Cargo soars with Asian growth

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Economic ups and downs are reflected in demand for air cargo, but the long-term trend is clear: Asia’s growth and the globalisation of manufacturing chains are boosting demand for air transport of goods.

The volume of air cargo is a sure indicator of whether the world economy is on an upward or downward swing. When the recession hit a couple of years ago, the amount of goods sent by air took a dip. Last year shipments began to grow again quickly.

“Air cargo is a thermometer of the economy. It indicates the pulse of the main artery of world trade,” says Jorma Mäntynen, professor of transportation engineering at the Tampere University of Technology.

Measured in tonnes, air cargo only represents about two percent of international trade. However, in terms of value, an estimated 35 per cent of international commerce is carried by air, according to the Air Transport Association (IATA).

Need for speed

Air transportation is particularly important to companies with highly advanced manufacturing and logistics chains based on the rapid, precise transfer of products and relatively valuable, light components between continents. Electronic equipment and parts are perfect examples of these.

The manufacturing of mobile phones and other consumer electronics is concentrated in the Far East, where the newest models must reach shop shelves as quickly as possible. The same is true of fashion garments.

“Using air freight allows a firm to keep its warehouse levels low. This in turn allows a more efficient turnover of capital,” says Finnair Cargo’s vice president of global sales, Pertti Mero.

The automotive industry also relies on air freight. While there are assembly plants all over the world, most essential parts still come from parent companies in Europe, Japan or the US.

Exotic fruit, vegetables, fresh seafood and cut flowers from faraway countries must be delivered swiftly to consumers. Norway sends fresh-caught salmon to East Asia, where it is processed and sent on to shops and restaurants.

“It’s our responsibility to ensure that the goods flow according to the agreed timetables. It’s also important that our customers can track how the logistics chain is working,” Mero points out.

Business grows, competition stiffens

IATA estimates that air cargo companies have a total combined turnover of 60 billion US dollars annually. Significant growth is expected in the coming years.

“The rise of Asia is a huge thing for the air cargo business,” Mäntynen says.

At the same time, competition is being more intense.

“The stiffest competition will continue to come from Asia,” says Finnair Cargo’s senior vice president, Antero Lahtinen. “For instance, Chinese firms now carry one third of all air freight heading abroad from China, but they’re looking to increase this share.”

Middle Eastern airlines, which have been investing heavily in new aircraft and airports, are also eager to gain market share.

“The Persian Gulf has an excellent position between Asia and Europe. It’s also a good hub for African freight, which is forecast to grow briskly,” Lahtinen observes.

Finnair Cargo strengthens its position

As Mero sees it, the European companies essential competitive advantage is quality of service. “We need to know in detail about our customers’ business, as well as that of all players in the logistics chain, so that we can respond to changing needs in an agile way,” he says. “We must also stick to cost-effectiveness.”

Antero Lahtinen proudly points to Finnair’s route network, which forms the basis of its cargo operations. More than 80 flights a week to long-haul destinations in Asia and North America as well as a comprehensive route network within Europe guarantee that freight moves quickly and precisely.

“For cargo people, this is a dream map,” he says. “Our comprehensive network enables customers to flexibly adjust their flow of goods depending on their own output and demand. Products can be sent frequently in smaller loads.”

Along with its passenger planes, Finnair transports freight in dedicated cargo planes to Hong Kong, Seoul, New York, Frankfurt, Shanghai and Mumbai. This year Finnair Cargo is giving up its own planes, though, and will purchase its needed capacity from the cargo carrier Nordic Global Airline, of which Finnair is a part owner. Freight services will also be purchased from World Airways, which operates on the New York-Helsinki-Shanghai route.

“This cargo capacity bought from other operators complements our own route network. The next step could be cooperation with Asian partners. Our goal is to be number one in the Nordic region and one of the most desirable alternatives for air cargo between Europe and Asia,” Pertti Mero states.

Natural areas for further growth are India and North America.

“Using cargo planes also gives us the option of offering routes that are not as significant for carrying passengers as goods. For instance, the Mumbai and Chennai regions of India have a lot of technology and textile firms, which make much use of air cargo,” Mero notes.

Text by Matti Remes
Photo by iStockphoto

A version of this article was previously published in Finnair´s Blue Wings magazine (October 2011).

 

Published October 24, 2011

Category: Market updates, Finnair Cargo

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