Need for speed: Asian express networks and the rise of e-commerce

Express airfreight volumes, strengthened by e-commerce shipments, are expected to outgrow general air cargo volumes by 2041. Pre-pandemic express volumes accounted for roughly 17% of overall cargo volumes, Airbus recently reported in its Global Market Forecast 2022 (GMF22) published in July. However, by 2041, express shipments are forecasted to account for 25% of overall volumes. But while express shipments in various regions have all continued to see growth — international express increased 9% in 2020 and 11% in 2021 — those in the Asia-Pacific region, specifically China, have skyrocketed, as reported by Air Cargo World sister publication, Cargo Facts Consulting . For instance, Chinese express carrier SF Express saw express air and ground transport increase 68% in 2020 and 30% in 2021. By comparison, U.S. domestic air express grew 12% in 2020 and 5.5% in 2021. As express volumes to and from Asia on the rise, express stakeholders like UPS, SF Express and DHL continue to eye expansion in the region, growing their express networks and investing heavily in both capacity and infrastructure to improve connectivity. Living life in the fast lane Domestic express operations in China have been especially strong, with the annual domestic air cargo tonnage growth between 2014 and 2020 up 3.7% year over year, CFC reported. Like most express networks, much of the express traffic in China is domestic postal deliveries. In fact, Chinese air express carrier SF Express – which is China’s largest air express operator – reported that it held roughly 26.5% market share of China domestic cargo and mail transportation in 2020, compared with 20% in 2018, according to CFC’s Air Express Market Outlook 2022-2026 . [caption id="attachment_57131699" align="aligncenter" width="645"] Graph/ Cargo Facts Consulting[/caption] In 2020 SF Express reported $24.13 billion in revenue, according to CFC . Ninety-eight percent of 2020 revenue was generated from express and logistics as the company moved 8.1 billion packages, a 68% YoY increase. Indeed, SF International has been integrating resources to enrich the frequencies in Southeast Asia, a spokesperson told Air Cargo World . “With direct routes to Singapore, Malaysia, Thailand and Vietnam, the capacity and timeliness are guarantees for Chinese businesses going abroad … The upgrade in Southeast Asia increases timeliness for international express 2-4 days for some South China cities e-commerce to 4-7 days to meet various requirements of different customers.” Express carriers have historically played a significant role in the transport of e-commerce shipments, and with the COVID-19 pandemic leading consumers to online shopping versus brick-and-mortar storefronts, e-commerce demand has escalated in recent years . This is especially true in Asia, where e-commerce companies like Alibaba dominate the market. “For UPS and FedEx in particular, there’s a lot more interest in that Asia-Europe lane [which is] the lane that Asian Express providers have been focusing a lot on [like] SF Express,” said Cathy Roberson, president of Logistics Trends & Insight and an Air Cargo World columnist. “There’s been a lot of focus in that area primarily for the reason of e-commerce as well as manufacturing.” From a B2C perspective, e-commerce is still a big part of what the express providers are transporting, Roberson said. In turn, many express operators have been investing in e-commerce operations in an anticipation of further growth in the sector. “We also expect the structural trend of e-commerce to again drive an increasing share of retail sales being made alone, as we will be through the current post-pandemic normalization phase by the end of 2022,” according to management comments on DHL’s Aug. 5 earnings report. Indeed, resilient e-commerce growth continued to drive DHL’s overall revenues in Q2, which reached 24 billion euros ($24.4 billion), up 23.4% YoY, according to the operator’s earnings report. The carrier’s Asia-Pacific express revenues, specifically, reached $2.6 million, up 16.6% YoY while H1 revenues increased 16.3% YoY to $4.9 million. Although express cargo continues to surpass general cargo growth, the overall rate of express growth seems to be decelerating — at least in the short term. In fact, express market growth generally continues to outpace overall airfreight growth, especially during the pandemic, although general air cargo growth outpaced express growth in 2021, CFC reported. For example, although SF Express saw air and ground shipments grow significantly in 2020 and 2021, the share of air shipments decreased to roughly 10% from 18% in two years. In addition, business-to-consumer traffic made up roughly 50% of all express traffic and increased to 65% in 2020 before dropping down to 60% the following year. Looking at 2022, supply chain and capacity challenges continue to impact short-term express growth. “In the medium term, we forecast more moderate growth rates while still expressing air express shipment volumes to grow faster than overall air cargo,” CFC reported. “We predict growth of 5.4% per year between 2022 and 2027 for international express.” The report does not provide a specific forecast for China express volume growth. Ramping up regional operations Hong Kong International Airport (HKG) remains one of the largest regional hubs for the Asia-Pacific region, ranking No. 1 among the world’s top cargo airports based on 2021 tonnage , according to preliminary data from Airports Council International (ACI). In 2021, the airport handled nearly 4.5 million tonnes of cargo, primarily e-commerce and medical shipments. DHL opened a dedicated express cargo terminal at HKG, the “first large-scale automated express hub in Asia-Pacific,” covering an area of roughly 3.5 hectares, according to the airport’s website. The hub handles more than 35,000 parcels and 40,000 documents every hour. DHL’s Central Asia hub represents a total investment of more than HK$1.6 billion ($2 billion). Hong Kong’s airfreight industry generates more than $191 billion annually, according to the Q3 DHL Hong Kong Air Trade Leading Index (DTI), published July 21 by Hong Kong Productivity Council (HKPC). The city’s freight revenue is listed at $47 billion. Meanwhile, FedEx Express is looking to strengthen cross-border trade between South China and other global markets, and in July secured an expansion agreement for a 41,000-square-meter FedEx South China Operations Center at Guangzhou Baiyun International Airport (CAN) . The center, expected to open in 2027, will be equipped to handle up to 25,000 packages and documents every hour. FedEx operates more than 210 weekly flights to and from CAN, which ranked No. 15 in Air Cargo World ’s most recent Top 50 Cargo Airports ranking, based on 2020 throughput. In 2021, the airport handled more than 2 million tonnes of cargo. In addition to HKG, Narita International Airport (NRT) , Singapore Changi Airport (SIN), Taiwan Taoyuan International Airport (TPE) and Shanghai Pudong International Airport (PVG) are among the largest express hubs in the Asia-Pacific region, according to CFC’s express map . India sees burgeoning cargo growth Although it is not yet a huge locus of express activity, India is also seeing significant growth in its express market, especially considering its enormous market with a population of roughly 1.4 billion. In turn, express operators are strengthening cargo ops in the region with new facilities and connectivity. In fact, Bangalore International Airport (BLR) reported its highest-ever cargo throughput for the fiscal year ending March 31, 2021, handling more than 400,000 tonnes of cargo. Handler WFS’ cargo terminal at BLR alone is equipped with a handling capacity of 210,000 tonnes annually, and has plans to increase annual capacity to 250,000 tonnes. DHL also invested $23.6 million in its BLR Gateway expansion in 2021 to provide additional capacity for e-commerce shipments. Meanwhile in July UPS launched a five-times-weekly service connecting BLR to TPE, Shenzhen (SZX) and Cologne (CGN), using 747-5Fs. The express carrier also opened a 15,000-square-foot facility at BLR to increase e-commerce and expedited cargo shipments in the area. In recent years even SF Express, which primarily transports Chinese domestic shipments, looked to tap into cross-border shipments between China and India with the intention of expanding its market base in the country. In 2020 the company’s carrier arm SF Express launched a twice-weekly direct route between Shenzhen (SZX) to New Delhi (DEL), in addition to the carrier’s existing SZX-Chennai (MAA) route which was established in 2019. A need for speed and space Express carriers, in turn, have been strengthening their networks with new routes to accommodate the surging demand for express shipments in the Asia-Pacific region. For instance, DHL has significantly expanded its 777F operations to boost Asia-Pacific connectivity , adding 17 weekly route rotations per week. DHL Express also launched a three-times-weekly route in June connecting Chubu (NGO) in Japan and Cincinnati (CVG) , increasing weekly capacity by 102 tonnes. Earlier in February, the express carrier also launched a new 777 route connecting Ho Chi Minh (SGN) to Sydney (SYD), Singapore (SIN) and NGO with its hub at CVG. UPS is also looking to expand its Asia-Pacific connectivity, despite current geopolitical challenges and COVID-19 restrictions. “While our international volume levels were challenged in the second quarter due to the ongoing war in Eastern Europe and COVID-19 lockdowns in Asia, we recently launched a new daily flight from our Cologne (CGN) air hub that connects key manufacturing cities in Asia,” Chief Executive Officer and Director Carol Tome said during UPS’ Q2 earnings call . “This flight speeds up transit times across multiple intra-Asia trade lanes and provides greater connectivity to the UPS global network, including to the U.S. and Europe.” Express carriers boost their fleet Nearly all express carriers are eyeing fleet growth to ramp up much-needed capacity. For instance, SF Express’ current fleet growth plan through 2025 implies an expectation of 12% YoY growth over the next three years, CFC reported. Indeed, SF Express has shown incredible growth — in 2020 alone, its shipments were up 31% YoY to 83.36 billion packages. SF’s fleet is expected to surpass seventy freighters by the end of 2022 , as reported by our sister publication, Cargo Facts . In February the carrier took redelivery of a converted 767-300BCF, with six or seven additional aircraft currently undergoing full conversions. In addition to 37 757-200Fs, the carrier’s aircraft portfolio consists of roughly 20 737 Classics with plans to add to its 767-300BCF fleet. Widebody freighter fleets are anticipated to grow 75%, Boeing reported, with express network expansions driving growth in the medium segment. Roughly 425 of 2,795 freighter deliveries between 2022 and 2041 will be new medium-widebody aircraft. DHL, for instance, is growing its medium-widebody fleet with 767 conversions as well as its large widebody fleet . The carrier most recently received its first A330-300P2F redelivery Aug. 1 . UPS is also expanding its medium-widebody fleet and recently announced its intention to convert its own 767-300ER into a freighter to gain additional capacity. The carrier currently has 19 more aircraft on order with Boeing , with expected deliveries between 2023 and 2025. FedEx is also increasing its fleet, and plans to use 777Fs on international routes to boost capacity to its major markets, including Asia, Richard Smith, president and CEO-elect at FedEx Express, said during the company’s investors day conference in June . With express and e-commerce-related shipments on the rise, it is no surprise to see the Asia-Pacific airfreight market continue to grow. In fact, market growth in Asia is identified as one of the key drivers of new aircraft over the next 20 years, Boeing reported in its Commercial Market Outlook (CMO) 2022-2041. Currently Asian markets account for roughly 40% of long-term global demand for new aircraft, especially as carriers continue to build and bolster their express networks to meet supply chain and market demand. Southeast Asia is expected to receive 35 freighter deliveries while South Asia and China will receive five and 205 freighters, respectively, Boeing reported. “Regionally, the Asia-Pacific market forecast points to the highest traffic growth, as carriers continue to build out their express networks and supply-chain support needs,” Boeing reported. “For the region as a whole, the total freighter fleet is forecast to become roughly the same size as the North American fleet by the end of the forecast period.” Although the future of freight may not always be clear, one thing is for certain: Express shipments will be an increasing area of concentration as more stakeholders look strengthen their networks to satisfy customers’ need for speedy delivery.

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