E-commerce and freighters part II: Partnering on Asia-Pacific fulfillment

Yesterday, in part I of our feature on e-commerce and freighters, we explored the rise of the own-operated network for e-commerce fulfillment in the United States. In part II today, we consider how e- tailers in the Asia-Pacific region are utilizing partner capacity to fulfill growing e-commerce demand in the region. Across the Pacific Ocean, Chinese e-tail giants Alibaba and JD.com dominate the Asia-Pacific e-commerce market and utilize vastly different strategies when it comes to fulfilling e-commerce orders. Both companies have their own logistics arm – Cainiao on Alibaba’s part, and JD Logistic s – but virtually all e-commerce moving by air freight for the companies is moved via third-party or partner capacity. JD, at least, has dabbled in its own dedicated freighter service through JD Logistics’ partnership with HNA Group subsidiary carrier Tianjin Air Cargo . However, Tianjin Air Cargo operates only three 737Fs in total – one leased 737-300F and two 737-400Fs. Although executives with the carrier once said they hope to grow the fleet to between fifty and 100 aircraft within a few years, it is unclear where the carrier would source such a large number of aircraft, particularly given HNA Group’s financial woes that led creditors to seize some of the Group’s assets in April. It is unlikely JD will truly launch its own air freight operations, though, according to Stard Huang, President of International Business at JD Logistics. He told a crowd at April’s Cargo Facts Asia event in Shanghai that the e- tailer doesn’t see a need for its own transportation assets, and prefers to adopt different resources to maximize resource usage, and to utilize partner capacity when needed. Huang also noted that within China, transportation of e-commerce purchases operates very differently than in the US, thanks to high-speed rail and road access that makes the domestic air freight market more competitive. E-commerce parcels from China, then, are likely to utilize rail or truck transport for short-haul or medium-haul routes. In a discussion translated from Chinese to English, Huang said, “For example, Shanghai to Beijing, volumes are high for air, but high speed is very robust, only takes four and a half hours, so if [a customer] can get [their] parcel in 24 hours, I think they can accept that.” He added that for most distances under 1,000 kilometers, air freight in China will be challenged by roads and other modes. Apart from its operations in China, JD Logistics has worked to build up its network in some overseas markets, including in Thailand and Indonesia, where Huang said it took JD between three and four years to establish a network to fulfill Indonesian orders. For JD’s customers in Indonesia, he said, “a large majority of that will be delivered by us, but a small [portion] will be delivered by local providers. In Thailand, we operate the warehouse, but the delivery will be by our partners.” Relying on partners for deliveries in other markets and for cross-border orders will likely be a major part of JD’s strategy going forward, according to Huang. “In different countries, we have different strategies, usually based on local delivery capability and the local vendors,” he said, adding that cross-border delivery will be handled mainly by JD’s partners. [caption id="attachment_15314" align="alignright" width="500"] Cainiao already charters space on flights between China and Europe, and Asia and Europe. Just how big will its own-operated network get?[/caption] The World in 72 Hours While JD competitor Alibaba has also not committed to the creation of its own freighter fleet, its Cainiao logistics arm has nevertheless invested heavily in working with partners to create cross - border air freight networks. In what is perhaps Cainiao’s most ambitious goal, last year, the company announced plans to build out six international logistics hubs – in Hong Kong, Dubai, Hangzhou, Kuala Lumpur, Liège, and Moscow – to accomplish its goal of point-to-point delivery between any two global cities within seventy-two hours. Regarding freighter access, Cainiao has secured that as well, via a memorandum of understanding inked in December with Russia-based conglomerate Volga-Dnepr Group. Under the MoU, Volga-Dnepr was named the “preferred carrier for airlift capacity and logistics services” for Cainiao, which was granted “guaranteed access” to VDG’s freighter fleet. Cainiao and Volga-Dnepr are both working to develop their global reach and following Cainiao’s selection of Liège ( LGG ) as its European hub, VDG’s AirBridgeCargo affiliate carrier also selected LGG as its European hub. Cainiao’s partnership with Volga-Dnepr Group still presents its challenges to the VDG carriers, however. Joanna Li, VP Strategic Partnerships, Asia & Pacific, Volga-Dnepr Group, said at Cargo Facts Asia in April that e-commerce fulfillment can pose major challenges to freighter operations when it comes to balancing demand across the legs of a freighter route. That challenge is made particularly difficult considering that Alibaba’s biggest sales event by far – Singles’ Day, or 11.11 – takes place during what is already peak season for air cargo. “So far, e-commerce traffic is mainly handled by charters, not commercial freight,” Li said, adding that VDG has utilized its fleet of 747 freighters and Atran’s 737 freighters for charter operations. While VDG airlines utilize 747Fs for cherry and seafood imports via charter flights, “you don’t really have the export demand. There’s not a lot of outbound demand into Chile, where cherries have come from recently.” She added that “in the long-term, e-commerce supports balance, but in the short-term, it creates small fluctuations which sometimes aren’t handled by the commercial carrier but by charter flights.” Only last month, Atran’s first 737-800BCF (32616), on lease from GECAS, kicked off weekly scheduled service between Hangzhou (HGH) and Riga (RIX) via Moscow Vnukovo (VKO) and other intermediate airports for Cainiao. However, as Li mentioned, the HGH-RIX service on its own isn’t supportive of the lease rate and company sales personnel shared via social media that the aircraft is also available for charters. It is also possible that Atran will work with Cainiao over time to launch additional routes with the -800BCF. Considering Southern Air’s already extensive operations of the 737-800BCF aircraft for Amazon Air in the US, the 737 NG conversion seems destined to see a future as the small narrowbody freighter of choice for e-commerce fulfillment.

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