Air freight players hunt out new markets to offset fallout from trade war

AIR cargo demand fell again in May with the US-China trade war impacting the sector and driving a faster shift away from China

03 July 2019 - 19:00
AIR cargo demand fell again in May with the US-China trade war impacting the sector and driving a faster shift away from China. In response air freight carriers are looking for new markets.

Cathay Pacific's head of cargo markets John Cheng stated in a note to customers: 'All signs point to the industry experiencing headwinds after two very good years, and the high base that they created. This normal fluctuation has been exacerbated by global trade tensions affecting two of our principal markets, along with other geopolitical uncertainties around the globe.

'These have clearly had an effect on both market sentiment and consumer confidence, so we are seeing lower demand on some of our main cargo routes.'

On the other hand, Cathay did have options, reported UK's The Loadstar.

'We can address these imbalances through agile deployment of our fleet across our wider network, enabling us to match capacity to demand.'

Cargolux is thinking along the same lines as it has launched a service to Jakarta, its 16th Asia Pacific destination.

The once-a-week flight leaves Luxembourg on Sunday and arrives in Jakarta on Monday. It then goes through Hong Kong and Ashgabat before returning to Luxembourg on Tuesday morning. The service is expected to transport oil and gas equipment, machinery, spare parts and aircraft engines.

While the airlines have been closely following the Southeast Asia market due to uncertainty in China, Indonesia is, however, not likely to soak up much of the tariff-escaping traffic.

Research associate Muhammad Zulfikar Rakhmat at the Institute for Development of Economics and Finance in Jakarta highlighted in a South China Morning Post article that foreign direct investment in Indonesia halved between the end of December and March 2019.

He believes: 'The slowdown of Asia's largest economic power, and one of Indonesia's foremost trade partners, only promises to reduce foreign investment further and impact raw goods exports, such as palm oil, wood, rubber and coal.'

Furthermore, 'Indonesia's existing trade ties with the US - commodity goods, not manufacturing - are not affected by US tariffs.'

While Cargolux has no doubt found good reason for adding the route to its network, other nations may appear more attractive.

An article in Bangladesh's Daily Star points to benefits for the country from the China-US trade war, which could see it win an extra US$400 million in exports, according to the Asia Development Bank.

The article points out: 'The garment sector is expected to reap the most benefits, as it accounts for 80 per cent of Bangladesh's total exports. As the trade war escalated, the country's garment industry observed significant growth as American retailers are placing more work orders with Bangladesh in order to offset increasing tariffs.

'According to the US Office of Textile and Apparel, Bangladesh enjoyed a 6.46 per cent growth in share in the United States market during the first three quarters of 2018.'

The article also argues that, as companies look to re-locate from China, Bangladesh has more advantages than countries such as Vietnam and Cambodia, owing to a large population and cheaper, less unionised workforce.

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