News / Customers wary of contract commitment, says Cathay Cargo

© Ryan Fletcher

Cathay Cargo has revealed that customers are nervous and afraid to commit to long blocked space agreements (BSA), although its first round of contract talks saw volume commitments increase.

“The onset of summer means that we are looking ahead to the second half of the year,” said Chris Bowden, head of cargo global partnerships, in a costumer newsletter yesterday.

“The summer freighter network is confirmed and we have negotiated our way through the annual block space agreements (BSAs). The contracts reflect continuing uncertainty in the market, but the overall tonnage commitment is up, and with a more diverse array of customers.”

The contract uncertainty was underlined by DSV, in today’s earnings call, noting that it was too easy to make mistakes in securing capacity. Not a “risk-taker”, DSV said it “has not taken long positions by entering into long-term capacity commitments”.

Cathay said customers were waiting. “Consumer confidence is yet to rebuild, which explains some of the ‘wait and see’ caution for the second half of the year.

“But there are some encouraging signs. US imports are increasing, and there is a trend of economic recovery on the Chinese Mainland; meanwhile, some inflationary pressures in Europe seem to be easing, which is a more positive scenario than many were predicting at the start of the year.”

Mr Bowden added there would be more “discussions on more annual BSAs” and that orders were “reflecting continued uncertainty, but overall capacity is rising and our customer base is becoming more diversified.

“Encouragingly, we are returning to capacity this year, ahead of the commissioning of the three-runway system next year.”

Cathay has had a particularly torrid time, dealing with severe quarantine restrictions and China’s zero-Covid policy. However, the carrier was happy to note that Hong Kong International Airport (HKIA) had retained its position as the “biggest overall air cargo hub by tonnage in 2022”.

“We’re obviously proud to be the biggest cargo carrier at the world’s leading cargo hub, and proud of our contribution to Hong Kong’s premier air-cargo status. It’s a great testament to our teams, and the collective efforts of Hong Kong’s logistics industry, that we’ve accomplished this despite the operational challenges from the pandemic at the start of the year, followed by a weakening in the market,” said Mr Bowden.

“The accolade also proves that Hong Kong has enduring advantages as a cargo transhipment hub. The city’s logistics industry is world class, and it has a geographical advantage as the aviation gateway to the Chinese Mainland and the manufacturing and consumer powerhouse that is the Greater Bay Area.”

Cathay’s optimism for a resurgence of cargo could be stymied by new capacity in the market. Cargolux, which yesterday reported record profits – again – was downbeat on the prospects for the rest of the year.

“The return of belly-hold capacity and the emergence of new players in the industry, including multi-modal companies, pose a risk of overcapacity in an already declining market,” it said.