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The way forward

What does the future hold for the development of cargo infrastructure in North America? Ian Putzger reports.

It may seem a strange topic to discuss following three years of decline in cargo tonnage across North America, but is it time for the region’s gateways to revamp their cargo facilities?

Has the downturn in throughput actually given them the opportunity to overhaul their cargo infrastructure and replace pockets of ad hoc growth with more strategically planned development?

One person to think so is Mike Webber, president of airport consulting firm Webber Air Cargo and a former head of cargo at Kansas City International Airport, and he is not alone.

Webber insists that the downturn has given airports an opportunity to take a step back and overhaul cargo infrastructure that has sprouted over decades on an ad hoc basis in response to demand.

He points to the cargo areas in and around New York JFK and Miami International Airport as just two examples of developments that could have benefited from the existence of a strategic long-term plan.

“They put cargo wherever they could, so it ended up all over the airport and in neighbouring communities,” he remarks.

Ray Brimble, managing partner in cargo facility developer Lynxs Group, agrees that much of the older infrastructure at US airports, especially at the large hubs, needs to be replaced. “Some buildings are obsolete, some are in the wrong place on airport, some are not fit for new security requirements,” he says.

The Port Authority of New York and New Jersey (PANYNJ) is looking at redevelopment plans for cargo infrastructure at New York JFK, but it has not unveiled these plans so far. Elsewhere there is interest but no discernible activity.

“There is no big overhaul going on anywhere,” observes Paul Keery, vice president for North America at ground handler operator, Swissport Cargo Services.

“At the tail-end of the 1990s we saw more old buildings torn down and replaced with modern facilities. Since 2001 there’s been a paralysis,” adds Webber.

Financial constraints are the biggest stumbling block. “Now would be a good time for an overhaul, but this requires capital. Do people have the stomach for the risk?” wonders Keery.

And Brimble argues that it is often cheaper and easier for investors to buy existing infrastructure than to build new facilities.

While the airlines have slashed fleets, routes and frequencies over the past year, owners of cargo terminals have by and large been in denial, clinging to a ‘hold and hope strategy’, Brimble comments. As a result, he notes, there is a severe overcapacity in the market.

Brimble reckons that some of today’s cargo facilities will in the future be reclassified for other purposes, such as maintenance or perhaps airport parking. This will take years to play out, though, so it will be some time before it has a discernible impact on the capacity situation, he predicts.

Under the current financial pressure, airports and cargo facility owners are understandably nervous about the prospect of demolishing sources of revenue. Moreover, even if old cargo terminals are replaced with new ones rather than just taken out of the equation, their owners stand to earn less from the new buildings than before.

“In the past there was a blanket assumption that if you pull down a building, you need to replace it with something that has 15% more capacity. That does not apply any more,” explains Webber. Operators are more interested in buildings with a smaller footprint but better efficiency, he finds.

According to Brimble, the new reality has yet to register on many radars. “Amongst airlines, I see a definite trend towards that thinking, amongst developers and airports, that’s against their nature. Many of them are bent on recapturing the past,” he comments.

American Airlines’ move into the former Nippon Cargo Airlines terminal at New York JFK early this year is indicative of the new thinking, says Webber, as the facility is considerably smaller than its old terminal but much more modern and operationally efficient.

Mark Najarian, vice president of cargo operations, stresses that the move would have been impossible were it not for the slump in cargo traffic between the autumn of 2008 and September 2009.

“NCA wouldn’t have left, and the building would have been too small for us, but with the volumes we have now, it suits us fine, and it should do so for a few years to come,” he says.

In North America the volumes of 2006 and 2007 will not be reached for years, as consumer demand for airborne imports will take years to recover, Najarian predicts.

Another factor that is holding airports and developers back is the lingering uncertainty about evolving security requirements. In the US the TSA, whose remit is the implementation of the mandate for screening all bellyhold cargo from Congress, ought to take a more active leadership role, insists Webber.

Without doubt, demand forecasting and capacity planning have become more difficult for airports as airlines have become less predictable.

“In the past, airlines were prepared to absorb losses on some routes for the sake of network integrity, but with the current yield situation, they cannot afford to operate on sectors that do not make money,” says Shawn McWhorter, president for the Americas of Nippon Cargo Airlines.

The new reality ensures that carriers are increasingly prepared to enter and exit markets at relatively short notice in pursuit of better loads and yields.

Swissport’s Keery admits that the new operating environment has created a host of new challenges for cargo handlers and facility developers.

“For any long-term commitment we make on the facility side, we love to match it up with revenue streams, but this is becoming increasingly difficult now that airlines can and do pull out of markets at short notice,” says Keery, who notes that the standard IATA agreement has only a 60-day notice clause.

This more nimble approach to the market from the airlines has been facilitated by their gradual withdrawal from facility ownership. Indeed, many have farmed out cargo handling to third parties, increasingly through multi-station agreements with large handling firms.

There are, however, some significant revamping projects in progress at North American airports, although most were started or on the drawing board long before the recent traffic downturn changed the paradigms of airport cargo facility development.

At Calgary International Airport, for instance, a 250-acre parcel of land on the northwestern flank is being primed for cargo development as part of the airport’s overall expansion plan.

Preparations should be completed by August, whereupon the developer can commence with construction of the first new facility on the site, which is expected to be ready by the end of 2011 or early in 2012. This will move general cargo activities close to the areas occupied by the integrated express carriers.

The airport authority is taking the long-term view. It expects that it will take years to fill the space, which should serve the airport for the next 25 years and possibly beyond, says Tom Kirk, Calgary’s director of cargo development.

When the leases in the current cargo area expire, the tenants there will likely move to the northwest area, he believes. The airport is keeping its future plans for the vacated site under wraps for the time being.

Brimble views the $6.6 billion O’Hare Modernization Program (OMP), which reconfigures the airport’s intersecting runways into a parallel set-up, as exemplary for airport redevelopment with an overhaul of much of the older cargo infrastructure.

“Chicago probably leads the way in reconfiguring their field,” he says. “Maybe half of the entire cargo infrastructure is going to be re-built over the next five years.”

In a continually changing operating environment, clearly the addition of cargo infrastructure at North American airports is an ongoing story. Watch this space for further developments!

Airport World 2010 - Issue 2

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