China Southern provides timeline, plans for cargo unit reform
Earlier this month at Cargo Facts Asia in Shanghai, Zhang Dezhi, VP Cargo for China Southern Airlines, told conference delegates that the reform process was well underway for the cargo unit of China’s largest combination carrier and that a detailed plan would be announced before the quarter’s end. Frustrated with the division’s sluggish growth rates that have averaged just 3% each year for the past decade, China Southern (CZ) is looking to its peers in the express market as it looks to inject new ideas, and new capital, into its cargo business.
Although mandated by China’s National Development & Reform Commission, delegates on the sidelines of Cargo Facts Asia agreed that “mixed-ownership reform” of State-owned assets like CZ Cargo may be the only way for the behemoths to avoid redundancy in a quickly changing market. Zhang is equally convinced, based on the rapid growth of China’s express industry. In recent years, seven Chinese express companies, including YTO Express and SF Express, have successfully pursued IPOs, which Zhang says is indicative of investor appetite. SF Airlines, the carrier affiliate of SF Express, for example, has built up a fleet of more than 50 freighters in less than a decade, and expects to double its fleet by 2022 . China Southern Cargo, meanwhile, has not added any freighters since 2011.
Next year, China Southern’s fleet will begin growing again with the addition of two 777Fs. The carrier recently converted an existing order with Boeing for the purchase of two 777-300ERs to an order for the 777F variant. Beyond the two 777Fs, no concrete plans for additional freighters exist. If reform proves successful, however, more orders could follow.
As a first step post-reform, China Southern cargo will try to leverage existing resources to compete in areas that are outside the scope of its current air cargo transport options. With cargo facilities and landing slots at major airports across China, Zhang said the carrier would follow Eastern Air Logistics’ lead and attempt to turn its terminal into a “profit center.” The under-utilized, on-airport warehouses could certainly have great appeal to e-tailers or express companies, which look to minimize transit times. Shortly after Eastern Air Logistics embarked on reform, it entered into a strategic partnership with JD.com under which EAL made terminal facilities available to JD.
Apart from closer interaction with e-tailers and express companies, Zhang said carriers would likely undertake projects directly with shippers. Already, China Southern Cargo has been piloting a program with Huawei under which personnel from CZ’s cargo division are deployed directly to Huawei factories. The program has implemented a security check, which ensures shipments are compatible with air freight before a consolidation even leaves the factory. Once a shipment is cleared, CZ handles end-to-end transportation, from the factory to the destination airport, in a setup that more closely resembles an integrator operation.
Looking ahead to the timeline for reform, Zhang said that a team of consultants and legal advisers have nearly finished their audit. By the end of this quarter, CZ Cargo’s new investors will surface, and a standalone unit could be spun-out by year’s end.
