Hong Kong’s air cargo market suffers as demand from Europe withered in the first quarter. Hong Kong Air Cargo Terminals (HACTL) saw a 2.6% dip in tonnage last month, ending a growth streak that started in June last year. The firm moved 246,912 tons of cargo, compared with 253,632 tons in March last year. For the first quarter, it still saw growth of 1.7%. Mark Whitehead, Chief Executive of HACTL, expected the tonnage in the second quarter would be at best flat compared with the same period last year. He said the lukewarm economy in Europe was to blame. “I don’t see much growth for the year,” he added. The International Air Transport Association (IATA), however, expected the global cargo market to have a strong rebound in the second half. Whitehead said the growth in demand from the Gulf area and intra-Asia trade would be offset by the softening in Europe, an important export market for Hong Kong. Sunny Yu, Chairman of ASR, a Hong Kong-listed independent logistic company, also cast doubt on the expected full recovery in the air cargo market this year. “The industry is bound to revise down the cargo growth forecast for 2013 as the recovery in the United States is slow, while demand from Europe further deteriorated in the first quarter,” Yu said. He added that the cargo market in the Yangtze River Delta was even worse than that in southern China and Hong Kong. Airlines and freighter operators started to cut back capacity because the temporary rise in the shipment of electronic goods last month failed to boost freight rates.

Courier and logistics firms – including UPS, DHL Shanghai and local YTO Express – were on a list of companies that were punished by the Civil Aviation Administration of China (CAAC). The companies were cited for transporting dangerous goods without reporting them between February and December of 2012. YTO was warned and fined CNY60,000 in December for mixing dangerous goods with normal cargo and failing to train workers properly to handle dangerous goods. The Shanghai Qihao Shipping Agency received the same punishment. The Shanghai branch of UPS was warned and fined CNY29,000 twice, in April and November of last year, for transporting dangerous cargo listed as normal goods, while DHL Shanghai was fined CNY29,000. Hainan Airlines and Yanan airport in Shaanxi province were warned for failing to transport dangerous cargo according to regulations. Thirteen other domestic logistics and delivery firms were also punished, according to the CAAC statement. “There has been an increasing number of violations involving dangerous cargo of the air-freight safety code in China because many parts and sections are involved in the transportation process,” the Administration said. In December, five courier firms, including four Shanghai firms, had their licenses for air-freight services suspended within three weeks for breaking the air-freight safety code. The Shanghai couriers – Yunda, YTO, Huixing and Qihang – had their licenses suspended for a year because they failed to report inflammable materials in their cargo, including in one case two lithium batteries that caused a small fire on a China Southern flight after it landed, the Shanghai Daily reports.

China completed two more ground tests for the Y-20, its biggest home-grown transport aircraft, following its successful maiden flight on January 26. Tang Changhong, Chief Designer of the Y-20, or Transport-20, said it took five years for Chinese designers to manufacture and test-fly the jumbo air freighter. Other large strategic air freighters in active service globally include the Antonov An-225, the Ilyushin Il-76 and the Boeing C-17 Globemaster III. The Y-20 will serve as China’s jumbo transport aircraft “over a very long period of time”. It will probably be put in service within five years. The 15-meter-high Yun-20 has a load-carrying capacity of 66 metric tons and a maximum take-off weight of 200 tons. Domestically designed and manufactured engines will be tested and once they have passed, they will replace the Russian engines which are currently used. The Chinese engines perform better in terms of fuel efficiency and thrust-weight ratio.

Cathay Pacific Airways aims to replicate its business-class strategy in a cargo trade upgrade. It wants to fly more diamonds and medicines rather than T-shirts. Nick Rhodes, the airline’s Cargo Director, said: “Similar to the passenger service, we are not a low-cost carrier. We try to be a full-service cargo carrier. That’s really our DNA.” The airline, the world’s biggest international air-cargo carrier, started operating its first independently-owned goods terminal in Hong Kong this month, increasing the airport’s capacity by half. The airline has spent HKD5.9 billion on a facility it says will help Cathay target an increase of up to 20% in more profitable shipments of high-value goods, perishables and vaccines. Success with that strategy is critical to boosting profit in a business that accounts for over a fifth of the airline’s revenue. Both Singapore and Korean Air Lines also want to move to higher-value goods even as the global air-freight market declined for a second straight year in 2012, amid a slump in demand across Europe. Cathay, which moves cargo with 22 dedicated aircraft and in the bellies of passenger aircraft, carried 1.56 million tons of cargo and mail last year, 5.3% less than a year earlier. Revenue, measured by weight multiplied by kilometers, also fell 7.3% to CNY8.94 million.

Air cargo and passenger airlines using older fuel-guzzling long-range freighters could pull out of the air cargo market this year as they battle falling yields and persistently high fuel costs, according to industry observers. They said this could remove capacity and help balance supply and demand growth, which would support yields for major airlines in the air freight market. Nick Rhodes, Cathay Pacific Cargo Director, said carriers operating older Boeing 747s on long-haul routes will find it extremely difficult to make a positive return in the current climate, even if the aircraft are fully depreciated. Rhodes said Cathay Pacific had already scrapped one of its six 747-400s that was converted from a passenger to a freighter aircraft. Four cargo aircraft have been parked as the airline reduces freighter capacity and prepares for the arrival of more Boeing 747-8 freighters and the launch of its 777-200 freighter services. Air China Cargo, Cathay’s joint venture with Air China, is rumored to be the recipient of some of the 777 freighters to replace 747-400 converted freighters as it seeks to stem losses. The International Air Transport Association (IATA) estimated that fuel accounted for 33% of an airline’s operating expenses last year compared with just 14% in 2003.