Ecommerce surge experienced by UPS attributed to Covid scare

ECOMMERCE got a boost from the Covid-19 scare if the surge in online shopping posted by United Parcel Service is anything to go by, reports the Associated Press.

UPS says shipments from businesses to US consumers soared 65 per cent in the second quarter, helping lift the delivery giant to a US$1.77 billion profit.

In April, UPS executives thought that online shopping would slow down after the early days of the crisis.

"Instead, we saw just the opposite," said the company's new CEO Carol Tome. Consumer online spending surged as stores closed, people sheltered at home, and the government sent them cheques, she said on a call with analysts.

The company's volume jumped 23 per cent to more than 21 million packages a day, and revenue climbed more than 13 per cent.

But while stay-at-home orders and other restrictions to slow the spread of the new coronavirus have meant more business for the delivery companies, it has also strained their networks and threatened to drive up costs.

Deliveries to homes are less lucrative - UPS domestic revenue per piece fell five per cent in the second quarter - and they are more costly because drivers must cover more distance between drop-offs.

UPS and rival FedEx have responded by imposing the kind of surcharges more commonly associated with Christmas to cover their increased spending. They have raised prices on bulky shipments and on retailers whose volumes have risen sharply during the crisis

Ms Tome hinted that UPS could raise prices further on big retailers - most of them are even more dependent on online orders now because many consumers are afraid to go back inside stores.

"While retailers may squawk at price increases that come their way, large retailers have a way to spread that across (many items they sell) and nobody knows," she said.

Ms Tome, 63, is a former chief financial officer at Home Depot and longtime UPS board member who became CEO on June 1. In her first earnings call with investors, she hinted at changes at the 113-year-old company.

She suggested that in the past UPS chased volume instead of profits and "over-engineered" things by, for example, offering too many services that complicated the company's operations and confused customers.

Second quarter profit at the Atlanta-based company was up five per cent from year-ago earnings of $1.69 billion.

Revenue rose more than 13 per cent, to $20.46 billion, easily beating the $17.34 billion average forecast from Zacks Investment Research.

Helane Becker, an analyst at financial-services firm Cowen, predicted UPS will do well in the third quarter, but she said UPS will be challenged to handle rising e-commerce volume during the peak shipping season before Christmas.

"The solution may be increased surcharges to limit volumes during peak, which again would be positive as UPS looks to improve margins of residential delivery," Ms Becker wrote in a note to clients. "Another solution would be to limit the amount of low margin volume it accepts."

Cathay Pacific anticipates historic loss of US$1.28 billion due to virus

HONG Kong's flag carrier Cathay Pacific says it expects to incur a substantial loss of HKD9.9 billion (US$1.28 billion) in the first six months of 2020 based on its unaudited results.

The loss of HKD9.9 billion includes impairment charges amounting to approximately HKD2.4 billion, which mainly relate to 16 aircraft that are unlikely to re-enter meaningful economic service again before the 2021 summer season together with certain airline service subsidiaries assets. The airline reported a net profit of HKD1.3 billion in the first six months of 2019.

Cathay recently received HKD680 million from the government's employment subsidy scheme aimed at offering financial assistance to companies hit by the pandemic. In addition, the Hong Kong government also appointed two officials to the group's board of directors together with a HKD39 billion recapitalisation package after the airline warned it was close to collapse.

Cathay Pacific Group chief customer and commercial officer Ronald Lam said: "The landscape of international aviation remains incredibly uncertain with border restrictions and quarantine measures still in place across the globe. Although we have begun to see some initial developments, notably a slight increase in the number of transit passengers following the easing of transit restrictions through Hong Kong International Airport, we are still yet to see any significant signs of immediate improvement."

On the cargo front, Cathay Pacific and Cathay Dragon carried 93,228 tonnes of cargo and mail in June, a decrease of 43.1 per cent compared to the same month last year. The month's revenue freight tonne kilometres (RFTKs) fell 35.8 per cent year on year. The cargo and mail load factor increased by 11.7 percentage points to 74.5 per cent, while capacity, measured in available freight tonne kilometres (AFTKs), was down by 45.9 per cent. In the first six months of 2020, the tonnage fell by 31.9 per cent against a 31 per cent drop in capacity and a 24.6 per cent decrease in RFTKs, as compared to the first-half period for 2019.

Cathay Pacific continued to operate a full freighter schedule as well as chartered flights from its all-cargo subsidiary, Air Hong Kong, in June. There were fewer cargo-only passenger flights compared with May.

Mr Lam said: "Despite a mild pickup in general airfreight movements, our cargo tonnage fell by 5 per cent month on month as demand for medical supplies waned following a peak month in May. The reduction of long-haul carriage from the Chinese mainland and Hong Kong made way for movements from Southeast Asia and the Indian sub-continent as local lockdown measures eased.

"Meanwhile, the improvement in inbound Hong Kong loads and network support led to a higher load factor, which increased 11.7 percentage points year on year to 74.5 per cent. Yields came down following the significant rise seen in May."

The two airlines carried a total of 27,106 passengers last month, a decrease of 99.1 per cent compared to June 2019. The month's revenue passenger kilometres (RPKs) fell 98.8 per cent year on year. Passenger load factor dropped by 59.3 percentage points to 27.3 percent, while capacity, measured in available seat kilometres (ASKs), decreased by 96.1 per cent. In the first six months of 2020, the number of passengers carried dropped by 76 per cent against a 65.7 per cent decrease in capacity and a 72.6 per cent decrease in RPKs, as compared to the same half-year period for 2019.

Commenting on the passenger figures, Mr Lam said: "Demand continued to be very weak in June with our airlines carrying less than 1 per cent of the passengers we carried in the same month in 2019. We operated about 4 per cent of our normal passenger flight capacity in June. This was slightly more than we operated in May, having resumed services to some destinations such as New York, San Francisco, Amsterdam and Melbourne in late June. Load factor remained low at 27.3 per cent, and on average we carried approximately 900 passengers a day only.

Looking ahead, Mr Lam said: "While some markets are starting to relax border restrictions and quarantine requirements in July, we remain cautious and agile in our approach to resuming our passenger flight services. We have adjusted our overall capacity for July to approximately 7 per cent, which remains subject to the potential further relaxation or tightening of government health measures. We expect that our airlines will operate up to 10 per cent of the normal flight schedule in August and will continue to assess the potential of increasing more flights and adding destinations for our customers in the coming months.

"The one certainty facing the global aviation industry is that the landscape will be significantly changed when international air travel recovers. The Group is moving decisively to best position the business to be competitive and to secure its financial health over the long term in a new normal. What will not change is our resolute commitment to safety, to serving our customers and our dedication to contributing to the success of the Hong Kong international aviation hub. We remain absolutely confident in the long-term prospects of both the Cathay Pacific Group and our home hub."

China's checks on PPE exports push up air cargo rates, capacity shortage worsens

THE Chinese Central Government's crackdown on poor quality medical exports has driven up air cargo costs and worsened congestion in South China.

Following widespread complaints of defective personal protective equipment (PPE), including face masks and coronavirus test kits, Beijing has tightened quality controls and stepped up customs inspections.

New regulations include a decision by China's Ministry of Commerce to boost the export quality supervision of "non-medical" masks, including a blacklist of suppliers which failed to gain export certification, reported UK's The Loadstar.

"In Shanghai, customs brokers have raised rates for export clearance by up to six times, due to extra paperwork and processing time," according to Norman Global Logistics (NGL).

The company said: "So far this is impacting the Hong Kong, Guangzhou and Shenzhen regions, but we expect it to happen in the rest of the country, as at least 90 per cent of all medical cargo will require customs inspection."

NGL confirmed claims that the new export restrictions were preventing PPE manufactured in the mainland from transshipment in Hong Kong, and "more or less forcing" the cargo through mainland airports.

While many governments have enacted "air bridges" to cater for supplies for their healthcare systems, space is still scarce and rates are at a premium due to the absence of bellyhold capacity, said Scan Global Logistics (SGL).

"We now have air freight terminals in Shanghai, Xiamen and Guangzhou on red alert, while Shenzhen changed to yellow, as terminals in these cities are overheated with massive amounts of cargo, particularly PPE," the forwarder added.

Similarly, Flexport describes China's air cargo market as "very hot", due to lack of capacity in the air, but also on the ground in warehousing space and ground handlers.

"This leads to delays and longer transit times," said Flexport's senior director of airfreight EMEA David Wystrach.

"On top of increasing rates, we're seeing another level of complexity in supply chains, with an increase in demand for South China uplift and more volumes flying out of Hong Kong."

The more-stringent PPE export controls are impacting ocean freight, too. According to Global Logistics Solutions India co-founder Naveen Prakash, thousands of containers packed with face masks have been detained in China because the goods failed to meet quality standards.

"About 1,600 manufacturers are blacklisted, due to quality checks and bad paperwork," he explained, adding that buyers need to carefully check whether Chinese manufacturers meet the strict new criteria.

"It's our responsibility to highlight this as many importers are first-time buyers of masks," he said.

Furthermore, shippers could look to less-than-container load (LCL) ocean freight to bypass the air cargo congestion, Mr Prakash suggested. "Our China to India LCL services are 100 per cent operational and will help avoid any cost escalations."

Forwarders look to other modes to ease China air cargo congestion

EXPEDITORS and DSV Panaplina have both been promoting alternatives to air cargo, such as road, rail and express ocean, as an option out of China in response to ongoing congestion.

In a circular, Expeditors senior vice president global ocean transportation, Karl Fransisco, said express ocean services could move cargo from China to the US west coast in as little as 10 days. To Europe, the company is promoting its rail services.

"As freight congestion continues in Chinese airports, cargo for air export out of China commonly is sitting in warehouses for days as exporters seek lift capacity," said Mr Fransisco. "The scarcity of that capacity makes it imperative to identify and consider possible alternatives to airfreight out of China."

"From [the US west coast] your [full container load] shipment is immediately moved out of the port for delivery to your door location via express rail or transloading at the first port of unlading and final mile delivery via team truck drivers."

Its express less-than-container-load (LCL) platinum service offers 10 days transit from Shanghai to Los Angeles.

"LCL Express Platinum utilises faster vessels, offers a single day of dwell time when entering the US and is cheaper than airfreight."

It also offers LCL Express, which offers 15 day transit times from China to the US west coast.

"We also offer express rail solutions for LCL. The RCX service from China to Europe has a fixed weekly departure and a fast 13-day transit time from the Xian Rail Station container yard to the container yard at the first entry terminal in Poland," Mr Fransisco said.

Meanwhile, DSV Panalpina has been promoting its road services to Europe as an alternative to air, sea and rail.

"Our road transport service from eastern China to western Europe has gained in popularity while the Covid-19 crisis has spread throughout the continents as it is a viable alternative to both air, sea and rail," said Tine Jorgensen, manager Rail & Gateway.

DSV Panalpina said that airfreight transit time for airfreight from Shanghai to an airport in western Europe is now around eight days and last month it was up to 14 days.

"With the still unusually high prices for airfreight due to capacity constraints, road transport from China to western Europe in just two and a half weeks is an attractive alternative," DSV Panalpina said.

The company said its truck service has a transit time of around 15-17 days, travelling a distance of 8,500km from Shanghai to Hamburg, reports London's Air Cargo News.

Hong Kong air cargo sector plead for state aid to avert disaster

HONG KONG's cargo sector has warned of looming bankruptcies, particularly in air freight, unless financial assistance comes from the government.

In a letter to the transport ministry, nine logistics groups call for financial relief to survive the havoc in cargo markets due to the coronavirus pandemic.

"Up to 95 per cent of shipments are cancelled, put on hold or disrupted,?said Alice Lui, director general of the Hong Kong Association of Freight Forwarding and Logistics (HAFFA).

"Logistics operators are facing unprecedented threats, tremendous risks from default payment and liquidity difficulties.

"Without timely relief measures of government on rental, employees' salary and fuel, or rental relief from the landlords, it is estimated that a substantial number of SMEs and micro companies in the industry will close down or go bankrupt, forcing hundreds of thousands of workers out of a job.?

The logistics industry represents 20 per cent of Hong Kong's GDP and employs over 700,000 people, aviation alone represents 10 per cent of GDP and 330,000 jobs.

Over the first two months of this year, Hong Kong International Airport suffered a 9.8 per cent year-on-year drop in cargo throughput, to 611,000 tonnes.

Hong Kong Air Cargo Terminal Ltd (HACTL) chief executive Wilson Kwong said it was vital to safeguard the airport's skilled labour pool in the event of a recovery, which would otherwise make it difficult to get back to previous volumes.

Airport Authority Hong Kong (AA) has provided a relief package, worth up to HK$2 billion (US$258 million), to airlines and aviation support services, but although discussions are underway, no specific support has been earmarked for logistics yet, according to HAFFA chairman Brian Wu.

"We anticipate a very tough year ahead,?he told London's Loadstar. "Retailers are closing in the US and Europe, and most urgent air shipments are medical products and equipment. Many shippers have had their purchase orders cut or delayed dramatically.?

With airlines forced to cancel the vast majority of passenger flights, Cathay Pacific Cargo and others began using passenger jets for freight-only flights. But Mr Wu said cargo capacity was still down significantly, leading to spikes in freight rates.

Intra-Asia routes have been particular impacted, due to the reliance on previous belly capacity, and there are reports of rates between Hong Kong and Singapore increasing six-fold, to HK$25 per kilogramme.

Meanwhile, forwarders and shippers were given some respite by Hong Kong Airlines' decision to shelve a planned security charge hike last month, said Mr Wu.

"Security charges have been a long-standing issue for our members and have a very negative impact on Hong Kong's competitiveness. The increase would have had a detrimental impact on both our members and overall trade.?

The new ICAO cargo security screening rule started in January, with 25 per cent screening of export cargo, however, and the regulation will continue to be phased-in before full implementation by July 2021.

"It will definitely affect the competitiveness of Hong Kong Airport, in terms of costs and efficiency,?said Mr Wu.