Vol. 10 No. 62                       THE GLOBAL AIR CARGO PUBLICATION OF RECORD SINCE 2001                Wednesday June 29, 2011


People watch as an aircraft takes off from Hong Kong International Airport on June 5, 2011. Citing an increase in air traffic demand on the back of strong economic growth in Asia, the city's Airport Authority said it had to find ways to increase the capacity of the airport as current facilities were expected to be saturated by 2020. A proposed third runway would enable the airport to handle a maximum of 620,000 flights a year, the authority said, though environmental groups have expressed concern over the plan, which they say would threaten an area popular with endangered Chinese white dolphins.

     Does Hong Kong International Airport need a third runway? The responding cry from stakeholders is resounding and shrill—we want it; we need it; we must have it!
     Construction of a third runway was one of two options put forward by Airport Authority Hong Kong (AAHK) at the start of June, when it called for public and stakeholder feedback on its 20-year development blueprint for HKIA. Hong Kong International Master Plan 2030 outlines the alternative to a third runway as a medium-term plan to upgrade terminal and apron capacity at its existing two runways, a proposal almost universally greeted with disdain within the airline industry as a an expensive HK$23.4 billion (USD$3 billion) Band-Aid.
     The third runway option will require the reclamation of about 650 hectares of land lying north of the existing airport island. At a cost of HK$86 billion, it will increase capacity to meet estimated demand of 620,000 flights per year, 97 million passengers and 8.9 milllion tons of cargo by 2030.
     The Master Plan 2030 consultation process will end on September 2, but the clock is ticking on how best to move forward – slots at HKIA are already in short supply, construction of a third runway is likely to take ten years and AAHK admits that current capacity will be saturated by 2020.
     Once the consultation process is complete, AAHK will submit a recommendation to the Hong Kong government, which will make the final decision.
     Given that HKIA handled some 4.17 million tons in 2010, nudging it ahead of Memphis to become the largest cargo airport in the world by tonnage, the debate about investments in its future capacity has global ramifications, but the sub-plot is all about regional market share.
     Giovanni Bisignani, IATA Director General and CEO, said a third runway was the only way Hong Kong could remain “a great place for businesses to serve both China and the region.” Andrew Herdman, AAPA Director General, said that construction would need to start soon “if Hong Kong is to maintain its competitive edge.” Hong Kong Air Cargo Terminals Limited (HACTL), the leading cargo handler at HKIA by volume, went further still, warning that failure to proceed would see Hong Kong lose its “status as a premier air cargo hub for the region.”
     Forwarders and cargo airlines just love to funnel shipments through Hong Kong to global and regional markets. HKIA offers unrivalled international connectivity and cargo processing service quality, while its cluster of airlines and forwarders benefit from the ability to co-load and consolidate, which allows them to optimize space and protect margins.
     The Pearl River Delta region of southern China, for example, produces over 25 percent of the country’s exports and more than 10 percent of its industrial output and is within easy reach of domestic airports with international connections at Guangzhou and Shenzhen. However, one CEO at a major forwarder told ACN that although uplift rates were frequently cheaper from Chinese rivals in comparison to HKIA, almost 90 percent of its air freight was still trucked to Hong Kong due to its unrivalled efficiency, clear regulations, and excellent ground handling and customs services.
     “Hong Kong’s future as a key air cargo hub is heavily dependent on its ability to speed intermodal transport by land, sea or air between HKIA and factories in South China - that’s a big USP for them,” said another forwarding executive based in southern China.
     But that advantage is gradually being eroded. Chinese and foreign airlines are boosting international service options from domestic airports, while much effort is being made by the authorities to improve the regulation and processing of cargo at gateways. As factories in China move inland in search of lower operating costs, huge investment in rail and road links to China’s airports are also improving overland transit times to major domestic hubs.
     The China market is also evolving in other ways that will spur air cargo demand in the future, further raising the stakes for HKIA. The Chinese government is encouraging producers to move up-market rather than compete solely on price, while rising imports are a growing part of the equation. UPS and FedEx cited both trends as pull factors for establishing new hubs in recent years at Shenzhen and Guangzhou, respectively. The integrators also stressed that being closer to their customers in China would improve service levels in the shape of extended cut-off times for long-haul and intra-Asia services.
     Both Shenzhen and Guangzhou have ambitious plans to expand by building additional runways, but HKIA is not only competing with airports in southern China for air cargo volumes. Additional capacity will be built at Shanghai, and a third runway is expected to be in place at Bangkok’s Suvarnabhumi airport by 2016. Ambitious expansion projects are also in place at Changi Airport in Singapore, Taiwan’s Taoyuan airport and Incheon International Airport in Korea. Indeed, the latter will have five runways in place by 2020.
     Growing competition from rival hubs and runway capacity constraints at HKIA make investment in a third runway an “urgent requirement if Hong Kong is to retain its pre-eminent hub status,” according to Cathay Pacific, which claimed that Hong Kong’s whole status as an international aviation and economic center would be at risk if it was not built.
     AAHK is fully aware just how high the ante has now risen, both for the airport and Hong Kong itself. “If HKIA does not expand, or fails to expand in a timely manner, to meet our future aviation traffic demand, there will be adverse consequences,” said Stanley Hui, (right) Chief Executive Officer. “The immediate impact would be on HKIA’s connectivity with the world, because with constrained capacity, HKIA would have to turn away traffic, possibly resulting in the airport serving fewer destinations.”
     Let the consultations begin…
Sky King/Flossie

 

Special Commentary—
Issa Baluch

     Issa Baluch may know as much about logistics as anybody you will ever meet.
     He possesses the chops and know-how gained over a career that spans 37-plus years, and he has used these things to gather some of his thoughts and put them down in black in white for all the rest of us to study and ponder.
     The Baluch book “Transport Logistics - Past, Present and Predictions” available on Amazon for $65 U.S. is a 300-page barn burner that Prof. Issa created in 2005, and it still fascinates.
     Who else sets the table for modern logistics study with detailed examples of historical projects that demanded careful transport logistics management; for example, he explores what it took to build the Great Pyramid in Egypt, the transport logistics practiced in the Berlin Airlift, and the Battle of Stalingrad?
     A second volume, “The Wheels of Commerce” (Amazon $36.50, was created last October with Charles Edwards) and follows the thread with another 340 pages on the topic.
     Best known as the founder of Dubai-based Swift Freight, which was a medium sized multi-national that he eventually sold to Barloworld, one of Issa’s lasting contributions is that he is the guy that launched sea-air in Dubai.
     These days we find him in some kind of “retirement” (as if he ever could); Issa is now at Harvard in the U.S.A., where he is undoubtedly continuing to think big thoughts about logistics.
     He has also started a major farming initiative in Ghana.
     It is our incredibly good fortune that we have this interesting and, as his friend Ram Menen describes, “nice guy” in our pages.
     Expect us to beat a hasty trail up to Beantown as 2011 rolls along, not only to watch our Yankees whomp the Red Sox, but also to take our new best friend to the game.
     Here in advance of the summer, Issa shares some ideas with us.

FT:   Noting the changing nature (and direction) of the China air cargo, how do you think it impacts air cargo?
IB:   Recent economic data show that China’s imports are growing at a rapid rate. The implication here is that, apart from production, China is now also developing an emphasis on consumption. This change in a country long known for being “the world’s factory” and also the second largest economy in the world spells a significant increase in demand for air cargo going into China. Naturally, there will also be a rise in the number of carrier flights going to China to capitalize on the boost in imports. I believe this will also create a more competitive environment, which is one sign of mature industry. Companies will now be urged to take a closer look at their pricing strategies to strike a balance between imports into China and export from China.
FT:   How is business right now? What scenario is likely to unfold as 2011 continues?
IB:   From a regional logistics hub, UAE has successfully grown into becoming a true global hub, thanks to rapid developments in infrastructure such as the Jebel Ali Port and the Dubai World Central-Al Maktoum International Airport. This growth will be sustained this year, supported by further upgrade in infrastructure across the UAE.
     Last April, Etihad Rail revealed that the nationwide railway would be able to start its freight service by 2013. In Abu Dhabi, the Khalifa Port will be completed next year. In Sharjah, the construction of a 4,000-meter terminal in Sharjah International Airport has been given the go signal.
     From a perspective of freight, there is no doubt of good news when governments continue to invest in infrastructure.
FT:   What do you define as a new market?
IB:   Everyone keeps talking about India, China and Brazil. But I would add that Africa is another upcoming new market. Just look at the new oil and gas finds, and the minerals that are making other interests queue up. As these African countries continue to grow, they will also demand a more significant role in global economy.
FT:   After years of non-stop increases in India/China business, what systems, infrastructure, etc. need attention to perhaps squeeze more bottomline?
IB:   The rapid growth of India and China offers additional opportunities for logistics service providers. One such opportunity is 3PL. In India, the 3PL market is still in a developmental stage. Right now, it is the multinational companies that are the prime users of 3PL. However, domestic companies are also seen to follow the same pattern.
     In China, there is a high demand for time-definite logistics services – this presents important opportunities for foreign and domestic companies to offer 3PL services.
     I should add that those who ignore embarking in such extensions of service offerings will not be able to improve their bottom line.
FT:   What is the top challenge to Air Cargo 2011 – Security? Rates? Given the opportunity to make some changes (in an ideal world), what would you like to see happen in air cargo?
IB:   Cargo security remains a challenge for logistics companies. Tighter screening measures for air cargo have already been implemented in countries such the UK and the US. Cargo security regulations have also been imposed on major carriers.
     In an ideal world, I would not want to see a paralysis of some sort over security, but a balanced mix between security & commerce. Stakeholders need to get together and work towards some practical measure. We seem to be heading towards impractical solutions causing a paralysis. I guess it is time for smart people to find smart solutions.
Geoffrey Arend

 

 


     Air cargo stakeholders in India are unhappy at the way they are being treated by airport authorities – especially the private operators in Delhi and Mumbai. The issue that has been nagging the air cargo sector was the charges levied by airport authorities. Air cargo stakeholders have often pointed out to authorities that they were being made to pay through their noses.
     At a recent interactive meeting, held under the aegis of the Indo-American Chamber of Commerce, on ‘Airport Economic Reforms—Moving ahead’, speakers made a plea to the Chairman, Airports Economic Regulatory Authority, Yashwant Bhave, to find ways and means to put an end to the fees that were being thrust on them.
     Held specially to highlight the developments made by AERA—that incidentally completed two years of existence this May—and the impact it would have on stakeholders, the meeting brought out an unpalatable truth: the Authority had little or no jurisdiction over cargo or cargo-related matters. In fact, AERA Chairman Bhave admitted that cargo remained outside his purview. Incidentally, the session was intended to highlight the developments made by AERA and the impact they were having on stakeholders.
     Taking up cudgels on behalf of the air cargo industry, Tulsi Nowlakha Mirchandaney, Managing Director, Blue Dart Aviation, said that while the regulator was seriously looking into various matters related to airport economics, there was no one to look at issues that governed the economics of the air cargo industry. She specifically mentioned the charges levied by the airport operators.

     She mentioned that in the last 30-odd years, a lot of changes had taken place in the air cargo industry worldwide. However, over the last few years, customer profiles had changed dramatically. In tandem with globalization, outsourcing was growing and this, she said, required a fresh approach by the regulator to the cargo industry’s problems.
     “The distinction between the passenger and cargo segments in aviation is no more conspicuously evident than in the progress of the two segments in the past three decades...”, she told ACNFT. While the growth in passenger air travel has been driven by the low cost-low fare passenger airlines, the air cargo segment has charted out a “divergent course” for itself.
      “The lower cost, belly-hold capacity growths of air cargo have been outpaced by the quantum leap in the premium, dedicated capacity offered by air express carriers,” she pointed out. Giving the example of the USA, she said that with ample air cargo belly-hold capacity, the demand for dedicated air express capacity had not diminished, and today represented a dominant market share in air cargo.
     She emphasized that in such an environment, it was critical for airport operators and regulatory authorities to first recognize that air express contributed to economic development by implementing effective logistics.      “Today,” she said rather sadly, “international passengers are able to exit Indian airports within half an hour of their arrival while cargo or air express, regrettably, does not enjoy the same priority.”
     Taking a broadside at airport operators, Mirchandaney said that charges for airport facilities must reflect the infrastructure and services provided. “Increase in tonnage, for example, does not require expensive extensions of vast corridors of carpeted terminals or additional food courts warranted by increase in passenger numbers. Cost competitiveness has a direct impact on the air express operator’s costs and the customer and the country’s trading competitiveness,” she said.
      In a telling comment, the head of the country’s only domestic air express operator said that India’s aviation story would truly be called successful when a small entrepreneur in the country’s interior is “able to conveniently access markets for his products across the country and around the world speedily and compete cost-effectively, in the same manner that he can now travel on a low-cost airline.”
Tirthankar Ghosh/Flossie

 

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     We are back . . .
     U.S. armament and defense giant Northrop Grumman is producing the world’s largest airship. As head of project, Alan Metzger told the media at the Paris air show in Le Bourget last week that the first specimen of this newly built transporter will be ready at this year’s end.
     The program is financed by Washington’s Defense Department spending 517 million dollars for three Long Endurance Multi-Intelligence Vehicles (LEMVs), as the program is officially baptized.
     Most likely they will be deployed in Afghanistan by the military for reconnaissance and surveillance purposes. The performance is amazing since the airships are able to stay in the air nonstop for up to three weeks without need to land for refueling, claims Northrop Grumman.
     Each one is powered by four engines from German producer Thielert Centurion.
     According to Metzger the LEMVs can basically also be utilized for commercial and civil purposes.
     Therefore, his enterprise envisages constructing airships capable of lifting different loads of cargo ranging between 20 and 200 tons each flight.
     “There is sufficient demand as interest by market participants has already shown,” emphasized the manager in Paris.
     Forerunners of the LEMVs were the majestic Zeppelins that dominated the skies in the first decades of the last century.
     Their episode came to an abrupt end after LZ 129 “Hindenburg” exploded in Lakehurst near New York in May 1937 leaving many dead and badly injured.
     Twenty years ago the airships were given new life when Zeppelin Luftschiffstechnik GmbH started manufacturing a successor called Zeppelin NT (New Technology).
     One of these NTs however, crashed on June 13, this year, killing the pilot.
     Goodyear had chartered the airship for PR purposes.
Heiner Siegmund

 

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