Cargo Trends
January/ February 2001
The state of air freight and where it's headed
There is no question that cargo is one of the hottest segments going for the aviation industry right now. Here's an overview of the air cargo industry and its future impact on U.S. airports.
The
global cargo industry has been growing at record rates,
demonstrating a 6.2 percent increase in 1999, while
domestic air cargo has grown at an average annual rate
of over 7 percent for the past ten years. Since 1970,
the global air cargo industry has grown at a rate 2.5
times the growth rate of the world's Gross Domestic
Product (GDP). In 2000, it continued to expand, with
growth exceeding most expectations.
Currently, over 20 percent
of all commerce transits international borders. Within
the next 20 years this is projected to reach nearly
80 percent. Competition for jobs and industry has been
increasing across borders, which has had direct positive
impact on the flow of air freight. With the growing
impatience among consumers in the marketplace, air transportation
is becoming an important alternative to long-distance
shipping. Exports of just in time commodities and high
tech electronics has spawned rapid growth at several
airports.
Another important factor
in this growth is the explosion in e-commerce. The Internet
has changed the way the world does business, allowing
diverse opportunities for businesses to communicate
and conduct transactions with other businesses and the
end consumer.
Also, the realization
by many of the world's leading air carriers that air
cargo is a viable revenue resource has been a driving
force behind growth. Air cargo is estimated to account
for 13 percent of revenue of passenger airlines.
Cargo growth is being
experienced at virtually every airport worldwide, but
the top 30 airports handle 59 percent of all air cargo
volumes. The U.S. is the most developed air cargo market,
leading the world with 60 percent of all air freight
moving to, from, or through it. The U.S. includes three
of the top five cargo airports in the world (Memphis,
LAX, and JFK), and five of the top ten (Miami and Anchorage).
However, the U.S. is not
the largest true air freight market because of the trucking
component. Intra-Asia, which includes shipments within
Asia, the South Pacific, and India, is considered the
largest true air freight market.
In the U.S., integrated
carriers (FedEx, UPS, DHL, Emery, BAX Global, etc.)
account for slightly more than two-thirds of total cargo
tonnage, while passenger airlines and air-oriented trucking
companies carry the balance. It's projected that the
airlines will continue to experience positive traffic
growth, but will steadily lose market share to the FedEx's
and UPS's of the world due to the latters' ability to
more readily modify their business practices and operations
in response to customer demands.
On-Airport Facilities
On-airport freight facilities
consist of warehouse space and, in certain cases, adjacent
office space. This is where airlines, integrated air
carriers, third-party air cargo handlers, and freight
forwarders receive, prepare, consolidate, and dispatch
air freight shipments. The most desirable facilities
have direct access to the aircraft parking ramps in
order to minimize the potential for delay or mishandling
in loading and unloading freighter aircraft, as well
as the time and money lost in the transport of freight
between aircraft and warehouse facility. For most carriers,
direct ramp access is considered critical because of
the time-sensitive nature of cargo.
Most air freight facilities
consist of large open spaces for warehouse operations
and build-out space for administrative functions. The
rule-of-thumb ratio of total space to throughput is
one square foot per ton of freight handled, although
the ratio varies considerably from carrier to carrier.
Demand for air freight facility space is a function
of traffic and warehouse productivity levels.
Traffic demand is a function
of a carrier's flight schedule, capacity allocated to
the airport, and market share, while warehouse productivity
is affected by the type of freight carried and the level
of material handling automation. Heavier shipments typically
require manual handling, and consequently demand more
warehouse space.
While many airports tend
to locate cargo facilities far removed from terminal
facilities, at many larger airports it's important that
the facilities are situated as close as possible. At
most hub airports, the majority of cargo is "belly
freight/belly cargo" - cargo carried in the belly
of a passenger aircraft. At airports with significant
restraints on landing slots and land area, belly freight
typically dominates cargo carried by all-cargo airlines.
In fact, two-thirds of all cargo at JFK in New York
is belly freight, while 81 percent is belly cargo at
San Francisco. Miami is the exception to the general
rule with 75 percent of cargo transported by all-cargo
aircraft - including a large number of 747s arriving
from South America loaded with fresh cut flowers and
produce.
The general dominance
of belly cargo could become even more significant as
Boeing and Airbus continue development of their "super
jumbo" fleet, which may offer even more belly cargo
space to the airlines. As such, with the exception of
those airports dominated by FedEx, UPS. or other integrated
carriers, the trend of locating new cargo facilities
in reasonably close proximity to the terminal area will
likely continue.
Off-Airport Facilities
At many airports throughout
the U.S., existing on-airport cargo facilities are insufficient
to keep up with demand, development land is limited,
and/or the demolition and redevelopment of existing
facilities cannot be completed in a reasonable timeframe.
As a result, in many cases demand for cargo space is
being met by off-airport facilities. In these cases,
cargo is off-loaded from aircraft and then tugged/trucked
to an off-airport location for sorting, distribution,
or pallet breakdown and/or build-up.
While most of the time
these facilities offer a much lower rental rate than
off-airport facilities, this is often offset by the
additional time and costs associated with freight transfer,
including additional liability associated with this
extra cargo transfer. As such, the net cost may actually
equal or exceed the cost of operating on-airport. In
addition, many carriers are apprehensive about this
additional step of off-airport transfer, and will not
utilize those operators unless cost savings are significant.
All-Cargo Airports
The trend in recent years
has been that every time the military has looked to
close a former base, the floodgates have opened for
communities and developers looking to turn the airport
into the next Rickenbacker or Alliance Airport. And,
with few exceptions, they foresee the ability to accomplish
their goals at a much faster pace than is realistic.
A few problems are prevalent
in the conversion of military bases into cargo airports:
1) Infrastructure. While
most military bases offer expansive ramp areas, long
and wide runways, and wide taxiways, many aren't equipped
to handle the excessive weight of today's widebody aircraft.
Existing hangar structures often don't offer the door
height or clearspan to accommodate today's cargo handling
automation systems and typical aircraft.
2) Air Carrier Support.
Integrat-ed carriers such as FedEx and UPS are typically
located at airports that also offer a reasonable volume
of air carrier traffic. This is not only due to the
infrastructure and amenities, but also to the fact that
they rely on the air carriers in cases of maintenance
delays, interconnecting freight, and excessive cargo
volumes. Not every airport is suitable for a FedEx or
UPS, as they primarily rely on such factors as population
base, accessibility to primary roads and interstates,
community support (noise), and availability of labor.
3) Fixed vs. Variable
Costs. The primary difference between passenger airlines
carrying belly cargo and the all-cargo airlines is that
passenger airlines only have to cover variable costs
associated with transporting freight, while all-cargo
airlines have to cover all of the costs. Consequently,
the costs associated with developing and operating an
all-cargo airport must demonstrate such substantial
cost savings over existing mixed-use airports to entice
a switch from the status quo, which is difficult given
the infrastructure issues which must often be addressed.
In areas such as Southern
California, including Los Angeles and San Diego, the
competition for cargo traffic is fierce, with such airports
as Brown Field, El Toro, San Bernardino International,
Southern California Logistics Airport, and March Air
Force Base all competing for the same cargo traffic
base as LAX, Ontario, Burbank, Orange County, and Lindbergh
Field. Many times they are competing for the same airspace.
Future Prospects
The biggest hurdle that
will impact growth in air cargo is the one factor that
is hurting all facets of the industry: the ever-growing
problem of hiring and retaining quality employees. Whether
providing their own handling or outsourcing to a cargo
handler, cargo carriers face higher costs related to
aircraft ground accidents, package mishandling, and
workers' compensation claims.
The new computer-savvy
generation of cargo handling personnel will require
the development of high-tech approaches to interactive
training. New incentives for increasing employee loyalty,
such as UPS's educational assistance programs in Louisville,
will be necessary to attract the employment base needed
to meet the substantial growth anticipated.
Air cargo is expected
to grow at a record pace over the next several years.
FedEx and UPS will likely lead the way, followed closely
by the airlines looking for ways to maximize profits
without jeopardizing their loyal passenger base. To
a limited degree, new larger aircraft will provide the
lift necessary to meet the demand at airports with limited
landing slot capacity. While every airport in the U.S.
has the opportunity to share in the growth trend, more
than likely the successful air carrier/cargo airports
will continue to grow at a faster pace than those trying
to get their piece of the pie.
