In late April of this year, UPS signed an agreement finalizing the construction of a new China air hub to be built in Shanghai. The international carrier had previously operated out of a smaller, space-constrained location in Shanghai with joint venture company Sinotran, the transportation arm of the Chinese government. But, since taking direct control of its China operation in 2005, the company has experienced tremendous growth.
“In Shanghai we are certainly the first [international carrier to have a] hub,” Scott Wicker, vice president of corporate plant engineering says. “We are building this facility because of Shanghai’s sheer size and its import and export volume — that’s not only happening today, but based on what we have seen, we expect the growth to continue. We’ve got to be prepared for this, so that’s why we’re building this — because of the historic growth numbers there and where we think we’re going.”
The facility is under construction at the city’s Pudong International Airport, which is also undergoing renovations to include state-of-the-art technology and increased capacity. By the time the Shanghai Airport Authority finishes renovations, the airport will have the ability to handle 60 million passengers and 4.2 million tons of cargo which it expects annually by the end of 2007.
“This is certainly one of the largest facilities we’ve put up in this part of the world,” Wicker says. “We’re used to constructing facilities much larger than this in the U.S. and Europe, but we haven’t done it in Asia so we’re working with design teams in the U.S. at our office in Atlanta and supporting our engineering folks located in Asia.”
UPS’ new hub is designed to open with a one million square-foot floor plan with the potential to double its size in the near future.
“Typically we build for a five-year need, Wicker says. “We usually try to make sure we have 10-year needs covered as far as land availability to make sure we can expand the building and then we initially build five years. But in Shanghai, because it’s growing so fast and the needs change so quickly — we are building a facility we think can handle the 10-year need. However, we’re equipping it only based on a two to three-year need just to watch it, because we could be wrong.”
According to Wicker, UPS has invested more than $600 million in China during the past five years. The new hub will not only supply jobs to many local Chinese, but the company is also looking to purchase GSE for the hub solely from Chinese manufacturers.
“The majority of the funds are spent not on GSE but on moving the package from input to output inside the building. Our goal for the whole material handling system is to source it all right out of China.” Wicker explains. “But there’s a sizeable amount of money set aside for GSE. We are looking to purchase pushbacks, air starts, baggage carts, belt loaders, cargo loaders, main deck cargo loaders, crew stairs, dollies, forklifts, GPUs, static racks, tail stands for 747s, tow bars for 747s, cargo tractors and the list goes on. Right now we don’t know which manufacturers we will be purchasing from but ordering will happen in next six to eight months. We try to buy local goods because so much is produced right there. Pretty much anything you are going to find in the U.S. has some origins in China. Anything you have a need for you can source right there in China. Their economy is changing so rapidly you want to have that local relationship and contribute to the market. It also helps your case in expanding in that market.”
In line with it’s commitment to expanding the Chinese market, UPS has hired thousands of local workers in a short period of time. The company is investing a great deal of money training the handlers in safety and efficiency as well as working with the Chinese builders.
“We have had an incredible, rapid, employee build-up,” Wicker says. “As recently as 18 months ago, we only had about 200 hundred employees in China, today we have 4,000 and a lot of our time is spent training these people and introducing them to our methods.”
According to Wicker, UPS has spent 120,000 hours training employees in China since 2005 and the company now says 98 percent of employees in China are local with all training is taking place in Mandarin.
“That’s part of our culture,” he says. “We feel strongly that the locals understand the Chinese culture best and their way of doing business. What UPS provides is the structure and the training to gain efficiency. The employees know the local language and come to the U.S. for a cross fertilization program and then they return and train other employees.”
Wicker says safety and efficiency are two of the main focuses of the employee training at UPS. “In an operation where you’re loading aircraft there’s a lot of procedures that have to be followed — there’s not much room for error. The name of the game is time definite delivery. People want to make sure they can count on our reliability, because this is a relatively new concept for Shanghai — international delivery. Obviously there has been a lot of freight going on there but this will also enable us to allow small package express to go in and out of Shanghai with greater efficiency.”
Not only has UPS invested in equipment, the building itself and the training of employees, but it is looking to upgrade its aircraft fleet as well.
“We’re looking to increase capacity,” Wicker says of the fleet. “Currently we have MD-11s and more recently 747-400s. With the 747-400s, the nose of the aircraft lifts up for easy loading, it’s pretty impressive. It has increased capacity and fuel efficiency which is the way of the future because this now allows for easier access which in turn produces earlier delivery times and faster pick-up times.”
UPS received its first Boeing 747-400 in late July of this summer at the company’s global air hub in Louisville, Ky. UPS plans to fly the jumbo jet on long-range international routes, with Shanghai serving as a regular destination.
“As we continue to see strong international growth the 747-400 is a perfect fit for UPS,” Mike Eskew, chairman and CEO of UPS said in a statement. “It has tremendous range and payload capacity so we can satisfy the need of customers, to ship more packages and freight to overseas markets. In addition, this is a plane that has a strong record in terms of safety, reliability and environmental friendliness.”
UPS plans to bring its total 747-400 fleet size to 13 by the end of 2010. The aircraft is the first hinged-nose plane for the company who is also considering the purchase of additional Boeing aircraft. According to Wicker, the decision to purchase from Boeing came after Airbus’ recent troubles with its A380 program.
“We’re looking at options,” Wicker says of the Boeing’s programs. “We were very excited for [Airbus’] A380 and we had an order for those. But with the challenges they have faced we have since turned to Boeing to look at larger aircraft. That’s the other challenge; you want to order aircraft that are more fuel efficient with greater pay load. At this point with the delay at Airbus we had to proceed and we are still looking at options, but the 747-400 is definitely an interesting plane.”
Overall UPS remains optimistic it will thrive at the new Shanghai air hub, although it will face competition from its former joint venture company Sinotrans Shipping Agency, a state-owned and U.S. agent for Sinotrans Container Lines. The company, incorporated in 2001, deals with imports and exports in and out of Shanghai. UPS broke ties with the company in 2005 to form a wholly owned operation.
“There are a lot of China carriers,” Wicker admits. “They’re becoming more vocal because they want to serve beyond their own markets, but we already have the network in place. China was one of the last frontiers.”
