Asia air cargo market gets e-commerce boost as US-China trade war yet to bite

Large Asian cargo carriers including Cathay Pacific Airways rely on freight for around a quarter of revenue. (AFP)
Updated 19 October 2018
0

Asia air cargo market gets e-commerce boost as US-China trade war yet to bite

  • E-commerce is growing at pace in populous Asia, driven by Chinese behemoth Alibaba Group and rival JD.com
  • Boeing on Monday forecast air cargo traffic would double over the next 20 years
JEJU, South Korea: Strong e-commerce demand is fueling Asia’s air freight market, with the US-China trade war having minimal negative impact so far and in some cases even boosting shipments, industry executives said on Friday.
E-commerce is growing at pace in populous Asia, driven by Chinese behemoth Alibaba Group and rival JD.com, as well as others such as Japan’s Rakuten, sponsor of Spanish soccer giants FC Barcelona.
But the flow of goods has been threatened this year by the United States imposing import tariffs on billions of dollars worth of Chinese goods to redress what it regards as unfair trade relations — with China’s government responding in kind.
“I think right now we are probably going to see a pretty strong fourth quarter,” Randy Tinseth, Boeing Co’s vice president for commercial airplane marketing, said on the sidelines of an industry conference.
“The economy today has been very, very strong. Frankly in anticipation of this geopolitical situation I think people are just going out and moving (cargo) quickly.”
Asia-Pacific air cargo volume rose 4.8 percent in January-August, showed data from the Association of Asia Pacific Airlines (AAPA). That was lower than last year’s 9.8 percent but came off a higher comparison base at a time of record shipments, said AAPA Director-General Andrew Herdman.
“Given this short-term effect of scrambling to meet deadlines for tariff imposition and so on we are seeing pockets – lanes and channels – where demand is stronger than expected. For the next several months the cargo picture remains relatively robust. The question is what will the outlook for next year be.”
Asian airlines have an outsized role in air freight, accounting for nearly 40 percent of the global market as the region is a major manufacturing hub and e-commerce is growing.
“E-commerce is changing the way people are buying stuff, especially in countries such as Indonesia and the Philippines,” said Jean-Francois Laval, Airbus executive vice president, Asia sales. “It is coming from China, from Korea, it is coming from other parts of the region. You need a huge amount of cargo space.”
Boeing on Monday forecast air cargo traffic would double over the next 20 years, growing at an average rate of 4.2 percent a year.
To meet that demand, the aircraft manufacturer expects the world freighter fleet to expand over 70 percent to 3,260 planes. Around half of air cargo is carried in the bellies of passenger jets, with the remainder flown on dedicated freighters.
Some large Asian cargo carriers including Cathay Pacific Airways and Korean Air Lines rely on freight for around a quarter of revenue.
“Last year the cargo market was extremely hot. In 2018 it still grew. The trade tensions in the world will have some effects but we haven’t seen it yet. I see constraints coming in a very short time. However, we are preparing for it,” Korean Air President Walter Cho told reporters on Friday.
“Anything from the US to China and vice versa is going to be affected. We are looking at alternate markets to China and the US as well.”
Japan Airlines President Yuji Akasaka said the trade war had made no change to the cargo market to date and he only expected an impact if “extremes” occurred.
“If it does happen it may affect us in the future but as of right now we haven’t seen it and hope it will cool down and go back to normal,” he said through a translator.
In the short term, trade war impact has not been too visible because initial tariffs were on items not typically transported by air such as metals, AAPA’s Herdman said. That is starting to change, however, as duties apply to more goods.
“I heard one example ... Seafood from the US to China is subject to retaliatory tariffs, so demand in China is down. Guess what? Demand for Canadian seafood is doing just fine.”


Modi government, Indian central bank set for uneasy truce -sources

People walk past the Reserve Bank of India (RBI) head office in Mumbai, India, November 9, 2016. (REUTERS)
Updated 4 min 9 sec ago
0

Modi government, Indian central bank set for uneasy truce -sources

  • Modi had appointed Patel as the RBI governor in 2016 for a three-year term that ends in September next year
  • There are five key state elections in the next few weeks and a general election due by May

NEW DELHI/MUMBAI: India’s government and its central bank are getting close to ironing out some of their policy differences, said two sources familiar with the discussions, as they seek to defuse worsening tensions that had threatened to unnerve investors.
While the rift is far from healed, the sources said enough progress had been made to avoid acrimony at a board meeting of the Reserve Bank of India (RBI) next Monday. The threat that RBI Governor Urjit Patel would quit, as reported by some Indian newspapers last week, is also thought to be off the table for now, they said.
The uneasy truce is likely to see the RBI ease up on some lending restrictions to help the government stimulate the economy, said the sources. One source said the central bank could agree to tweak restrictions on lending to improve credit flows for smaller companies with a borrowing limit of 250 million rupees ($3.4 million).
Neither the RBI nor the finance ministry responded to requests for comment for this article. The prime minister’s office declined to comment.
It is unclear how much of a role Prime Minister Narendra Modi played in defusing the tension. Local media reported that Modi met Patel last week in an attempt to sort out the contentious issues but officials in the prime minister’s office and the RBI said they did not know of such a meeting.
Modi had appointed Patel as the RBI governor in 2016 for a three-year term that ends in September next year.
For weeks, government officials in New Delhi have been pressuring the Mumbai-based RBI to accede to a range of demands, from easing lending curbs to handing over surplus reserves to the government. This prompted RBI Deputy Governor Viral Acharya to warn late last month that undermining a central bank’s independence could be “catastrophic,” bringing the feud into the open.
Tensions were expected to come to a head at Monday’s meeting as government representatives on the board appeared to be ready to turn up the heat on Patel and accuse the RBI of being intransigent in the face of government demands.
Now, it seems likely there will be a more constructive atmosphere with agreement on some issues, and disputed questions shelved for another day, the sources said.
CAN’T AGREE TO EVERYTHING
The government is keen to provide more stimulus to the economy heading into next year’s election, especially as the incomes of many farmers have been hit by low crop prices. At the same time it doesn’t want a bust-up with the central bank, which could badly affect investor sentiment and provide political fodder to the opposition Congress party.
“The government understands the regulator will remain a regulator and can’t agree to all demands,” said a government official, who declined to be named, referring to the RBI.
While the official did not give any details of the solutions being worked out with the RBI, he acknowledged that the government did not want to trigger Patel’s departure at such a sensitive time.
There are five key state elections in the next few weeks and a general election due by May. The Congress party has already been harrying the government over allegations of corruption in a military jet deal with France and infighting between the top officials of India’s equivalent of the FBI.
A RBI board member said that helping to ease tensions was the idea that both sides wanted a healthy economy. It was just a question of how to get there.
“The main issue is how to boost credit growth,” the member said referring to the credit crunch facing small companies.
Economics Affairs Secretary S.C. Garg is expected to make a presentation in the board meeting to outline the concerns of the finance ministry and could bring up the question about the transfer of surplus cash reserves held by the RBI, the sources said.
The board member said that an expert panel may be set up to work out the appropriate level of contingency reserves for the RBI, effectively kicking that question down the road.
The RBI introduced a so-called corrective action plan in 2014 for 11 state-run banks with bad loan issues and depleted capital. That plan included curbs on risky lending and RBI officials said, as a result, the banks’ loan growth fell to zero and had remained there since 2016, from 10 percent in 2014.
According to the RBI board member, the government wants the RBI to ease those curbs and lower capital requirements for the 11.
Some improvements in the balance sheets of those lenders might give the RBI leeway to do that, although the RBI would prefer to give the mending process more time, said another official who is aware of discussions within the central bank.