Fuel costs could curtail Chinese air freight growth, says CEVA official

China's future growth could be hampered if fuel prices don't settle down, a China-based executive with CEVA Logistics said Wednesday.

What our customers are telling us is we're getting close to the level where they have to consider changing modes, said Ditlev Blicher, vice president of north Asia for CEVA, at the Air Cargo Conference in Shanghai. We're also hearing that they're considering the location of their manufacturing.

The cost of fuel poses the greatest risk to growth in China as the price nears the trigger point of a paradigm shift, Blicher continued. There is a short-term spike in fuel prices, but it's getting near the point, in our eyes, that it's becoming a shock to the system. Costs are getting such that shippers are looking a second time at how feasible it is to assemble in China.

Yet despite the odds stacked against growth, Chinese air freight is still rising over 2007 so far this year, though modestly.

The air cargo market in China is not just seeing growth, it's seeing resilient growth, he said. Even with the global downturn, volumes are up.

But there are problems, Blicher said, namely a lack of true hubs outside the big two in Hong Kong and Shanghai.

China still has too large a dependence on Hong Kong and Pudong in Shanghai, he said. And they're not interchangeable. There's not a lot of flexibility in terms of getting out of the China market.

In other words, where the air freight is manufactured automatically leads to which airport is chosen, and beyond those two hubs, there's little true choice. That could be a problem if growth continues as it has.

From the outside looking in, I don't think the growth in ground facilities is happening fast enough to handle 25 percent growth year on year, said Ram Menen, divisional senior vice president for Emirates SkyCargo.

Blicher said other nagging problems continue to hinder China's air freight sector.

There's been monumental change in the regulatory environment, but it's still not at the level of Singapore or Hong Kong, he said. Security screening is very parochial in nature, especially in comparison to the U.S.

A bigger issue is load imbalance, something that recently caused Northwest Cargo to abandon its hub in Guangzhou.

The domestic market is growing, so maybe we'll see a better load balance, la Japan, instead of it being weighted so heavily toward outbound, Blicher said. The economy here is developing and the currency is appreciating, so you'll see goods from overseas. You won't see a true balance in the foreseeable future, but it's moving in that direction.

Source: American Shipper