Hong Kong Appetite for $100 Mangoes Boosts ANA Cargo: Freight

Hong Kong Appetite for $100 Mangoes Boosts ANA Cargo: Freight

ANA Holdings Inc. (9202), Japan’s largest airline, is targeting Hong Kong’s appetite for next-day delivery of $100 mangoes and other food to boost its cargo as shipments of Panasonic Corp. (6752) and Sony Corp. televisions slump.

Hong Kong, the biggest destination for food and live animals exported by air from Japan, is buying more Japanese beef, cherries and other premium items as the number of rich in the city increases. Expanding demand is prompting the airline to add more cargo flights in the region.ANA is speeding up the transportation of farm goods by avoiding Tokyo and using its cargo hub in Okinawa in southern Japan. Rising exports of food and other perishables is helping the carrier withstand a slump in the shipment of electronics as Sony (6758) and other Japanese companies pare domestic manufacturing.

“Japanese seasonal fruits have a reputation for high quality in Asian countries,”Akira Okada, ANA’s cargo head, said in an interview in Tokyo. “In the future we want to be able to provide next-day delivery to the Chinese mainland as well. There are a lot of rich people in China.”

The nation’s exports of food and live animals by planes almost doubled in value in the past decade to 36 billion yen ($360 million) last year, from 19 billion yen in 2002, according to figures from Japan Customs. Hong Kong is the biggest importer, with 20 billion yen in purchases last year.

Hitachi, Toshiba

In comparison, television shipments by air have slumped, with about 661,000 units sent overseas last year from 2.5 million in 2002, according to Japan Customs. Japanese companies have reduced or stopped TV production in the country as they strive to cut costs and stem losses amid increasing competition.

In 2009, Sony closed a factory that made monitors and projectors in Ichinomiya while Panasonic cut its investment in two flat-panel factories at home. Hitachi Ltd. ended its television manufacturing last year and Toshiba Corp. has also stopped domestic TV production.

Yamato Holdings Co. (9064), Japan’s largest express delivery company, in May said it would offer next-day deliveries direct to customers in Hong Kong and Taiwan from the Okinawa hub.

Oranges from Ehime prefecture, western Japan, sell for HK$338 ($44) for 1.2 kilograms (2.6 pounds) on Yahoo! Hong Kong Ltd.’s website, while up to 700 grams of grapes from Kagawa Prefecture, western Japan, are priced at HK$458. Customers are also paying up to 10,000 yen each for mangoes from Kyushu, southern Japan, Okada said.

‘Good Job’

“ANA is doing a good job in trying to add value to its cargo service by using its Okinawa hub,” said Ryota Himeno, an analyst at Barclays Securities Japan Ltd. “It’s a tough market for air freight.”

The Asia Pacific region has had the sharpest decline in air freight this year, with volumes down 3.2 percent in the year through May, according to the International Air Transport Association. That compares with a 0.5 percent drop globally. In Japan’s air cargo market, goods worth 16 trillion yen are shipped overseas annually, according to Japan Customs.

ANA, based in Tokyo, opened its cargo hub in Naha, Okinawa in 2009, putting it two hours closer to Hong Kong by plane than Tokyo. Demand is getting a boost after the number of millionaires in Hong Kong jumped 36 percent to 114,000 last year.

“What used to take two or three days, we can now do in one,” Okada said on July 4. “Professionals are able to spot the fruits that will ripen the next day and send them straight to consumer.”

Naha Hub

Since ANA’s hub opened, Naha, Japan’s fourth-biggest cargo airport, has experienced a surge in air freight. Cargo passing through the facility rose 57 percent to almost 360,000 tons in the year ended March 2012, from about 230,000 tons three years earlier, according to the nation’s transport ministry.

The amount of international cargo that ANA handles at the airport is about equal to the total overseas freight passing through Naha, said Megumi Tezuka, a spokeswoman at ANA. She declined to give any data nor the costs for building the hub.

The carrier also serves Seoul, Shanghai, Taipei and Bangkok with direct cargo flights from the Okinawa hub. It will start flights to Qingdao, China, in August and may add flights to Vietnam, Indonesia or the Philippines when it gets its 10th cargo plane by the end of the March, Okada said.

Boeing Freighters

Eventually, ANA plans to increase its fleet of cargo-only planes to 13, Okada said, declining to specify a timeframe. The carrier currently operates Boeing Co. 767 freighters.

Nippon Yusen K.K.’s unit Nippon Cargo Airlines Co. also operates a cargo fleet. The carrier had eight Boeing 747-400Fs and two 747-8Fs as of April 1, according to its website.

Nippon Cargo flies to North America and Europe, as well as other Asian cities from Tokyo and Osaka and Kitakyushu in western Japan, according to its website. The carrier doesn’t have a hub in Okinawa. The main area of sales for the company is North America, said Kana Tsuchida, a spokeswoman.

Japan Airlines Co. (9201), the nation’s second-largest airline, closed down its freighter-only cargo business in 2010, when it was going through bankruptcy restructuring. The carrier now transports cargo in the bellies of passenger planes.

ANA’s cargo unit had 119 billion yen in sales in the 12 months ended March 2013, compared with 121 billion yen a year earlier, according to the company. Freight accounted for 8 percent of its sales in the period.

“Japan’s manufacturers have already moved overseas,” Okada said. “We want to see agriculture become a new manufacturing industry.”

To contact the reporters on this story: Chris Cooper in Tokyo at ccooper1@bloomberg.net; Kiyotaka Matsuda in Tokyo at kmatsuda@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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