The Loadstar in Chongqing - Part 1

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It’s a gloomy, cold grey day in Chongqing. Or, in fact, just normal. It’s not known as the foggy city for nothing. Even though the moisture-rich air makes the abundant greenery on the edges of the city verdant, the thick grey low-hanging cloud shrouds everything.

By day, it is a colourless place.

Colourless, maybe, but fascinating, definitely. We have written extensively about Apple’s supply chain; about the high-tech manufacturing centres. But the sheer size of just one of Chongqing’s two industrial parks is breathtaking. Xiyong Microelectronics Industrial Park, (40 square kilometres) the bonded home to Hewlett Packard, Acer, Cisco and their suppliers, including Foxconn and Inventec, is a town in itself, with skyrises housing its 40,000 workers and their families, schools, hospitals. The park produced 20 million laptops last year alone, while its sister park, Liang Lucuntan, produced 5 million. Together this is projected – says the local municipal logistics office – to become 100 million by 2015.

And of course, some 70% of that is air freighted currently, with 90% of the total for export markets. That figure is falling, as DB Schenker’s train service, direct to the German city of Duisberg, gears up again after its winter closure. The remaining cargo is trucked or taken slowly by barge down the Yangtze, on a week-long journey to a seaport.

Carriers have been talking for a long time about whether to start a freighter service here. And finally, the first European freighter – with the exception of TNT – has come to position itself in western China’s market. Lufthansa Cargo is the pioneer, with its four times a week service, from FRA-DEL-CKG-CAN-FRA, which began with its summer schedule.

The volumes are still not a certainty. One of the problems is that although the manufacturers know what they can produce, they don’t necessarily know in advance where each shipment needs to go – market demand is unpredictable. LH Cargo is reducing the risk by adding it to its Guangzhou routing.

While the aim of Chongqing’s local government is clearly to attract more laptop makers, this is no Shanghai, or Shenzhen. It is still a far cry from the development of China’s eastern seaboard. Nevertheless, two years ago it was unthinkable that this area would develop so rapidly. The airport claims it will have a third runway in just four years, from start to finish. And this year there will be 270,000 tonnes of air cargo throughput, fed currently by 10 freighter operators, with Qantas and Cargolux expected to join the fray soon in late April and May/June respectively.

Of course, all is not rosy. The non-Chinese carriers are all too aware that the local carriers can achieve far more, with less cost. And, who would have thought it, but the indefatigable – and soon to retire – charmer, Peter Ullmayer, LH Cargo’s China chief, opened the new route with a surprisingly pokey speech.

He talked of a “bloody pricing structure” that would make the carrier struggle to keep the route open. He warned that the China market would fail to be attractive if pricing didn’t improve. The speech, direct to his customers, was a heartfelt appeal to those forwarders that have been promising unsustainable rates to the shippers. And those prices, in long-term contracts which in some are instances up to 18 months, are making it too hard to make a profit.

“The game must be played fairly be everyone,” he warned. He admitted Lufthansa wasn’t the cheapest carrier, but pointed out that “profit for everyone is the name of the game.” Pulling out capacity is the last thing the forwarders, the shippers, and the airports want. “We don’t need that kind of punishment.” It was a brave speech – and one which the airlines probably should have had the courage to say before.

Nonetheless the fundamentals of Chongqing are strong. It is home to some 32 million people. The manufacturing possibilities are more than evident. And it is ambitious. If the carriers can survive what could be a tempestuous couple of years, there should be some certainty for the future.

Of course, there is also Chengdu. Just an hour or so by road, with an equally enviable manufacturing base, it is an equally good bet. It was once served by Jade, which explains why (almost former part owner) Lufthansa opted for Chongqing. And despite the best protests of the Chongqing municipal logistics office that the two cities are friends who work together, that clearly isn’t the case.

But more of that tomorrow. For now, zai zian (good bye).