UPS doubles down on Asia-Europe network

UPS doubles down on Asia-Europe network

UPS has invested heavily in its European hub of Cologne and is increasing its airborne capacity by 19 percent to capture growing Asia-Europe trade. Photo credit: UPS.

UPS is ramping up air capacity on its Asia-Europe express network to capitalize on the growth being generated between the two regions.

Despite air cargo losing momentum in late 2018 and a slowing of export demand from Asia’s major markets of mainland China, Japan, and Korea, exports from Hong Kong to Europe still grew 7 percent by value last year, according to data from the Hong Kong Census and Statistics Department.

Anticipating a continuation of this demand, UPS will increase capacity by 19 percent on the route between Hong Kong and its European hub in the German manufacturing center of Cologne, deploying four weekly additional flights of Boeing 747-800 freighters.

Lauren Zhao, managing director of UPS Hong Kong and Macau, said the added capacity would allow shippers to take advantage of the growth in cross-border westbound trade, but she noted there was also rising demand for goods heading in the opposite direction.

“Hong Kong is an attractive growth market for European businesses as the European Union continues to engage with Asia through bilateral free trade agreements in Japan, Singapore, and Vietnam,” she said.

UPS is certainly backing its positive outlook. In 2018, the integrator invested $2 billion to strengthen its European infrastructure, opening two new advanced technology package sorting and delivery hubs outside Paris and in London to speed up services across Europe.

With the four new weekly freighter services, UPS has committed to a one-day in-transit time for delivery by 9 a.m. or 12 p.m. to major European cities via the Cologne hub.

Competing modes

While the integrators have their own in-house networks to provide speedy connections for higher value express freight, reducing the transit time of intercontinental shipments is a key issue in the general air cargo sector. Even though the actual flight only takes about 12 hours on the trans-Pacific or from an Asian hub to Europe, the pickup to delivery of the consignment can be longer than a week.

That quickly brings total delivery times more in line with expedited ocean shipping services on the trans-Pacific, with Matson offering a 10-day transit from Shanghai to Long Beach and APL in one service offering shippers a 13-day transit from Shanghai to Los Angeles and 11 days from Busan.

The current ocean freight spot rate on the trans-Pacific trade is $1,720 per FEU, according to the Shanghai Containerized Freight Index (SCFI). Assuming the same 40-foot container was fully loaded to about 20,000 kilograms, it would cost about $65,000 to ship that cargo via air from Hong Kong to Los Angeles.

Another competitor to general air cargo is the China-Europe rail network, which is also considerably cheaper than moving goods by air. Transit times have increased as fast rising demand keeps capacity under pressure, but the average is still 18 days from the Chinese city of Chongqing to Germany.

The Chinese government has set a target of 5,000 westbound freight train movements — approximately 400,000 TEU — in 2019. Even as growth decelerates on the network, shippers are increasingly embracing the mode, with volume skyrocketing from just 1,400 TEU in 2011 to nearly 319,000 TEU in 2017, according to figures from mainland China rail entities and state media.

Growth in rail freight is being fueled in part by exporters from Japan, South Korea, and Taiwan that use ocean freight to shift cargo to mainland China, where it is then loaded onto freight trains headed for Europe.

“It’s a third of the cost of air freight and takes 16 to 19 days compared with ocean [transit times] of 30 days,” said Mike Fang, Maersk Line vice president and head of Greater China.

Fang pointed to sports retailer Decathlon, which has cut the transit time for shipments from Asia to France to 15 days and has saved 10 days’ worth of stock inventory in France by switching from air to rail.

Contact Greg Knowler at greg.knowler@ihsmarkit.com and follow him on Twitter: @greg_knowler.