Xin Jing spends about 200 yuan ($30) on Japanese sashimi each time she visits City’super’s grocery store in Shanghai. Her appetite is helping fill cargo planes bound for China, boosting profit at Cathay Pacific Airways Ltd.
“Sashimi is my favorite food,” said Xin, 29, who runs a small commodities trading firm in the city. “I tend to buy a lot of fresh stuff once a week.”
As increasingly wealthy Chinese consumers eat more imported fresh fish, lobster and cheese, they are helping global air cargo revenue rebound from the worst decline in five decades last year. Fueled by growing demand for luxury goods and perishable foods from overseas, the nation will lead an 18.5 percent recovery in air shipments this year, according to a June estimate by the International Air Transport Association.
“China has attracted more investment and luxury brands, as purchasing power has gotten much stronger,” said Kelvin Lau, an equity analyst at Daiwa Institute of Research in Hong Kong. At Cathay Pacific, cargo, which represents about a third of revenue, “would provide a very good support for a rebound in profits,” he said.
Rising domestic consumption boosted China’s imports 53 percent in the first half of this year, reducing a trade imbalance that’s caused air-cargo haulers to fly empty planes into the nation to fill up on export goods.
Growing Middle Class
China’s middle class, defined as households with annual disposable incomes between $5,000 and $15,000, may rise to 46 percent of households by 2020 from 32 percent this year, London- based research firm Euromonitor International said in March. The world’s fastest-growing major economy may expand 9.5 percent this year, Citigroup Inc. said this month.
To meet rising demand, Hong Kong-based City’super and Italy’s Salvatore Ferragamo SpA are adding more outlets, while Cathay Pacific is putting parked cargo planes back into service.
United Parcel Service Inc., the world’s largest package- delivery company, has added two cargo planes in Hong Kong and one in Shanghai this year. FedEx Corp., the world’s biggest air- cargo carrier, is planning to buy more freighters for its longest routes to Asia. Both companies increased their profit forecasts this month, citing growth in Asia.
Global air-cargo volumes dropped 10 percent last year as the worst global recession in six decades crimped world trade. This year, Korean Air Lines Co., the world’s largest international air-freight carrier, is predicting cargo volumes may surpass the record set in 2007.
Air-Cargo Growth
Air-cargo volume to China from North America may increase 7.8 percent annually in the next 10 years, according to Air Cargo World’s website. Air shipments to China from western Europe may grow 8.3 percent a year. Airlines in the Asia-Pacific region represent 45 percent of international scheduled freight demand.
Cathay Pacific, Hong Kong’s biggest carrier, started having a greater balance between outbound and inbound cargo in the fourth quarter of 2009, Chief Operating Officer John Slosar said.
“Traditionally, the flights going out would be absolutely full because of China exports, but flights coming back would not so full,” Slosar said.
The carrier is flying 100 tons of lobster and 150 tons of grouper to China and Hong Kong every month from Australia and Indonesia. It increased shipments of sashimi-grade fish to the nation from Tokyo by 60 percent to 80 tons in the first four months, said Vivian Lo, the carrier’s cargo sales and marketing manager.
Stronger Yuan
“China’s emergence as the world’s biggest consumer will resolve the issue of direction imbalance at airlines,” said Chi Chang Hoon, president of Korean Air. “China consumer goods import demand should spur cargo shipment from Europe and the U.S. in the long term.”
K. Ajith, a Singapore-based analyst at UOB-Kay Hian Research Pte., said the current increase in luxury-goods imports may not last as China phases out economic stimulus measures to prevent the economy from overheating.
“The pace will moderate in the second half,” Ajith said. “With the pull-back of stimulus packages, it remains to be seen whether this growth can be sustained.”
Still, a stronger yuan against foreign currencies may continue to drive demand after China’s central bank ended a two- year peg to the dollar last month. The yuan’s 12-month non- deliverable forwards gained 0.1 percent to 6.6855 per dollar on July 27 in Hong Kong, reflecting bets the currency will strengthen 1.4 percent from the spot rate of 6.7786, according to data compiled by Bloomberg.
Faberge, Ferragamo
“Should the Chinese renminbi continue to strengthen against the U.S. dollar and euro, the Chinese middle class will be more able to afford Western imports,” said Steven Wong, vice president for supply chain operations at UPS’s China unit.
China air cargo volume for the Atlanta-based company grew by high double-digits in the first quarter, showing a return to pre-recession levels, Wong said without providing a specific figure.
Faberge, the jeweler that made gem-encrusted oversized eggs for Russia’s czars, may win customers in China thanks to the trend of a rising yuan and declining euro, along with a growing taste for the arts and exclusive service, Chief Executive Officer Mark Dunhill said.
Salvatore Ferragamo is adding stores in China and shipping more products to the country by air than sea shipment this year, Chief Executive Officer Michele Norsa said. The company may open as many as eight new outlets in the nation next year after adding 35 by the end of this year since 2008.
City’super opened its first store in Shanghai in May.
“Consumers in Shanghai are very curious to try out new imported food,” said Thomas Woo, president of the local outlet. “They are getting used to shopping expensive fruits, olive oil, red wine and sake as gifts.”
Bloomberg