Air Cargo:Emerging Myanmar requires patience

After more than two decades of isolation, the nation of Myanmar is moving back into the international market. As this Southeast Asian country makes cautious steps towards democracy, the forwarding industry is watching – and waiting – for opportunities to turn Myanmar into the region’s next logistics powerhouse. For some logistics firms, the wait may be longer than expected.

In December 2015, Myanmar National Airlines, the country’s flag carrier, resumed flights to Hong Kong, ending a 22-year hiatus brought about by the country’s isolation under its military dictatorship. The return to Hong Kong marked the airline’s second current international route, following service to Singapore. Early this year, the carrier intends to start flights to Taipei, Bangkok and Chiang Mai.

Following suit, multinational forwarders are now moving into Myanmar with alacrity. In December, Nippon Express established a subsidiary there, which will operate in the Thilawa special economic zone (SEZ) outside Yangon, the country’s business epicenter and former capital. The SEZ was set up last September as a joint project of the governments of Myanmar and Japan. Of the 47 companies that have been established there, 24 are based in Japan. Nippon Express plans to build a 56,800-square-foot warehouse in the SEZ by 2017. Last August, Panalpina opened an office in Yangon, equipped to handle end-to- end ocean and airfreight traffic, both inbound and outbound, for local and international customers.

Amol Singhal, managing director of Kuehne + Nagel Myanmar, which began its warehouse and office operations in Yangon in 2013, said he has seen foreign investment in pharmaceuticals, consumer goods and automotive business, but most of the interest concerns the nation’s natural resources, such as oil, gas and minerals. “We predict continuous growth for airfreight in 2016, which is driven by an increase in manufacturing hubs and domestic demand for imported products,” he said.

The influx of international operators is expected to pick up steam once the incumbent administration, which is controlled by the military, hands over power to the newly elected government. “This will be the green light for a lot of investors to move in. They are all waiting [to see] if the military is really going to hand over power,” said Patrick Dick, managing director for Myanmar at Switzerland-based forwarder, The Freight Co. Ltd.

However, Dick said much of the current enthusiasm may be a bit premature. He doubts that the early entrants will see quick returns on their investment. Local offices, he added, will be slow to generate money from exports, as Myanmar’s export base is minimal. “There is virtually no industrial base,” Dick explained. “There are some garment factories, but no electronics. Not much is moving now. The major carriers fly empty back to Singapore and other regional hubs,” he said, adding that business will likely be import driven for some time.

Keree Chaichanavong, managing director of Thai forwarder Trans Air Cargo, notes that most exports are agricultural. Of greatest interest to air cargo operators is seafood, but the volume is relatively small, he adds.

Two SEZs have been created in the south, near the Thai border, but the focus is overwhelmingly on Yangon and the adjacent SEZ. According to Dick, Yangon accounts for some 80 percent of Myanmar’s cargo throughput. In the long run, he sees Mandalay as another promising location, which can serve as a springboard to China.

But getting freight to any of these places, including Yangon, is still a challenge. There are no international freighters flying into Myanmar, and the lift to Yangon consists mostly of narrowbody aircraft. “The largest aircraft going in is an A330,” says Dick. There isn’t even a maindeck loader anywhere in the country, he adds.

“Presently 17 international airlines are operating through a general sales agent in Myanmar, but none of the airlines are operating cargo aircraft,” said K+N’s Singhal. Moreover, he added, any cargo with dimensions more than 274cm x 152cm x 154cm cannot move in or out of Myanmar.

Cathay Pacific said it has no plans to mount freighter flights to Myanmar at the moment. “Long term, there may be more opportunity, but the manufacturing sector is still relatively small when compared to the growing markets of Vietnam and Cambodia,” said Mark Sutch, general manager of cargo sales and marketing.

Infrastructure is another potential hindrance. Yangon International Airport, for instance, would be hard pressed to accommodate new all-cargo entrants. The facility is congested and already struggling to cope with the influx of passenger flights from other countries in the region. “At present the biggest challenge is a shortage of handling equipment and warehouse capacity,” Singhal said.

Relief is supposed to come from an airport to be built about 60 miles north of Yangon, on the site of an old World War II airfield. The project, which was first conceived in the 1990s, was abandoned soon after the groundbreaking ceremony in 1994. It was revived in 2014 with a view to becoming operational in 2018, but the government announced last summer that lack of funding would delay the opening until 2022.

Myanmar’s infrastructure beyond Yangon Airport is also in dire need of repairs and upgrades, from roads and bridges to power stations and other essential installations. Much airfreight destined for Myanmar is flown into Bangkok and trucked, but the overland portion takes a long time, Keree notes.

Customs clearance is also a hassle, often taking between three and seven working days, Singhal said. “If the shipment has to go through the value assessment channel, it can add an additional seven days,” he added. Currently, the process is handled manually, although a Japanese firm has reportedly been engaged to develop an electronic system, Dick said.

Red tape is still a massive issue. “Every second piece that goes into this country needs a license,” Dick says. “Everything in Myanmar is time-consuming. It’s very expensive to do business in Myanmar.”

Keree suggested that the country needs another four or five years to develop its infrastructure before it is ready to build up its potential. Until then, operating there is expensive and likely to produce losses, he said, adding that the early foreign entrants have lost money.

He favors Cambodia, saying it has opened faster and further, and offers relatively cheap land, whereas in Myanmar land is expensive. Garment factories from Thailand are moving to Cambodia now to take advantage of cheaper land and labor.

Myanmar is opening up, but it seems a while yet until it will be ready for business.

 

Source: Air Cargo World

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