Airfreight fortunes flying high in Latin America

Airfreight fortunes flying high in Latin America

The outlook for the Latin American air cargo is overwhelmingly positive at the moment. IATA reported in March that year-on-year growth in international FTKs flown by airlines based in Latin America accelerated to a four-month high in January (8.5%, up from 4.8% in December). While growth in intra-Latin American freight has paused, it has been steadily growing over the past 18 months, from a low-point in May 2016. The positive outlook derives from an upturn in the economy in the region’s powerhouse, Brazil.

Latin American airfreight makes up only 2.3% of the world’s total in terms of FTK, and is dominated by a few major players: LatAm, Avianca, Copa, Aeromexico and Atlas. Exports from the region are those that lend themselves more to airfreight than other shipping are perishable cargos – flowers from Columbia, berries from Argentina and Peru, salmon from Chile etc.

The continent’s northern neighbor, the USA, grabs the lion’s share of the trade but European trade is being boosted by favorable exchange rates and China, following a raft of trade agreements signed three years ago, is increasingly becoming an important market for the continent’s exporters.

Nonetheless, there are challenges on the horizon for the industry. Shifting trade relationships outside the continent and political instability in some countries within Latin America is cause for uncertainty.

Galo Molina, President of Latin American and Caribbean cargo agents’ federation ALACAT, explains: “Today there is a risk of a global economic crisis embedded in the tariff dispute process of the United States and China. In the region of Latin America, potential changes in government in three of the largest economies are generating uncertainty and the freezing of commercial initiatives.”

As well as ongoing political instability, other factors that might undermine Latin American trade are similar perishable goods emerging from lower cost production countries in Africa or Asia, or the general pressure to maintain rates, with low-cost perishable goods unable to command the same margins as high-cost electronic components, for example.

Eric Hartmann VP Aviation Services, Latin America, at AGUNSA, highlights a problem that looms for all: climate change. “Our exports are perishables so this is affecting all production. In Chile, seasons are starting later and ending later. Blueberries that were produced in the north in October are now being produced in November. It is making it difficult to predict the seasons for perishable goods. This makes it hard to project how many aircraft will be needed and the selling capacity for the airlines we represent.”

The newly burgeoning salmon trade with China is also affected. “There is a lot of salmon being produced in Chile and, with rising water temperatures, there are more blooms of algae that can ‘drown’ the fish. Producers need to decide when to harvest, either they take the fish out of the water early or leave them and hope that the blooms will pass and the fish can breathe. It’s a challenge,” he adds.

Frustrations remain with the red tape of doing business, particularly as the disruptive, yet highly promising, e-commerce technology begins to make inroads into the continent.

Emir Pineda, Manager, Aviation Trade & Logistics at Miami-Dade Aviation Department, Miami Airport, says: “Latin America’s regulatory environment is complex and archaic, with many countries still requiring signatures, stamps, and associated fees on export shipments.  Bureaucratic regulations and laws are hindering the rapid clearance of cargo as well as old-style payment methods slowing down the processing and clearance of cargo. The payment issue is going to be a major hindrance to cross-border e-commerce if they do not figure out an easy payment option.”

In terms of opportunities, Mr Pineda sees the recent open skies agreement between the US and Brazil as potentially driving up air cargo trade. “We are already seeing growth in Brazil, with LatAm starting service to Salvador in April and Gol starting service to Brasilia and Fortaleza in November.”

However, more needs to be done in this view: “Though progress has been made with more liberal air agreements – Mexico also signed a new Air Transport Agreement in 2015 –  more needs to be done to open markets, reduce regulation and improve infrastructure in the region,” he says.

Intra-Latin American trade is an area that has the promise of development, but it is a slow road and industry voices are nuanced about the likelihood of it taking off.

Juan-Cruz Racana, CEO of Americas Alliance, a network of freight forwarders in Latin America focused on expanding trade with the world, describes it as “a very interesting niche, since there are many intra-Latin American businesses that are generated by the need for immediate deliveries and very competitive freight rates, in relation to others”.

Eric Hartmann sees opportunities, pointing out that with more A330, B787 & B767 capacity now in the continent, the door is being opened. He says that, outside Brazil, the continent lacks the big industries that could drive such trade so “exporters need to be creative”.

However, the potential to use intra-Latin American trade to boost foreign trade is a distinct possibility. “LATAM is positioning cargo using Sao Paolo as a hub for international cargo and Avianca is doing something similar in Bogota. The hubs are well used and increasing in importance.”

Galo Molina says that in era of growing trade protectionism “the Latin-American area will need to open its eyes to its own capabilities and markets”.

Emir Pineda, at Miami Airport, one of the chief hubs for Latin American trade outside the continent, sees only small prospects for inroads into Miami’s dominance.

“Under the current political and economic conditions, I believe the prospects for expanded intra-Latin American trade are somewhat limited. Governments in many Latin American countries are still holding on to old-style protectionist policies, though there have been some improvements.  The trend for the next few years will be slow progress, which means MIA will continue to provide the best connectivity for Latin America for the foreseeable future.  Today MIA has over 1,300 weekly departures to 80 non-stop destinations in Latin America and Caribbean.  This is hard to beat even though some airports such as Panama City and Bogota have made significant improvements via their hub carriers, Copa and Avianca respectively.”

Overall, Latin American cargo is in a good place, with good prospects for the near future, both within the continent and beyond.

Read the full story in TIACA Times Summer 2018 issue, out soon!