Operators say they must invest to compete, as market conditions toughen and rivals emerge

Chinese courier companies say they are looking at further expansion into air services as competition heats up in the local cargo sector, particularly from domestic airlines.

According to figures from the Civil Aviation Administration of China, the country's cargo and mail throughput rose by 2.5 percent to 11.58 million metric tons in 2011, and China's domestic airlines carried 5.58 million tons, which is down 1 percent from the year before.

CAAC also revealed that in the first quarter of this year, market conditions continued to toughen as cargo and mail throughput recorded by all airports in China decreased 1.4 percent year-on-year, and half of the 20 biggest airports have experienced negative growth.

Experts suggest that Chinese airlines are now likely to make further investments to increase the strength and profitability of their own freight businesses - for example, through mergers and acquisitions and the extension of their freight service chain.

According to reports by China Business News on Tuesday, China Eastern Airlines Corp Ltd and China Southern Airlines Co Ltd are both set to establish their own shipping firms by early next year.

As a result, some of the country's leading courier operators say they too are having to invest to compete in the air freight market, in some cases buying their own aircraft.

One of the most ambitious is the Shanghai-based STO Express Co Ltd, which said it plans to set up an air cargo unit by acquiring six to eight aircraft next year.

Shen Tao, the company's public relations officer, said that more than 20 percent of its parcels are now being delivered by air, and as the figures continue to climb, the only sensible move is to invest in its own air fleet.

The company works with major Chinese airlines, including China Southern Airlines, China Eastern Airlines and Air China Ltd.

"We may want to purchase the aircraft, but we could lease - we're still to work out what works best for us," he said.

The company's choice of main air cargo hub is yet to be decided too, but it is looking at various options. Among them are Shanghai, Beijing, Wuhan, Chengdu and Guangzhou.

Another leading express firm from Shanghai, YTO Express Co Ltd, says it is also poised to set up an air cargo service to tap the booming local market.

The company has just filed an application with the CAAC to be allowed to set up its own wholly owned airline, said Lang Hongfei, vice-president in charge of long-term strategy.

The planned airline company will be based in Xiaoshan, the location of an airport serving Hangzhou, the capital city of Zhejiang province.

Lang added that, with 1,000 tons of air cargo per day, an expansion is "imperative" in a market he describes as expanding at "breakneck" speed.

YTO Express is still undecided on the number of aircraft being planned. Until now, it has been leasing three cargo planes to fly among Beijing, Hangzhou and Shenzhen using Yangtze River Express, a cargo airline majority-owned by Hainan Air Group.

Air cargo in China is still a relatively new sector. The first private company to start major operations was the Shenzhen-based SF Express (Group) Co , which set up an air cargo venture in 2009 with a single Boeing aircraft.

SF now has seven cargo aircraft - five Boeing 757s and two Boeing 737s - according to its website, which says it too plans a rapid expansion over the next decade, adding another 25 Boeing freighters.

However, the expansion of China's lengthening list of air cargo operators has also been under scrutiny recently for the wrong reasons.

On Monday, the China Air Transport Association, or CATA, announced it was putting four domestic logistics firms on its no-fly list because of security flaws, after a fire started in a storage bin of a flight that eventually landed at Dalian Zhoushuizi Airport in October.

The People's Daily reported that Shanghai YTO, Yunda Express, and the Huixing and Qihang courier firms were forced to suspend their air freight services until their business procedures improved.

CATA, an association that calls most Chinese airlines members, said Shanghai YTO was blamed for its incorrect classification of lithium batteries, while the other firms were punished for transporting the prohibited article vesuvian, which caused the fire, according to CATA.

Shanghai YTO admitted negligence in security checks concerning its cargo transported on the aircraft, but insists the efficiency of its express deliveries will not be affected and its cargo expansion plans will go ahead as planned.

Xu Yong, principal analyst of the China Express and Logistics Consulting website, said: "Without proper training, it is very hard for couriers to recognize which deliveries are flammable or dangerous."

He forecast the air express delivery market is set to experience a significant reshuffle over the next three to five years.

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