DOT SECRETARY PETERS ATTENDS UPS CARGO HUB OPENING IN

UNCLAS SECTION 01 OF 02 SHANGHAI 000221

SIPDIS

SENSITIVE
SIPDIS

STATE FOR EAP/CM, EEB AND E
TRANSPORTATION FOR OFFICE OF THE SECRETARY, AND OST X-1, X-40
TREASURY FOR AMB. HOLMER, WRIGHT, TSMITH, AND OASIA - DOHNER,
HAARSAGER, CUSHMAN
USDOC FOR ITA MAC DAS KASOFF, MELCHER, MCQUEEN
NSC FOR TONG

E.O. 12958: N/A
TAGS: EAIR ELTN ECPS ETRD OVIP CH
SUBJECT: DOT SECRETARY PETERS ATTENDS UPS CARGO HUB OPENING IN
SHANGHAI

REF: SHANGHAI 220

This cable is Sensitive But Unclassified (SBU) and for official
use only. Not for transmission outside USG channels.


1. (U) Summary. During her April 11-12 visit to Shanghai
(reftel),Transportation Secretary Mary Peters attended a
signing ceremony for the creation of the United Parcel Service
(UPS) International Air Hub at the Shanghai Pudong International
Airport (PVG),with an initial investment of USD 20 million.
The UPS facility was the first cargo hub established under the
2004 U.S.-China Air Transport Agreement. With this agreement,
UPS will benefit from increased flexibility in running its
operations and Shanghai will continue its goal of positioning
itself as a regional and international transportation center
poised to meet the demands of the 2008 Olympics and 2010
Shanghai World Expo. End summary.

--------------
UPS Hub Announcement
--------------


2. (U) On April 12, Secretary Peters, joined by Shanghai Vice
Mayor Yang Xiong, witnessed the signing of a contract by UPS
Asia-Pacific President Ken Torok and Shanghai Airport Authority
(SAA) Chairman Wu Nianzu to establish UPS's cargo hub at PVG.
UPS is the first U.S. carrier to qualify for "cargo hub status"
in China under provisions set forth in the U.S.-China Air
Transport Agreement, amended by Protocol dated July 2004.
According to UPS China Public Affairs Manager Liu Ran, under the
bilateral agreement, cargo hub status will allow UPS much
greater flexibility to manage its business, including unlimited
frequencies and Seventh Freedom rights - the right to carry
passengers or cargo between two foreign countries without
continuing service to one's own country.


3. (U) In her remarks, the Secretary noted that the hub
agreement demonstrated the benefits of the 2004 Air Transport
Agreement between the U.S. and China and was an important
milestone to meeting increasing demands for bilateral air cargo
services that reached almost 400,000 tons in 2006. The
Secretary said that UPS's new cargo hub status would bring

SIPDIS
greater flexibility to UPS operations in China and give
China-based businesses better access to major centers around the
world, thus demonstrating the benefits of liberalization of air
services to support the growing bilateral trade relationship.


4. (U) Civil Aviation Administration of China (CAAC) East China
Bureau Director General Xia Xinghui noted that the UPS cargo hub
was an important step in assisting China in meeting its growing
air cargo demands and consistent with China's goal of promoting
Shanghai as an international and regional air services center.
He said that UPS's agreement with SAA was China's second such
cargo-hub agreement with a U.S. express service company; Federal
Express had opened cargo hubs in Guangzhou and Hangzhou. (Note:
UPS's Liu Ran later clarified that UPS was the first U.S.
airline to meet the criteria of the 2004 Air Agreement to
qualify for cargo hub status, including having 72 movements per
week. While FedEx had expressed its intent to establish a hub
in Guangzhou, it did not expect to qualify until 2009. FedEx's
"hub" in Hangzhou was actually a domestic hub of Chinese airline
Okay Airline, with which FedEx had a commercial license. End
note.)


5. (U) Xia added that China was now the world's second largest
aviation market in terms of turnover, after the United States,
although he acknowledged it was a distant second, accounting for
about 12 percent of the market, compared to the 60 percent
accounted for by the United States. East China was now
responsible for 32 percent of China's passenger traffic and 51
percent of its cargo. With more than 2.15 million tons handled

SHANGHAI 00000221 002 OF 002


in 2006, PVG was now the world's sixth busiest cargo airport.


6. (U) Shanghai Vice Mayor Yang Xiong thanked CAAC for its
support of the Shanghai Municipal Government's efforts to
promote Shanghai as an international transportation center. Last
year's rapid growth in air passenger led to 490,000 take-offs
and landings with over 46.2 million passengers and 2.53 million
tons of cargo delivered at Shanghai's PVG and Hongqiao airports.
He noted that the expansion at PVG would be completed by
December and would boost its capacity to 60 million passengers
and 4.2 million tons in cargo per year. Yang said that other
international freight and shipping companies should consider
Shanghai as their regional cargo hub and that this type of
international business benefited Chinese freight and shipping
companies as well. Yang pledged that Shanghai would "make full
efforts" to insure the success of its regional air hub and to
promote passenger and cargo growth.


7. (U) UPS President for Asia-Pacific Ken Torok thanked SAA,
CAAC, the Shanghai Municipal Government, DOT and the State
Department on behalf of UPS's 400,000 employees worldwide. He
said that UPS had been doing business in China since 1988 and
had invested USD 600 million to become China's first
wholly-owned foreign express carrier. UPS currently had 76
total take-offs and landings per week at its Pudong facility and
employed 200 people. When its hub expansion project was
completed in 2012, its Pudong workforce would grow to 1,000
employees and be able to sort 17,000 pieces per hour. UPS would
move to 24/7 processing, expanding its fleet to incorporate more
Boeing 747-400s in addition to its current fleet of mostly
Boeing MD-11s. At a later tour of the facility, Torok told the
Secretary that UPS had a total of 4500 staff in China and 1,200

SIPDIS
delivery vehicles. The cargo hub facility would break ground in
August 2007 and, it was hoped, be operational in time for the
August 2008 Beijing Olympics. The Shanghai Aviation
Administration (SAA) would construct the facilities and lease
them to UPS. UPS's current facility was 5,000 square meters;
its new hub would cover 96,000 square meters.


8. (U) The DOT delegation cleared on this cable.
JARRETT