Asian exports to Latin America buffer impact of capacity expansion on pricing

Source: The Loadstar 
Date: 29th May 2024

Passenger carriers are flocking to Latin America, pouring belly hold capacity into a cargo market that was under pressure last year. Still, pricing is up, likely buoyed by Chinese exports to the region.

According to ALTA, the airline interest group for Latin America and the Caribbean, passenger traffic in the region climbed 9% in the first quarter. For this month, Xeneta has registered a 20% increase in capacity serving South America compared with 2019, driven by a 10% rise in belly capacity, which now accounts for about 40% of the market.

And more passenger flights are poised to take off in the winter season. American Airlines plans eight new routes to the region from New York, Charlotte and Philadelphia. With a peak volume of 2,350 weekly flights to some 95 destinations, it will be the leading US carrier in the region.

Air France plans flights to Salvador, in Bahia state, with A350-900s, making it the airline’s fifth destination in Brazil. Iberia is set for a 50% annual increase in passenger capacity between Madrid and Buenos Aires, with seven more flights than last winter, and 19 of its 21 weekly flights will be operated with A350s.

There is demand for more: Embratur, the Brazilian tourism association, is lobbying for more international flights.

IATA statistics show that the cargo capacity of Latin American carriers was up 8.9% year on year in February (10.6% in international sectors) and 7% in March. With the additional boost from international capacity pouring in, this raises questions about freight yields.

Last year, Latin America’s imports dropped 4.5%, and exports declined 2.5%, according to the Economic Commission of Latin America. For airlines, the slump in inbound traffic was particularly concerning, as yields are typically higher than for exports. Economic weakness and political instability in some markets did not help.

At the moment, the picture looks much brighter, the influx in capacity notwithstanding.

“The Latam region has experienced steady economic growth, supported by increased industrial activity, infrastructure development and rising consumer demand,” reported the VP commercial at American Airlines Cargo. “This growth has driven an uptick in trade volumes and a corresponding increase in demand for airfreight services

“We are encouraged by the increase in volume we are seeing – specifically, fish, berries and seeds northbound from Latin America and machinery components, hi-tech and life science shipments southbound,” American Airlines Cargo added.

Xeneta’s numbers show spot rates in the North America-Latin America corridor 30% above pre-pandemic levels. Airfreight analyst noted that this may be influenced by increasing transshipment volumes from Asia Pacific to Latin America. Spot rates in that sector reached $6.26 per kg this month, which is double the pre-pandemic level, Airfreight analyst pointed out.

And China’s exports to Latin America are buoyant, up 11.4% in the January-April period. They jumped 15.1% to Mexico and 24.6% to Brazil.

However, there are question marks about Latin American markets’ willingness to stomach rampant growth in imports from China.

Mexico, Chile and Brazil have hiked tariffs on steel imports, which suggests they could follow US and European moves to erect barriers to other Chinese imports.

Barring such developments, the prospect of airlines moving cargo to Latin America remains positive.

“The increased demand from Asia Pacific to Latin America is likely to continue this year, meaning further upward pressure on rates,” said Airfreight analyst.

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