Boeing is about to emerge a huge winner from China’s online shopping boom

China’s air express freight market is a rare bright spot in global logistics

PUBLISHED : Thursday, 21 April, 2016, 5:32pm
UPDATED : Thursday, 21 April, 2016, 7:23pm

As China’s 400 million and growing online shoppers get ever-more demanding for rapid delivery, an increasing number of express delivery companies are seeking to build their own freighter fleets. That makes these companies the new growth markets for Boeing at a time of muted global freighter demand.

Boeing forecasts China will need 400 narrow-body freighters in the next 20 years, and express delivery firms will account for the vast majority of that demand.

“This is literally driven by the exponential growth of the e-commerce industry. We believe China needs the planes to build up their overnight package delivery capability,” Kurt Kraft, Boeing’s vice president of freighter conversions and modifications, said. There are only 80 narrow-body freighters in operation in China now, according to Boeing. The aerospace company forecasts global demand for narrow-body freighters at 1,000 over 20 years.

For the new 737-800 BCF, Boeing’s first conversion offering of its next generation 737 planes, mainland Chinese express companies have shown keen interest.

“I haven’t talked to anybody in China except express companies,” Kraft said.

The small-sized short-haul plane carrying up to 23.9 metric tones of cargo is ideal for domestic package delivery missions, he said.

Boeing has booked 55 orders from seven customers for the model since its launch in February. Among mainland customers, these include 13 orders from Shenzhen-based SF Express, 20 orders from YTO Airlines, a unit of YTO Express based in Hangzhou, and 10 orders from state-owned China Postal Airlines.

The express delivery companies, which used to rely on the big carriers for air transport, are investing in fleets of their own and, in the case of SF Express, even an airport of its own in Hubei, central China. As there are no purpose-built narrow-body freighters, the industry practise is to buy ageing passenger airliners that are retiring from service from the open market and then have them converted, which can cost up to US$5 million and take around 90 days to complete, according to Kraft.

“It basically involves cutting a door on the side of the plane, reinforcing the floor for heavier load, sometimes the engines and the wings too, and adding a barrier behind the cockpit,” Kraft said. Planes that are 15 to 20 years old are no longer economical for passenger carriers to operate as their maintenance cost rise, but could fly for another 10 to 20 years as freighters, he said.

With the global air cargo market in a prolonged slump, demand for large wide-body freighters such as the 747-400BCF that can carry more than 100 tonnes across continents are at a standstill and as a result airlines are grounding excess capacity in the hope that demand will pick up in the near future. Cathay Pacific, for example, has mothballed three freighters. In a further blow to aircraft manufacturers low fuel prices are making it affordable for delivery companies to keep old, less fuel-efficient planes in service longer. Boeing has not had any orders for its 747-400BCF for three years, according to Kraft. He said the company is not expecting demand for large freighters to recover in the next three years. He noted that the number of 737NGs suitable for conversion would begin rising from 2018.