China and its internet retailers are leading the way in an e-commerce boom, which is not only supporting the air cargo sector but likely bringing in a range of changes across the sector.
“The industry has been exploding in terms of cross-border e-commerce,” said Steve Saxon, Partner, McKinsey & Co, who added it is “seriously underestimated….in particular China outbound.”
READ: Thailand takes flight
One of the big reasons for this is customs data does not capture the full picture because it tends to travel as parcels, which Jaisey Yip, VP Cargo Business Division at Changi Airport Group, labelled “parcelisation”. The other issue is these values are low-yielding products, meaning that, while it counts for significant amount of volume, it doesn’t show much value.
There are eight billion e-commerce orders a year, according to Saxon, of which roughly one in six (around 16%) are cross-border. This has led to the situation where “there is the equivalent of seventy freighters a day e-commerce demand in China.”
Support for this comes from well-placed but different industry sources. Wilson Kwong, Chief Executive of Hong Kong Air Cargo Terminals Limited (Hactl) said cargo growth at Hong Kong airport for last year was 3.2% to 4.3 million tonnes with “a lot of growth in the fourth quarter.” The boom was bigger in Europe, with Liege Airport recording 15% to 20% import growth, according to Torsten Wefers, Liege Airport’s VP Sales & Marketing.
Both Kwong and Wefers are candid about what the cause is – China.
“What is really driving that is e-commerce” Kwong said. “Longer term the prospect of growth is definitely positive.”
Tefers was a bit more striking: “We anticipate 11% growth again, mainly coming from the booming Chinese market.”
The key drivers in all this is the rise, although virtual vertical ascent is probably a better way of putting it, of four Chinese companies: Shein, Temu, TikTok Shop and Alibaba – labelled ‘the Fantastic Four’ by Thomas Yu, Director Global Hub Operations & Product Development, Cainiao Network/Alibaba Group.
Alibaba is the veteran of the group at ten years old but two others Temu and Shein, who work on a fast fashion almost direct from the factory model in China, are credited with so much of the growth.
“Whoever heard of Temu eighteen months ago?” Martin Drew, Chief Strategy & Transformation Officer for Atlas Air Worldwide said. Currently Temu is shifting between 1,500 and 2,000 tonnes daily and the expectation is it will be moving 5,000 tonnes daily by the year end.
“That’s the equivalent of fifty 747s a day,” Drew added, assuming they can secure the planes, ground handlers and the staff to do their bit in processing it all.
READ: Opportunity in Asia
One of Temu’s strengths is its reputation as a consolidator which gives them a high density. “They are maxed out in terms of payload because of the density they are achieving” Drew said before suggesting they might not need additional volume. This would be good as a concern flagged by Drew for the future was the sheer lack of capacity, not just in terms of planes, but also in terms of services available.
It also throws the emphasis back onto an industry-wide problem: the lack of digitalisation, which would help goods move faster and more reliably. Whilst Kwong urged the industry to tackle this, in part because of how automation can address ongoing labour challenges, he also pointed out one way forward is another industry buzzword – collaboration. “Build a relationship with the ground handlers early and give them as much information as early as possible,” he said.
