Airlines for years have looked at ground handlers as levers to squeeze cost out of their cargo operations. The handlers themselves, however, have other plans. Increasingly looking to spread their services in new directions, the operators at airports are breaking through the fence and redefining their role in the expedited supply chain.
Some are doing it by going global and many are finding new business paths by becoming virtual transportation companies themselves, forging new possibilities for shippers and forwarders and allowing airlines to push their own services beyond the airport-to-airport world.
Handling companies don't usually run trucks inside their warehouses, after all, but Hong Kong Air Cargo Terminal did not let that get in the way of offering trucking services as part of its service portfolio.
Commanding some 80 percent of the cargo volume that moves through Hong Kong International Airport, it is not surprising that HACTL felt compelled to establish links to the markets in the Pearl River Delta to prevent a migration of air freight from Hong Kong to other airports in the region.
From the moment the first truck rolled across the border, HACTL management has never looked back.
This past year, its wholly-owned subsidiary Hong Kong Air Cargo Industry Services launched a scheduled road service to Dongguan, which marked the seventh point in China that the outfit serves by truck.
Like handlers around the world, HACTL is looking to protect its business and even grow. But the impact of such moves are rippling across the industry as forwarders and airlines are finding that the stopping point at the airport, once seemingly a hurdle to be overcome, can become a seamless part of a service chain.
Trucking has also become part of the menu offered by a growing number of handling agents around the world.
Outfits such as Swissport and Servisair have been operating scheduled trucking networks in Europe for some time now. In the United States, companies such as Aircraft Service International Group or Aeroground have well-established trucking networks in place.
For Swissport, the main focus of this activity so far has been on Germany, France and the United Kingdom, chiefly for Asian carriers.
"If you want to offer handling there (in some European markets), you need to offer trucking," observed David Harman, vice president of cargo for Europe, the Middle East and Africa of Swissport. This is typically done through subcontracting with scheduled truck operators.
"More and more customers are asking for seamless service, especially for import distribution. Exports seems to be more in the hands of GSAs," Harman said.
Swissport is looking to expand its trucking activities. Eastern Europe and Scandinavia are likely targets, Harman revealed. "Pan-European distribution would be a logical step, provided you get critical mass," he said.
But for HACTL, the service doesn't end with trucking.
The handler also advises clients that its staff can break down incoming cargo and re-label the individual shipments for collection. And it offers customs clearance as part of its transborder trucking activities, an activity that is normally covered by forwarders or customs brokers.
However, Harman has reservations about getting into customs clearance other than for personal effects, which is done at most Swissport stations. He does not want to encroach on the domain of forwarders, whom he regards as customers.
Increasingly, Swissport has been approached by cargo agents to provide warehousing. Harman notes in France and Germany groups of forwarders are seeking to reduce costs by farming out their on-airport warehousing.
The broadening scope of activities that handlers are prepared to take on is reflected in their information technology investments in systems that extend well beyond core warehouse and build-up/breakbulk functions.
In the main, this is driven by airlines' desire to draw handling into their performance measurement and service level initiatives and the need to ensure seamless data flow for operational as well as regulatory requirements, such as security regulations and customs links.
Servisair is rolling out a freight management system in North America that interfaces with customs to meet government security requirements and has an alert function for cargo from unknown or infrequent shippers. Equipped with a host of functions, such as a billing module, the set-up can be tailored to fit individual service level agreements, said Kerry Galegher, vice president of cargo for the Americas.
He hopes to have the rollout across North America completed by the summer. Servisair now provides freight handling at six American airports and is looking to expand its North American footprint. Vancouver, Toronto and New York's Kennedy Airport are under consideration, as are airports in Mexico.
After launching its new cargo system in Canada and Europe, Swissport is rolling it out in the U.S., starting with Chicago.
In line with carrier requirements, the system is Cargo 2000 compliant and allows airlines to pick between four and eight measuring points in the process. As defined event deadlines approach, alerts are triggered automatically to alert staff that it may be necessary to allocate additional resources to the task in question in order to avoid delays.
"The idea is to alert staff of an event before you run into a potential failure," said Christian Saaner, regional operations manager for Europe, the Middle East and Africa.
Last year Swissport introduced an Internet-based tracking tool fed by EDI messages to enable airline customers to track traffic through the handler's system.
EDI messages are also used for tracing shipments that move by truck between Swissport stations at different airports. This type of traffic constitutes the bulk of the handler's trucking activities in Europe, but increasingly Swissport is asked to deliver the cargo to the final consignee, provided the consignee has a bonded warehouse.
"We're also taking over classical functions like booking, loading, planning," Harman said. This allows the handler to treat trucks as flights and provide a seamless service. "It saves the airlines cost. They don't have to open a bond."
Just as they reach down the supply chain toward the consignee, handlers can also extend their activities in the opposite direction.
Servisair's portfolio includes cargo sales. "We can manage the cargo product for a carrier to the point where we become a virtual cargo division for them," said Galegher.
Although legacy carriers are interested in outsourcing a greater amount of activities than in the past, the prime airline candidates for such an approach would be budget passenger airlines, he said. To date, budget airlines in North America have not embraced this philosophy, but some of their European counterparts have farmed out their entire cargo operations and he believes U.S. players will eventually follow suit.
"The time has come to look at an all-inclusive product. We're willing to listen to anything that a customer would bring to the table. If we don't take a hard look at this, we might miss some opportunities," he said.
Servisair is not likely to rush at any such opening, however. Mindful of possible concerns from airline customers that their handler could compete with them, Galegher said, "It has to be the right opportunity and the right carrier; there has to be confidentiality, and there has to be trust."
For the legacy carriers, cost considerations have been the chief engine driving their move to outsource more work to handling agents. But that also can carry peril.
Faced with an inexorable rise of red ink, the idea of farming out its cargo handling looked vastly appealing to United Airlines Cargo back in 2003. Management figured that giving the handling at its major stations to third-party operators could reduce its costs by $100 million. The airline ultimately reached that goal, but the road proved rockier than expected. Initial performance problems caused an exodus of customers, so UAL was forced to spend a lot more energy on quality levels than had been anticipated.
Today, the airlines are still facing heavy financial pressure, but the way they eye their handling agents has shifted from cost reduction to a mix of lower spending and additional services which can attain better quality levels.
"I believe the legacy carriers are coming to the realization that if they want profitability, they have to pay for product quality," said Dave Summers, director of cargo operations for the Americas of Servisair.
All of this is a far cry from the days when the local or regional manager of an airline would pick handling agents for individual stations. "We do see a trend towards more professional procurement processes at the airlines. Increasingly they have buying teams that look after these matters," Harman said.
The alignment at head office level is also reflected in the growing number of multi-station or corporate handling agreements.
Besides leveraging an airline's volumes, this can open the door to more forward-looking undertakings. Swissport recently signed a joint venture deal with AirBridge Cargo and KrasAir to develop a cargo hub in Krasnoyarsk. Air Bridge is using the Siberian airport as a transfer point for cargo from Europe and China to Sakhalin and intends to mount freighter service from Krasnoyarsk to the US.
"We committed to supporting AirBridge and KrasAir to develop a hub to international standards. Everything - from EDI messaging to loading times and security aspects - will be the same as in Anchorage, or Heathrow or wherever," said Harman.
In the initial phase, the handler supports the existing infrastructure, provides equipment and improves processes and IT.
At the same time, it is involved in the design and development of a hub new facility that will replace the existing structure used by KrasAir and be able to handle AirBridge's 747s.
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