How slow ships are speeding up Hong Kong’s air cargo

Cathay Pacific’s move to restore a large amount of cargo capacity this quarter as Hong Kong lowers strict COVID restrictions is welcome news for businesses coping with high rates and tight transport supply in the Asian market. It also reflects the ingenuity of the airline and its home airport that kept cargo operations functioning in the midst of debilitating quarantine measures.

The most counterintuitive change in business practices was harnessing maritime shipping — the slowest form of freight transportation — to increase the speed and reliability of goods delivery to Hong Kong International Airport in the face of road chokepoints. 

“These marine solutions have allowed volumes to recover partially, but they remain far below the level we would want,” George Edmunds, Cathay’s general manager for cargo, said in the division’s early May newsletter.

Sea freight feeder solutions

Cathay Pacific benefited from freight forwarders creatively utilizing sea feeder service while China maintained a cross-border trucking embargo to prevent virus spread. Company officials say logistics partners are using small coastal vessels to reach Hong Kong International Airport from Guangzhou, Shenzhen and other cities in the Greater Bay area and then transloading shipments to trucks for transfer to the airport. Although the transit time is longer, it is keeping cargo moving for export.   

At the same time, restricted truck crossings led the Hong Kong Airport Authority to accelerate trials of its new sea-air intermodal operation designed to support rising airfreight volumes. The airport is establishing a logistics park in Dongguan, a mainland manufacturing hub in Guangdong Province north of Shenzhen, as an upstream airport transfer facility. Export shipments tendered there are palletized and shipped six hours down the Pearl River Delta to the airport’s temporary ferry pier. Imported goods also directly transfer to Dongguan, Cathay and the airport authority say.

As trucking restrictions became severe, the pilot program — currently operating from a temporary site in Dongguan — helped to keep some cargo moving to Hong Kong airport for export with twice-weekly voyages. During the test phase, cargo is taken to the Hong Kong airport cargo terminals to be broken down, scanned and cleared through customs before it can be loaded on aircraft. 

When full-scale operations begin in September, those procedures will be handled at the preclearance center and pallets won’t need to be disassembled at the airport. Exports will be able to head directly to Hong Kong airport’s restricted area by the sea and then straight to aircraft or the cargo terminal. Eventually, a permanent pier will be built closer to the main airport terminal. Airport officials say the new mode will lower cost and increase efficiency. 

The small sea freighters supporting the sea-air shuttle were converted to carry customized load devices that are secured to the deck, according to the latest issue of Cathay Pacific’s Cargo Clan newsletter. The devices hold built-up pallets and air containers that can be slid directly onto dollies at the airport. Each vessel can carry the equivalent of 32 large containers, nearly equivalent to a full payload in a widebody cargo jet.

The river service will supplement truck delivery, particularly for goods that require special handling. Much of the marine volume is expected to be e-commerce shipments. 

Freighter capacity comes back

Cargo helped keep the combination carrier afloat during the pandemic. Passenger travel is only 1.3% of 2019 levels and the collective loss through 2021 tops $3.4 billion. On Tuesday, the Hong Kong government gave Cathay Pacific an extra year to tap a HK$7.8 billion ($1 billion) credit facility, part of a $4.9 billion government recapitalization of the company. It has not drawn down the loan in the past 12 months, but the extension is a sign that finances are still wobbly long after many airlines have repaid government bailouts.

Despite government safety protocols for home-based crews that constrained flight activity, the Hong Kong-based carrier was able to maintain about 70% of its cargo capacity in 2021 by flying more than 8,000 cargo-only passenger flights, temporarily modifying six Boeing 777s to carry cargo in the cabin and operating a record number of freighter charters. 

Last year, cargo revenue jumped 53% from 2019 to $4.2 billion. And cargo yield was 111% higher even though tonnage carried fell 34% – a function of high demand and tight capacity that gave carriers pricing power.

And Hong Kong regained its status as the largest cargo airport in the world. 

But the situation went from bad to worse the first week in January when Cathay Pacific grounded all long-haul freighter flights in response to seven-day quarantine rules for returning pilots that cut its available labor pool. There are 20 Boeing 747s in Cathay’s freighter fleet, including 14 late-model 747-8s.

Over time, the airline was able to maximize regional freighter schedules, especially to India, Northeast Asia and the southwest Pacific, and in mid-April resumed service to Frankfurt, Germany — the first freighter operation to Europe since December.

The airline carried 101,800 tons in April, a 43.6% decrease compared to 2019, according to the latest traffic figures. Cargo revenue-ton-kilometers, a measure of business activity, decreased 13.2% year-over-year and was down 62.4% compared to three years ago. Although freighter capacity has increased to about 40% of the 2019 level, as of May 1, overall network capacity was still down 70% versus pre-crisis levels. During the first four months of 2022, tonnage decreased by 5.4% against a 42% decrease in capacity compared to last year. 

In May, Cathay Pacific progressively resumed more transcontinental cargo flights while adjusting to recent COVID outbreaks in China, which have limited cargo activity in Shanghai and other cities. The number of trans-Pacific freighter flights went up from nine to 15 a week, with an additional service to Europe, said Frosti Lau, general manager of cargo service delivery, wrote in the latest company newsletter. And the combination carrier said it intends in June to add back long-haul freighter destinations in Europe and the Americas while resuming freighter service for the UAE, Saudi Arabia and Cambodia.

“There will also be extra capacity drip-feeding in from the passenger fleet as services start to reactivate over the course of the year,” said Lau. These include daily flights to London Heathrow from early June and more flights to the Americas, Australia and New Zealand.

Network planning

Quickly altering freighter schedules in response to changing COVID measures is not easy, but cargo planners learned to become more agile, according to Cathay Pacific officials.

A key tactic early on was a “closed-loop system” that required freighter crews to operate in a bubble for longer stretches. That enabled the airline to slowly rebuild its regional Pacific frequency with just seven flights per week and then nine as more pilots volunteered to confine themselves. It’s similar to how many Chinese factories have kept some production going during citywide COVID lockdowns, with employees eating and sleeping within the work campus rather than returning home to prevent virus spread.

Instead of going home after each flight, crew members in the closed loop were required to isolate themselves at a designated hotel. Pilots and flight attendants had to “test and hold” — potentially for hours — upon arrival at Hong Kong International Airport before traveling to the hotel. The system, initially launched in early 2021, allowed Cathay to complete multiple flights in a three- or four-week period before the crew went into full quarantine followed by additional days of medical surveillance with limited social contact and regular testing. 

Employees could choose loop cycles of 11, 21 or 28 days, with a maximum period of 49 days to go through the full protocol depending on the travel destinations. Alternatively, crew could choose to complete two 28-day closed loops in succession, equal to 12 weeks spent working or in quarantine, followed by six weeks off.

Cathay also made more use of charter flights to replace some scheduled traffic, often to airports it had never landed before. Pre-pandemic, the freighter fleet was too busy flying scheduled service to fit in special flights for customers, according to the company’s Cargo Clan newsletter.

Under normal circumstances, Cathay based annual freighter schedules on a three-year forecast. There are two seasonal schedules and schedules can be updated at the start of each month, if needed. Instead, the cargo division now functions with operating plans that only cover six months and monthly schedules can be updated two to three times.

The short planning horizons and quick addition of new charter destinations put pressure on the network team to figure out the right mix of available aircraft and crews, as well as secure landing permissions and file flight plans.

During the spring, Cathay Pacific Cargo operated a series of Boeing 747 charters to Auckland, New Zealand, for the first time. The freighters required an extra person to fly along and support the Auckland ground team when loading.

Network planners are now working with the engineering department to find out if they can move up the freighter fleet’s summer maintenance program while some aircraft remain idle so they are ready when the full schedule is reconstructed and demand picks up in late summer. 

Lufthansa partnership extends to Swiss

Last week, Swiss International’s cargo division joined the 6-year-old agreement under which Cathay and Lufthansa Cargo cooperate on sales, pricing, contracts and handling shipments at their respective hubs in Hong Kong and Frankfurt. In Hong Kong, Cathay processes and loads cargo for Lufthansa at its terminal. 

Cargo owners will have access to the entire shared network via the booking systems of all three partners, giving them more direct connections, flexibility and time savings with a streamlined process.

Under the expanded joint business agreement, Cathay, Lufthansa and Swiss WorldCargo will work closely on network planning, IT systems and ground handling. Initially, the airlines will cooperate on routes from Hong Kong to Zurich and Frankfurt. Traffic to and from Hong Kong and the rest of Europe will be added later this year, the companies announced.

“We are very pleased about the trilateral cooperation just starting, bringing three well-known cargo carriers to the table and making our customers an even more attractive offer. Cargo customers will appreciate the opportunities for quicker and easier shipping,” said Lufthansa Cargo CEO Dorothea von Boxberg. “The expanded joint venture will generate numerous benefits for our customers because our networks, our hubs and our fleet complement each other effectively.”

Cathay Pacific Cargo in late April introduced its Priority program, which offers dedicated booking tiers tailored to customers’ service needs for speed, capacity and schedule guarantees. The top tier offers access to high-demand flights, late-shipment acceptance and early retrieval, and 24/7 live chat support.

Click here for more FreightWaves/American Shipper stories by Eric Kulisch.

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Source: freightwaves - How slow ships are speeding up Hong Kong’s air cargo
Editor: Eric Kulisch