For decades, China has been one of the world’s largest manufacturers, exporting goods to the rest of the world and building its economy at a rapid pace. Air cargo has found much opportunity in China’s economic rise, but in recent months, the country’s manufacturing has slowed. The old export-driven China is giving way to an economy driven by consumer demand. With more than a billion consumers, a growing Chinese demand for high-priced luxury goods is fueling air cargo opportunities.
There are several factors and global conditions changing China’s economy. Slowing consumer demand in some of China’s biggest markets – Europe and the United States – has had ramifications for Chinese manufacturing, exports and economic growth. Further, China’s low labor costs are beginning to rise. Increased income can increase consumer demand, but it also makes China less competitive as a country in which to set up manufacturing and other business operations.
At the same time, more disposable income means a greater ability to purchase the luxury goods that were previously prohibitively expensive. This rising consumer demand in Asia-Pacific creates interesting dynamics for international logistics – particularly air cargo – which is often the preferred mode of transportation for high-margin luxury products.
Developing a Taste for Luxury Goods
Luxury goods sales for 2012 are forecast to exceed $260 billion worldwide, a 7 percent increase, according to a study from Bain & Company. While the economic issues in Europe and the United States have hurt demand and spending, Chinese consumers are driving the market forward. Demand from emerging markets already accounts for half of the total global luxury demand, and by 2020, this could rise to nearly 75% of the global demand.
For China specifically, luxury spending is forecast to grow 18 percent to 22 percent this year. This growth is significantly higher than what is expected in some of the more established markets. North America might only see 5 percent to 7 percent growth, and debt-ridden Europe could find only 2 percent to 4 percent. (Note, however, that while growth may be weak, Europe and the United States remain large consumers of luxury goods.)
High-priced luxury products are attractive in large part because the brand is sought after and desirable. It takes time for companies to build a devoted consumer base in any country. In China, this process is accelerating, and major luxury brands are striving to reach new market segments throughout the country.
Chinese consumers are already Louis Vuitton’s biggest customers, driving a 25 percent jump in sales in Q1 2012. About a third of Gucci and Prada’s global sales come from mainland-Chinese customers, according CLSA Asia-Pacific Markets. Wealthy Chinese consumers can spend up to a quarter of their disposable income on luxury products, and growth in luxury demand throughout China and Asia-Pacific offers opportunities for forwarders and shippers.
Luxury goods are typically moved by air cargo, and the fast-growing demand for high-priced goods in China (and throughout the world) means forwarders and shippers have a lucrative opportunity in an otherwise difficult international economy. Carriers with broad international networks – particularly throughout Asia-Pacific – are best positioned to help forwarders reach new markets.
How AA Cargo Can Help
American provides daily scheduled lift capacity to major cities in the United States, Europe, Canada, Mexico, the Caribbean, Latin America and Asia. Our international network of hubs and interline partners gives our customers access to established and emerging economies throughout the world.
In addition to daily flights serving Shanghai and Beijing, American is working closely with our Joint-Business Alliance partner, Japan Airlines, to give our customers access to a broad network of origins and destinations throughout Asia-Pacific, including China. We also offer easy express freight service to the region for shipments up to 300 kgs, with automatic capacity confirmation and a 90 minute recovery time at every JAL destination.