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Page D-1 APPENDIX D: GUIDELINESâROUNDTABLE DISCUSSION REPORT APPENDIX OVERVIEW Our team conducted a roundtable discussion at the ACI-NA National Conference held in Calgary, Alberta Canada to gather data from airports via roundtable discussion and one-on-one interviews with airport management and planners. Kitty Freidheim of Freidheim Consulting moderated the roundtable discussion and made every effort to include participants from a cross section of the industry: international gateways, major gateways, integrated carrier airports, and small regional airports. The roundtable discussion was intended to address all aspects of cargo planning and development in a small forum in a more personal and anecdotal way without the formal structure of a survey instrument. Location: Airport Council International (ACI) World Meeting held in Calgary, Alberta, Canada. Date: Saturday, September 8, 2012. Leadership: Ms. Kitty Freidheim of Freidheim Consulting. Objective: Research efforts included the organization of a roundtable discussion meeting with airport planners, property managers, and air service marketing managers. The goal of the discussion was to gather information related to: ⢠Trends in the industry ⢠Market sector growth ⢠Financing and lease trends ⢠Recent modal cargo developments ⢠Changes in the industry ⢠Emerging entities/industry consolidation ⢠Adequacy of current data ⢠Design innovation ⢠Impacts of new aircraft ⢠Problems with current processing procedures/Security ⢠Sustainability ⢠Environmental regulations Preparation Multiple invitations were sent to those attendees who traditionally participate in the ACI Cargo Committee meetings. An attendees/registration list was provided by ACI. It was used to develop a list of potential attendees. Mike Maynard and Kitty Freidheim developed a list of airport personnel that have shown an interest in air cargo either through membership of the ACI Air Cargo Committee or air cargo projects on their respective airports. Potential participants were emailed twice to ascertain whether they would attend or not. Participation The roundtable was moderated by Kitty Freidheim, President of Freidheim Consulting LLC and a member of the ACRP Study team. Participants included Tom Green, Senior Manager of Air Cargo Development and Operations at Seattle-Tacoma International Airport (Sea-Tac); Cece Poister, Manager of Air Cargo Development at Pittsburgh International Airport; and Rick Busch, Director of Planning at
Page D-2 Denver International Airport. Additionally, a separate meeting was held with Mary Davis, Director of Marketing at Tucson International Airport. Discussion The discussion focused on trends in the cargo industry which could ultimately impact the planning and design of cargo facilities. The trends which were identified included carrier consolidation of carriers and ground handlers, shifts in aircraft size, interest in perishable facilities, dominance of third-party operators, shorter leases, dominance of integrators, decline in mail traffic, and diversion to trucking. Each airport represents a different profile in terms of location and size. Seattle-Tacoma International Airport is a large gateway/hub on the West Coast; Pittsburgh International Airport is a medium-sized, inland airport; and Denver International Airport is a medium-sized, mid-continental airport and hub to United Airlines. Their experiences with current trends vary due to the characteristics of their geographic location, market size and local economy. Their respective cargo numbers in 2011 were: 279,624 metric tons for Sea-Tac; 79,793 metric tons for Pittsburgh; and, 248,141 metric tons for Denver. GENERAL TRENDS Pittsburgh identified aircraft size, which is having an impact on cargo, as an important trend. At this airport, medium-sized aircraft traditionally handled palletized cargo, but are now handling small packages and individual pieces. Pittsburgh has also experienced consolidation of individual airlines under single ground handlers. Lastly, it has experienced a significant change in the rules and regulations of screening for cargo. Sea-Tac does not have aircraft gauge challenges. It has a reasonably active international business that is experiencing new routes operated by Emirates and ANA. This represents a fair amount of wide-belly aircraft for which they have adequate capacity. The airport has minimal domestic wide-belly aircraft activity as this gauge of aircraft has been retired from many domestic passenger fleets in the U.S. SEA exports more tonnage and value than it imports. Activity to Asia and Europe is trending upward with 2011 being Sea-Tacâs peak year for tonnage to Asia. Agriculture is Sea-Tacâs biggest sector for shipments, but it also has local and Alaskan seafood product as well as some technology shipments. There is very defined peaking from mid-June to mid-August, particularly with the export of cherries, produced in the Northwest, for which there is more cargo demand than capacity. One-third of this product goes north to Vancouver and one-third south to Portland and/or all the way to San Francisco, sometimes even to Los Angeles. As many as 133 wide-body cargo aircraft have transited through this airport in a single month during cherry season. Sea-Tacâs stated that domestic all cargo freighter activity has declined. In its airport the only remaining domestic cargo carrier is Delta, which maintains a couple of routes. Denver currently is dominated by domestic freight activity with international wide-body service only to London and Frankfurt. Its previous domestic cargo activity included a regional air network, which is now being handled by trucks. This is a result of domination by the integrators, such as FedEx and UPS, whose operations include air freight and ground trucks as well as the strategic regional location of Denver for the type of operation offered by the integrators. AIRCRAFT SIZE AND PARKING SPACE REQUIREMENTS Sea-Tac has experienced larger aircraft on multiple levels. Recently, its foreign cargo operators, such as Cargolux, have been flying in the B747-8, and it is expected that Korean Airlines will begin to do the
Page D-3 same in the near term. Airport staff has also observed FedEx up-gauging. Sea-Tac no longer sees narrow- body FedEx aircraft but 300s, DC 10s, MD11s or B777s. It will continue to have ATR 42s, 72s and Cessnas operated by the integrators because their feeder system requires service to/from the islands off of Washington State as well as smaller markets to the east, such as Yakima and Spokane. Although there are available ground routes, truck deliveries are inefficient to these destinations. Denver has a linear arrangement for aircraft parking on the cargo ramp, and if there is nose loading, aircraft are parked on a diagonal, but this is rare. The only time B747 cargo aircraft are on the airport is typically during the holiday rush. Most other times, they are only present about once per day. Denver will add a B777 route to Tokyo in the spring of 2013. Denver occasionally handles an Antonov 124, and then parks it on a small de-icing pad, which provides enough room to get a loader out in front of the aircraft. These aircraft were present during the period when Lockheed Martin was building the Atlas missiles and the Russian airline had the contract to carry them to the Cape or the Vandenberg. Pittsburgh has recently repainted its cargo parking lines to accommodate bigger aircraft. However, its total space is quite large, and the airport was able to accommodate an enormous number of aircraft during the international G20 meetings. A number of these aircraft were large wide-body aircraft. FINANCING AND LEASING Each of the three airport representatives indicated that their cargo buildings were either leased to third- party operators or airlines. Pittsburgh reported that their cargo buildings are controlled on a long-term basis by AFCO. A long-term lease in Pittsburgh is considered to be 15 years. The ground is owned and controlled by the airport, and only the building is owned by the operator. Pittsburgh reported that they also have a facility that is leased by Dickâs Sporting Goods, which built their corporate headquarters on the airport. The facility has about one million square feet, and is all office space. It is located right on the airfield, and has its own corporate hangar, which holds about three jets. The rental fees are based on a typical property lease. Sea-Tac cargo facilities are controlled by third-party operators and carriers. These facilities were developed by a range of parties, such as AFCO (no longer present), ProLogis (formerly AMB), and TransPlex of British Columbia. They were developed in the `70s and `80s, and there did not appear to be any consistent policy at that time as to length of lease or options. The agreements were ground lease, operate, and transfer. They are now expiring, after which the building is returned to the airport. The end result is that that airport collects a series of buildings that are in very bad shape and in need of repair. Sea-Tac is examining policies related to new leases. The airport has the choice of either releasing the building to a third-party, which would most likely continue the same pattern of management but would allow the airport to collect more revenue from the transaction, or the airport could take a more direct management role over the buildings. However, that is not a role the Properties staff has taken in the past, and property management issues can present challenges. The Properties Division is separate from the Cargo Division which makes it challenging to provide direction. Multiple issues related to financing and management of such buildings are being examined. The airport has commissioned consultants to assist it in assessing building conditions but is currently doing the financial analysis in-house. Sea-Tac currently charges ground rent and more recently building rent. The rents are based on square footage, and the rent is not based on any kind of concession or profit.
Page D-4 Denver leases 99% of its cargo buildings to carriers. United operates cargo under its original lease, which included the maintenance base, Concourse B and some other facilities dating back to the original airport. Both FedEx and UPS have long-term leases, and BAX and DHL/Airborne are also in long-term leases. There are no third-party operators, and the airport does not have a percentage share of the revenue profits. PERISHABLES Sea-Tac reported that perishables are a huge part of its business. However, it does not have a consolidated facility, and perishables are handled in a variety of ways with different operators, ground handlers and carriers. Many of these tenants have some ability to keep items cold or frozen, if necessary. However, cherries, which represent a very large part of the perishable business, are cooled in the cleaning, packing and boxing process, which is accomplished with chilled water. They are cold enough at that point, and the delivery is very rapid. After they are palletized, the cherries are placed in cool-wrap, which is essentially foil, and then they are rushed to market. A cherry picked in Washington State could be in Taiwan within three days. Speed is utilized rather than refrigeration. However, the airport is seeing more competition from ocean shipping in an oxygen-less, chilled environment, and if those shippers can maintain the quality, they will be able to gain market share on air shipments. Denver does not have a perishable facility, but will be addressing this opportunity in the Airport Cities effort. The major product shipped is beef, which is commonly transported to Asia. Pittsburgh worked hard to bring a perishable flight from Colombia to its airport, as transit through Miami is challenging, particularly with U.S. Customs. Cece Poister identified trucking patterns from Miami along the East Coast and believes there is a lot of opportunity for perishable handling at other airports. Rick Busch commented that it is literally 48 to 72 hours from the time flowers are in the field until they reach New York. Pittsburgh also reported perishable cargo, such as flowers, arrives in Miami, is cleared there and then trucked all the way up the East Coast. These are not direct runs to some major center at JFK, but multiple stops all along the way where drivers have keys to individual wholesalers where they make drops in the middle of the night. These haulers also bargain for return goods so they do not return with an empty truck. MARKET GROWTH Growth at Pittsburgh is represented by textiles and apparel from Vietnam manufacturers. Pittsburgh has a major retailer, American Eagle Outfitters, as well as Dickâs Sporting Goods. Much of their market production is slowly shifting to Vietnam for reasons related to labor costs and quality. While Southern Air had several test flights in 2010 there currently is no direct shipment from Vietnam, however. Growth at Sea-Tac continues in the agricultural products, technology and seafood sectors. Growth at Denver is in bio-medical shipments as there are some major research facilities in Denver. Computer technology (IT) activity has largely disappeared. MAIL Both Denver and Pittsburgh commented on the decrease in mail activity. Denver has dropped 50% of its mail activity since 2001, in part due to electronic mail and the United States Postal Service (USPS) relying more on trucking. Pittsburgh commented on conversations held with USPS representatives, who indicate that they simply do not have the mail volumes they used to carry. In Denver a mail services handling program will take a forwarder directly to the bulk mailing site. The security for this is presumably handled at the Post Office facility like a trusted shipper. At Sea-Tac,
Page D-5 Matheson (a USPS contractor) runs an airfield cross dock building at which the postal trucks show up on one side where it is containerized. It is then sent out and taken to the airside to be delivered to FedEx who transports it to their hubs for sorting and distribution. INTEGRATORS Sea-Tac indicated that FedExâs presence is huge at its airport and has 40% of the total market. Its 75,000 sq. ft. throughput building is on the airport but all of their logistics, ground operations and other functions are scattered around the area. FedEx operates on its own trend line and is independent of the other cargo operators. UPS, DHL and BAX operate at King County (BFI), which is a smaller airport that is also known as Boeing Field, located closer to the Central Business District. Both UPS and DHL discuss coming to Sea-Tac occasionally, but look for highly discounted rates. Sea-Tac reported that it is fairly common for UPS to have small facilities on airport and to load directly onto trucks whereas FedEx cargo goes through its automated sort facility in its building before going into their trucks. Denver concurred with this experience and said that UPS does this from the aircraft side loading directly onto the trucks. In Pittsburgh FedEx and UPS are the major players and are neck-and-neck with one another, but there is still room to grow. FedEx has one more aircraft per day than UPS, but this depends on the season and other factors. Cessna Caravans are used for feeder service to markets such as State College and some of the outlying areas. The integrators sign contracts with major retailers and are able to lower their rates due to the anticipated volume of shipments. In Denver, the integrators have the overwhelming majority of the traffic. FedEx has more cargo than UPS, but combined, the two actually control 80% of all cargo. UPS has a major feeder operation with Navahos and Metroliners, which are used to distribute to smaller towns in Kansas, Colorado and Nebraska. FedEx takes a different approach and uses a B727 to Cheyenne and Colorado Springs, while UPS comes in by truck and small aircraft. TRUCKING All three airport representatives indicated that there is a lot of diversion to trucking which can provide a three-day valid and economic delivery. Sea-Tac stated that a trucker who is time definite is competitive with air cargo and will get the business. Pittsburgh reported that FedEx Ground is headquartered there and is growing exponentially. Sea-Tax indicated that this pattern has caused some air cargo operators such as Kittyhawk to go out of business. Pittsburgh reported that a small trend to watch in the trucking industry is the number of long-haul truck drivers who are ready to retire and a lack of qualified workers to replace them. Much of the workforce does not have an interest in being gone for a week at a time, and although the industry pays well, it is difficult to find candidates who pass the screening tests. Deliveries to airports require background scrutiny, and many in todayâs workforce do not have a clean record that is required to do the job. Denver is a very convenient interior trucking location. The market at Denver has changed from overnight âmust-get-thereâ to two to three âjust-in-timeâ delivery days, which brings trucks into play, and they are just 1/10th the cost of flying. In 24 hours a shipment can get to the West Coast or Chicago or even to Dallas from Denver. However, for shipping overseas, it makes sense to go to the gateways.
Page D-6 FREIGHT FORWARDERS Freight forwarders are responsible for making mode choices for their customers based on what shipment has to be at a particular destination at a particular time. If that date is not tomorrow, the shipment does not have to go by air. On a personal basis, the statement was made that if a product was needed so badly, the decision would be to ship by air but generally the preference for delivery does not require this kind of immediate delivery. Sea-Tac stated that mode decisions are dependent on how supply chain logistics are set up. Generally, the timeline is predictable but occasionally, there may be a manufacturing problem which causes a delay in shipping. In that case, an air freighter will be chartered to solve delivery glitches for product that typically would have been ocean shipped. The majority of freight forwarders are located off-airport. When transferring cargo to carriers they do not by-pass cargo buildings and go directly to the ramp but rather go directly to carrier warehouse truck docks. Sea-Tac only observes delivery activity on the ramp with Boeingâs large equipment shipments which are escorted or badged. Through the fence operations are not allowed due to the competitive environment and because Sea-Tac does not have the facility to do that â it simply is not possible to allow flatbed semi-trailers to wander down to find the belly cargo passenger planes. DATA Sea-Tac asks the carriers to report air cargo tonnage in a few categories: enplaned, deplaned, international or domestic. For the first time, in the last couple of years the carriers have also been asked whether the cargo is freighter or belly. The reporting is entirely voluntary and no revenue is based on the data. The quality of the reporting is uneven, and when an anomaly is observed, further verification is requested. Pittsburgh concurred with Sea-Tac. Denver reported that the data is required under the leases, rates and charges that the carriers report on their landing fees. However, nothing is charged on a per ton basis, so it is reported as Sea-Tac described. It is broken out by freight versus mail, international versus domestic, and enplaned versus deplaned. Other than that, the carrier can report anything they care to, and Denver does not perform a cross-check. CONSOLIDATION Pittsburgh reported that their experience has been that most carriers have abandoned their individual cargo warehouse facilities and have consolidated under one ground handler. This trend applies to freight forwarders as well as airline carriers. For example, BAX is now part of Schenker. Eagle has gone. The number of cargo players has shrunk, and there are not as many ground handlers at the airport. Sea-Tac said that it is experiencing vacancies but estimates that 50% is due to consolidation and the other 50% to mode shift. Internationals choose a consolidated ground handler but the main domestic carriers such as Delta, United, Southwest and Alaska all handle themselves as does Fed Ex. TUCSON A separate conversation was held with Mary Davis, Director of Marketing at Tucson International Airport. Tucson has a cargo development plan which dates back to the early 2000s. Freight forwarders were part of the boom but they have all left in the last four to six years. Only FedEx remains and its competitor UPS is located off airport across the border in Nogales, Mexico.
Page D-7 As Tucson looks to economic recovery, it is focused on the trade relationship with the Mexico province Sonora where it is believed there is regional potential. Bonnie Allen, the Airport Director, is interested in pursuing this potential but currently there is no international activity, no cargo experts or other knowledgeable staff in the cargo area. Tucson has 5,000 developable acres of airport property. The airport contributes $3.2 billion to the local economy and wants to leverage its potential. The airport has no data relating to cargo demand but when they examine the link between the Port of Tucson (a dry port) and Mexico, they intuitively believe such demand exists. Ms. Davis is interested in developing a new plan to attract cargo business to Tucson.
