ASEAN’s air cargo facilities gear up for growth-

World air cargo trends have been slowing down since the economic downturn in 2008–09. Although traffic spiked by 18.5 per cent in 2010, it declined by 1 per cent in 2011 and 2012; the year-to-date traffic has dropped by 2 per cent. However, according to the Boeing World Air Cargo Forecast 2012–13, world air cargo traffic is expected to grow at 5.2 per cent per annum over the next 20 years. Further, the growth will shift towards developing economies whose average GDP growth is projected at 4 per cent or more through 2029. Moreover, forecasts show that world industrial activity will expand at approximately 4 per cent per year for the next two decades, which will, in turn, support the long-term outlook of air cargo traffic growth.

Southeast Asia that is home to some of the fastest growing economies globally is experiencing growth in air traffic. However, its cargo facilities are not adequate for them to handle the current demand or take advantage of future growth. For example, Jakarta’s Soekarno-Hatta International Airport (SHIA) that handles the most traffic in the region earns only 2 per cent of its revenues through cargo services. Moreover, its cargo terminal is operating beyond its capacity: although the terminal has a capacity of 50,000 tonnes, it handled 600,000 tonnes of cargo in 2012; this volume is expected to rise by around 10 per cent in 2013.

Then there are the frontier economies such as Myanmar, which have recently opened their markets that are expected to witness rapid growth. In the case of Myanmar, cargo handling facilities are currently non-existent. Further, even though countries such as Singapore, Malaysia, and Thailand rank among the top 50 airports globally in terms of cargo volume (based on data from Airports Council International), their infrastructure is also under strain. Clearly, the region needs to augment its cargo handling facilities to meet the increasing demand from rising economic growth and increased integration with the global markets.

Wide variations between current cargo infrastructures of regional airports

The rapid economic growth of the region in the 1980s and a large part of the 1990s saw tremendous levels of investments in infrastructure and an increasing integration with global markets. More recently, the region is working towards the creation of an integrated economic block. One of the measures is the adoption of an “open skies” policy, which illuminates the importance of the role played by the aviation sector in increasing intra-regional trade and enhancing linkages with the global economy.

Singapore was among the early pioneers. It developed a 24-hour free trade zone – the Changi Airfreight Centre (CAC) – at the Changi International Airport in 1981. The CAC has nine airfreight terminals and handles all niche forms of cargo; it also houses an airmail transit centre and a quarantine centre for the inspection of imported plants and animals. A 24-hour customs checkpoint is available for cargo operations.

Over the years, the CAC has stayed ahead of the competition by consistently upgrading its facilities to meet market growth and changing industry needs. For example, the Changi Megaplex, a multi-tenanted warehouse facility, was developed in the 1990s, following extensive consultation with the freight forwarding community, mainly to cater to the latter’s rapidly changing needs.

Another major development was the launch of the Airport Logistics Park of Singapore in 2003. ALPS is a 26-hectare logistics park, strategically located within the airport’s FTZ, thereby enabling quick turnaround, value-added logistics (including postponement, configuration, sub-assembly, returns, and repairs), and regional distribution activities. The development of TNT Express’s Singapore Regional Hub in 2009 and the establishment of SATS’ Coolport at Changi in 2010 also exemplify how Changi Airport has catered to the changing needs of the industry.

In neighbouring Malaysia, the two cargo complexes are situated at the Kuala Lumpur International Airport (KLIA) and the Penang International Airport. These facilities are operated by Malaysia Airports Holdings Berhad (MAHB).

The KLIA Advance Cargo Centre that covers 108 acres of land can handle 1 million tonnes (mtpa) per annum of cargo, with the capability to expand to 3 million tonnes per annum. The centre is designed as an integrated transhipment hub within a free commercial zone (FCZ). The FCZ provides value-added activities such as trading, break bulking, grading, sorting, repacking, and re-labelling. Additionally, a one-stop centre has been set up to expedite the process of cargo clearance with the provision of additional support services such as multi-banking, medical, food and beverage, and postal services.

Meanwhile, the Penang Cargo Centre that covers a total land area of 14.28 acres comprises a cargo terminal, three main blocks of agents’ warehouses, an additional warehouse, and a warehouse extension area. It has the capacity to handle 360,000 tonnes of cargo.

In Thailand, Suvarnabhumi airport in Bangkok has an air cargo capacity of 3 mtpa. The airport has a duty free zone that extends across an area of 660,572 square metre. Its cargo handling service is provided on a one-stop service basis through services related to trading, break bulking, grading, sorting and labelling, partial import clearance, and rental for business activities related to the duty-free zone.

While on the one hand, Indonesian airports are operating at a capacity constraint, on the other, until fairly recently, Vietnam did not have any modern air cargo terminals. The cargo terminal at Tan Son Nhat airport in Ho Chi Minh City, which opened in 2010, was the first in the country. Operated by Saigon Cargo Service Company (SCSC), the facility that is spread over an area of 14.3 hectares has a capacity of 200,000 tonnes. Within a few years of operation, SCSC already serves 10 out of the 43 airlines that are in operation at Tan Son Nhat airport. Building upon its success, the facility is undergoing an expansion in order to handle 600,000 tonnes of cargo per annum by 2015. This development clearly testifies to the demand pull in the region.

New investments to boost cargo infrastructure

Overall, the Southeast Asia air cargo industry expects a growth rate of around 6 per cent per annum over the next 10 years. To meet this demand, the region has planned investments worth $15 billion to create new infrastructure and upgrade the existing. Most governments in the region recognise this need and have embarked on plans to augment air cargo capacity.

Once again, the first off the block is Changi Airport Group (CAG): it announced a S$15 million (S$1 [Singapore dollar} = $0.81) cargo support package under the Changi Airport Growth Initiative (CAGi) to support the air cargo sector for 2012–13. The package includes a 20 per cent landing fee rebate at Singapore’s Changi Airport for all freighter flights; partnership funding support for new cargo development initiatives; and up to 20 per cent rental rebates for cargo tenants leasing CAG cargo facilities at CAC. Subsequently, in March 2013, the CAG announced an additional support package of S$17 million to its air cargo partners in 2013–14.

Meanwhile, in Indonesia, state-owned operator Angkasa Pura II, in recognition of the severe capacity crunch at SHIA, announced the construction of a new cargo terminal (cargo village) worth Rp 2.1 trillion (Rp 1 [Indonesian Rupiah] = $0.0001) at SHIA, in February 2013. The new facility will increase the capacity of its cargo terminal to 1.5 mtpa. Construction is set to begin in early 2014, with the expected completion date of 2016, following the pattern of the Hong Kong air cargo terminal that has a capacity of 4.9 mtpa. The new facility will be equipped with a modern information and technology system and automated handling terminal system in order to accelerate cargo handling and moving processes at the airport. Angkasa Pura II may seek private sector participation to construct the terminal.

Suvarnabhumi airport in Thailand is also undergoing expansion. Airports of Thailand Public Company Limited is investing 62.5 billion baht (1 baht [thai baht] = $0.03) in the project that will boost the airport’s capacity to 60 million passengers per annum from the current 45 million. This development will, in turn, boost cargo capacity by allowing for greater volumes of belly cargo.

Frontier economies getting ready for takeoff

The other developing countries in the region, including Myanmar, Laos, and Cambodia, currently have weak cargo infrastructures and anaemic demand. However, the ASEAN Single Aviation Market (ASEAN-SAM) policy that is aimed at developing a unified aviation market in Southeast Asia is expected to change this situation and drive rapid demand growth. ASEAN has set a 2015 deadline to establish ASEAN-SAM. According to P. Ng, Global head of Aviation of Stephenson Harwood, “ASEAN-SAM will allow other carriers to enter the comparatively virgin markets of the countries in the Indochina region, especially Myanmar.”

Myanmar’s air cargo market is poised to enter a major period of growth as is the rest of the economy. In recognition of these changes, steps are being taken by the airport operator to improve cargo handling efficiency. In June 2013, Mingalardon Cargo Services (MCS) was chosen to provide import cargo handling services at the Yangon International Airport. It is already operating export cargo services at the airport. According to Tin Naing Tun, Director General of the Civil Aviation Department, the move to consolidate both import and export cargo services with one firm was made to achieve efficiency. If the two functions are separate, complications will arise in balancing the business and investments.

Meanwhile, in Cambodia, cargo handled at the Phnom Penh International Airport increased by nearly two and a half times to 45,287 tonnes in 2012 from 19,530 tonnes in 2011. Rising air cargo volumes offer an indicator of the rising share of the industrial base in an evolving economy that was once dominated by the manufacturing of garments. Thus, the air cargo market will provide significant opportunities in the future.

Finally, in Vietnam, back in 2009 the government announced that it was planning to increase its overall passenger capacity to 32.5 million by 2015 and 63 million by 2020. Over the following years, a new airport – Long Thanh International Airport (LTIA) – has been approved. Covering 5,000 hectares, the airport that will be developed in three phases will be able to handle 5 mtpa of cargo. The first phase is expected to start in 2015. The airport that is scheduled to become operational by 2020 will be able to handle 25 million passengers and 1.2 mtpa of cargo at the time.

Going the last mile to reap full benefits

To conclude, the airport cargo traffic in Southeast Asia is set to expand, driven by rapidly growing economies. According to the Boeing World Air Cargo Forecast 2012–13, the growth of the Southeast Asia aviation market, with an annual growth rate of 5.8 per cent, is forecast to exceed that of the world market. Moreover, intra-Asia traffic will grow faster than any other international market, with an average annual growth rate of 6.9 per cent.

While countries like Singapore have successfully constructed infrastructure ahead of demand, others like Indonesia are fast catching up with plans of dedicated cargo terminals. Smaller economies such as Myanmar and Cambodia also provide good opportunities for air cargo service providers with the new open skies policies.

However, to benefit from the planned cargo infrastructure, the overall logistics efficiency of the region needs to improve. Logistical costs are usually higher in these countries than those in developed countries due to factors such as the poor quality of infrastructure, weak institutions, and greater inefficiencies in the logistics system. Though according to the World Economic Forum, Malaysia ranks second in the world in terms of “efficient infrastructure”, other countries in the region are far behind. Malaysia ranks 29th, Cambodia 72nd, Indonesia 92nd, and the Philippines 98th out of 144 countries in “quality of infrastructure“according to the World Economic Forum. Therefore, even though projects worth more than $15 billion are in the pipeline to improve air cargo infrastructure, the overall returns on these investments will be dependent on how the supporting infrastructure is improved.