With air freight demand expected to soar across west and central China, cargo carriers and forwarders have a choice when it comes to selecting sites to develop their regional hubs. Although geography and infrastructure are among the top considerations, government subsidies and preferential policies are two factors which absolutely must be considered in China’s case. Many local governments already incentivize air cargo in one way or another, but this week the Chengdu Municipal Government took it a step further when it unveiled a generous and costly subsidy scheme, along with a set of preferential policies which aim to promote air cargo development in the city, and cement the city’s position as the fifth largest cargo airport by volume in China.
The program comes as a response to the intensified competition from other cities in the region, notably Zhengzhou, Xi’an, Chongqing, and Kunming. Chengdu’s Shuangliu Airport saw tonnage jump 9.9% in 2016, to 611,500 tonnes. This growth rate although solid, lagged Zhengzhou, Chongqing and Xi’an, which all saw double-digit growth rates in 2016.
Realizing the vital role logistics plays in the scheme of broader economic development, Chengdu is willing to “buy” airfreight now, with the hope that it will pay dividends down the road. The local government, in conjunction with Sichuan Provincial Airport Group, released a bulletin last week which it hopes will incentivize forwarders and carriers to set up shop, and do business out of Chengdu. What follows,is a short summary of the policies:
Financial assistance for new routes
To entice carriers to launch scheduled freighter flights, and build out a global airfreight network to and from Chengdu, the program offers financial incentives of up to US$29,300-44,000/per route for scheduled daily widebody freighter flights serving international destinations. The payments last for two to three years, and are based on performance and the frequency of departures in years two and three.
Carriers launching flights to three or more international destinations are also eligible for supplemental subsidies of up to $14,700, while domestic routes are eligible for up to $2,900/per route.
Extremely competitive routes meanwhile, may be eligible for further subsidies on a “case-by-case” basis.
Lastly, for airlines willing to setup a hub in Chengdu, the government is offering subsidies of US$ 730,000 to $1.4 million based on capacity. The city and district will also offer additional incentives to support construction and other costs, based on the size of the investment.
Adding capacity alone does not create freight, and so the air cargo development program goes a step further to incentivize carriers and forwarders for the tonnage they move through Chengdu.
Once again, long-haul (8+ hours) widebody freighter flights stand to collect the largest payments of up to $0.73/kg. Medium-haul flights (5-8 hours) can receive up to $.44/kg, while flights less than 5 hours can collect up to $.29/kg.
International belly freight is also eligible for the program, and is subsidized at a rate 30% less than freighter flights. International freight transiting through Chengdu meanwhile, is eligible for up to $.29/kg.
Of course, any program looking to boost freighter flights must also incentivize forwarders to route cargo through the city. Chengdu is offering financial assistance for overland transportation costs related to freight collected within 1,000 km of the city, with an award of up to $.15/kg. In addition, all international cargo moving through Chengdu is eligible for between $0.01 and 0.03/kg. To encourage scheduling of seasonal and ad-hoc charters out of Chengdu, forwarders are eligible for reimbursement of up to $0.15/kg.
Efficiency and infrastructure improvements
Incentivizing carriers and forwarders to develop Chengdu as an air freight hub is a temporary solution to get the ball rolling. In parallel, the government has committed to investing in enhancements aimed at reducing handling costs, and expediting customs clearance and other operational processes – measures which may keep carriers hanging around even after the subsidies end.
In recent months, domestic carriers have responded positively to similar programs offered by local governments in central China, and have announced plans to expand operations, or establish new airlines or regional hubs in Xi’an and Zhengzhou. Chengdu seems particularly interested in attracting international carriers. Might the program be enough to do so?
And now for a FedEx 777F landing in Chengdu: