY10 (US$1.40) per kilogramme."

Airsupply International Logistics Group focuses on airfreight ex-China to the US and European Union. Mr Chen said the company had seen "no discernible peak season" in the first 10 months of 2019, despite Amazon's Prime Day and the usual spike around China's National Day.

"It was not until the end of October that the volume of goods increased all of a sudden, which was in line with some peak shipping time at end of the year for e-commerce events such as Singles' Day and Black Friday," he said.

Looking ahead to 2020, Mr Chen said he expected capacity reductions, as a number of airlines and charter companies were expected to miss revenue targets.

"The only uncertainty is that many local governments in the mainland might introduce larger financial subsidies to cover the losses of charter operators, in order to boost the economic development of local industries."

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