Airport focus: Russia

posted on 3rd April 2018

Significant upgrades at Moscow’s Sheremetyevo airport look set to transform its air cargo handling capabilities

Following recent ownership and control changes at Moscow’s Sheremetyevo International Airport (SVO) and its main cargo handling terminal, significant upgrades to the airport’s cargo infrastructure look set to transform its air cargo handling capabilities – and Moscow’s air cargo landscape.

In line with Russian state policy of attracting investment into the transport sector, the majority state-owned assets of the airport were consolidated in February 2016 within JSC Sheremetyevo Airport, a public-private partnership. The share of the Russian Federation in the JSC’s share capital now amounts to just 31.56%, with the remaining 68.44% share – and effective control of SVO – now in the hands of the non-state shareholder, Sheremetyevo Holding LLC.

The joint-stock agreement includes obligations on Sheremetyevo Holding to invest in and develop SVO’s infrastructure. It also hands control of SVO’s main cargo handling terminal operator, Moscow Cargo Company (previously Airport Moscow), to Sheremetyevo Holding. Airport Moscow was founded in 1990 as Lufthansa’s cargo terminal at SVO, and by following Lufthansa’s cargo service standards, the terminal won customers including Singapore Airlines and SAS. By 2014 the annual turnover of the company exceeded 100,000 tonnes, and the win in January 2015 of the tender to handle cargo for Aeroflot at SVO transformed it into the airport’s dominant cargo handler.

Under a strategic development plan initiated last year, the airport has set “an ambitious goal of switching to a qualitatively new level of cargo services provision, meeting the highest international industry standards”. Although an aspiration to build the largest cargo hub in Europe seems somewhat ambitious – at least for now – the airport does have major plans underway for its cargo infrastructure, the first phase of which is being implemented this year. A new 42,300sqm automated cargo terminal, “which has no analogues in Russia”, is already under construction and due to open by October. The US$85 million terminal will initially be capable of handling up to 380,000 tonnes a year, with a future potential to expand to 1 million tonnes per annum.

Automated cargo complex

Construction of the complex is being carried out together with Moscow Cargo, Sheremetyevo’s “general partner for terminal cargo handling”, the airport says, adding: “Launching of the new complex is a big step by Sheremetyevo towards achievement of its strategic goal of becoming one of the leading cargo hubs in the world.”

The new complex will offer its clients “the whole spectrum of services of a modern cargo-handling terminal”, including: refrigeration stores for storage of temperature-sensitive goods, with possible on-line monitoring of temperature sensor readings through a web-application; specially equipped premises for storage of hazardous cargo of all categories; a soundproof area with controlled temperature for keeping live animals; warehousing for storage of valuable cargo, with a biometric access control system.

SVO says the company responsible for installing and commissioning the warehouse equipment and terminal control system will be Germany’s Lödige Systems, “a worldwide leader in the field of equipping and maintenance of cargo-handling terminals”, which boasts has such clients as Asia Airfreight Terminal for its T2 terminal in Hong Kong, TNT hubs in Hong Kong and Singapore, Saigon Cargo Service Corporation in Vietnam, a unit of the UK’s Royal Mail at Heathrow (London Air Mail Unit), and several of the largest US Air Force air bases.

The new complex will be equipped with an automated system for storage and handling of cargo, which is unique for Russia, SVO says, including: an automated seven-tier system of shelf storage and movement of cargo with a capacity to store 3,198 ‘house’ pallets; a four-tier container storage area, equipped with a ULD automated processing system with a total capacity of 576 blocks, including 60 blocks for ULD storage with temperature-sensitive cargo (2°C to 8°C); 13 conveyer lines with access to the airport, including a line for receiving or sending 20-foot pallets; 29 points for acceptance or release of cargo, equipped with dock levellers and dock shelters,  two of which are designed to handle bulky goods (including cars), and two for receiving express mail.

The new terminal will be available for any of the more than 50 Russian and foreign carriers operating at Sheremetyevo, including the major Russian carriers Aeroflot and AirBridgeCargo, SVO says. And the quality of the cargo-handling terminal will be assessed based on two criteria that it says are equally important for customers (consignors and consignees), and airlines: speed of fulfilment of technological operations and efficiency of the support processes.

Handling optimisation

With the launching of the new terminal, Moscow Cargo plans to optimise cargo handling using a resource allocation system that is to be used across the airport. Other plans include significantly reducing cargo handling times by equipping the complex with conveyer lines for acceptance and dispatch of ULDs; workstations for building and unbuilding of cargo; multi-directional movement sections, making it possible to orient and move ULDs in any direction; and lines for handling of express shipments with automatic sorting.

It also aims to increase opportunities for handling temperature-sensitive cargo and special categories of cargo in compliance with IATA CEIV PHARMA requirements; to optimize the process of delivery and acceptance of cargo and documents by clients, in particular, due to the implementation of electronic document flow at all stages (where this does not conflict with Russian law), systems of bar-coding of cargo and documents, and an Electronic Queuing System for control of the goods yard.

Additional services to clients will include on-line services through web-applications (such as control of the temperature storage mode, fault photography), and the allocation of special zones to customers for auxiliary cargo operations (such as sorting and order completion).

Work underway

As of January 2017, construction of the roof and enclosing structures and the laying of external utilities had already been completed, while the following work has already been started: construction of indoor premises, assembly of internal engineering systems, as well as assembly and installation of individual elements of the automated cargo storage and handling system.

The full switch by Moscow Cargo to the new facilities is expected before the end of October 2017, although it will be done in four stages:

1.    Processing of courier cargo and airlines with a small volume of cargo transportation;

2.    First part of domestic airline cargo;

3.    All domestic airline cargo traffic;

4.    All international airline cargo traffic.

Local competition

Although Moscow Cargo’s share of the total volume of cargo processed at the airport currently exceeds 90%, SVO says handling competition has been, and will continue to be, very important to the airport and its customers. “That is why, unlike other Russian airports with a monopoly on ground-handling operations, two independent cargo-handling terminals have been operating within Sheremetyevo since 1992,” SVO says.

“Competition between them has played its positive role, making the airport one of the major airports in Russia in terms of cargo traffic. Sheremetyevo is going to continue to adhere to the policy of open and fair competition as one of the main incentives for continual improvement in the quality of customer service.”

In 2016, Moscow Cargo processed approximately 25,000 tonnes of mail along with 200,000 tonnes of origin or destination cargo – and more than 350,000 tonnes of transfer cargo on international and domestic flights. According to Russia’s Federal Air Transport Agency (FATA), the total amount of freight traffic through Sheremetyevo grew by almost 30% in 2016.

SVO says this strong cargo growth in 2016 was mainly due, on a microeconomic level,  to increases in transfer cargo, “influenced by the airport’s investments into the freight terminal’s infrastructure” – for example for temperature-sensitive cargo. Macroeconomic factors included stabilisation of the economy and the redistribution of Transaero’s route network among other airlines, including Aeroflot – flights that are now operating from Sheremetyevo.

Competitive market

The improvements in SVO’s cargo infrastructure are expected to further strengthen the airport’s competitive position in the Moscow region. While SVO and Domodedovo (DME) boast similar annual passenger volumes (31 million, versus 30 million, respectively), SVO pulled further ahead last year in terms of its cargo market share.

According to FATA, SVO’s share in the total volume of cargo transported through the ‘Moscow Air Cluster’ (MAC) increased from 51.2% in 2015 to 58.6% in 2016, while the share of its nearest competitor, DME, decreased to 30.2% in 2016, with DME’s volumes dropping by around 6.5% to 142,000 tonnes.

“Thus, the Moscow Sheremetyevo Airport has not only secured the leadership on the market of MAC airports, but has also confirmed its status as one of the largest airline hubs in Europe,” SVO says.

But SVO stresses that its goal is not to become “the only airport in Moscow,” adding: “The strategic objectives of the programme of large-scale modernisation and development of Sheremetyevo Airport, where the total amount of private investment alone will exceed $865 million, are slightly different. Based on the modern requirements for the development of international airports, Sheremetyevo seeks, primarily, to strengthen its position as one of the leading hubs in Europe, to increase the attractiveness of Moscow as an international financial centre, and to raise the level of competitiveness of the Russian transport infrastructure in general.”

Wider ambitions

According to the long-term strategic development plan for Sheremetyevo, by 2030 it is planned to increase the terminal areas of the complex, including the postal area, up to 90,000sqm, with the total turnover of cargo and mail expected to exceed 1.1 million tonnes per year. This will allow the airport to be among the 20 top cargo hubs in the world and among the five top cargo hubs in Europe, SVO points out.

With this in mind, it said a “modular design of the complex, as well as a wide range of equipment that can be easily integrated into the system, and logistics solutions, make it possible to effectively plan further development of the cargo complex and rapidly respond to the changing market conditions”.

Current shortcomings

These longer-term plans to develop the airport’s cargo infrastructure also reflect a broader plan to improve the wider airport environment and address the current shortcomings that limit its efficiency and attractiveness as an air cargo gateway or hub. These include: the “airfield throughput” (the number of runways, runway operations, and aircraft parking places); availability of the necessary infrastructure for servicing all types of aircraft and all categories of cargo; route network; quality and speed of cargo flow processing; transport accessibility of the airport; ease of interaction with the state control bodies; and competitive pricing policies.

“The comprehensive plan for future development of Sheremetyevo for the period up to 2030 was developed taking into account all these parameters,” SVO says. In addition to the new cargo complex, that broader plan will include: construction of a third runway to double capacity and provide for take-off and landing of almost all types of aircraft; new and improved highway connections; a new ‘Aeroexpress’ railway station in the northern sector of the airport; a third fuelling station. Interactive services are also being developed “to allow customers and airlines not only to receive general information about the cargo, but also to make remote registration of transport documents, to order relevant services, and to control cargo processing and storage conditions”.

Wider Russian environment

So, how does SVO assess the wider air cargo-handling environment in Russia currently and its ability to meet international standards and customers’ expectations? SVO claims that Moscow Cargo is up with the best cargo terminals in the world “in terms of the range of services provided to airlines and clients”, but acknowledges that “improvements need to be made in the speed of service and meeting special customer requirements. The main potential to improve these indicators lies in two spheres: technological and regulatory.”

Some of these shortcomings will be addressed, at least at SVO, by the company’s current investments, while others require a wider collaborative approach. “The technological aspect includes modernisation of the warehouse and ramp equipment, automation of handling and warehousing operations, creation of conditions for high-quality service of temperature-sensitive goods, and the comprehensive solution to this tasks lies in the construction and launching of the new cargo-handling terminal,” SVO says.

“The regulatory aspect includes development and implementation of an e-freight standard, implementation of the ‘single window’ mechanism, simplification of customs clearance procedures, and removal of administrative barriers in the international air transport system, but the solution to these problems is far beyond the capabilities of a single company. Positive changes in this field may be achieved only through the close interaction between the business communities and state bodies.”

Customs environment

Although Russia’s customs services had a reputation some years ago for being slow, inconsistent, and corrupt, things have moved on considerably in recent years, observers note. And now there is also a lot of attention going into digital solutions.

“Recently, the Federal Customs Service of the Russian Federation has been paying a lot of attention to the improvement of customs administration, and has been actively developing information and software tools aimed at customs operations for cargo transported by air, as well as processing e-data as preliminary information,” SVO says. “Thus, e-document exchange with customs has been successfully implemented to release cargo: even now the majority of clients can receive their cargo as soon as the relevant mark appears in the e-database confirming that the cargo has passed customs clearance, and not after submission of a printed invoice, stamped by the customs authorities. However, it is not possible to completely avoid preparation of hard copies, because there are some state authorities that do not accept e-documents for technical reasons and lack of the relevant regulatory base.

“Nevertheless, the readiness of the state regulatory authorities to meet the goals of businesses and their understanding of the need to create a unified e-platform to save time and expenses of all participants in the logistics chain, seems quite optimistic.”

E-freight progress

Progress is also being made, on a national and local level, with e-freight or other air freight industry modernisation initiatives. “In 2010, a project with participation of public and private companies to develop and implement an e-freight standard was launched in Russia, which united air companies and airports, on the one hand, and federal executive authorities involved in preparing and tracking air cargo shipments,” SVO says.

“Sheremetyevo Airport and Moscow Cargo are members of the working group that facilitates the development of the technology of interaction and the regulatory base for implementation of the e-freight standard in Russia, and takes active part in testing e-interaction within the project.

“The working group has developed IT-systems and technical solutions for e-interaction between federal executive authorities and participants of cargo aviation transportation, which are currently being tested. To ensure the legitimacy of e-document flow, a number of amendments have been made to the Tax and the Air Codes of the Russian Federation, orders of the Ministry of Transport and the Federal Customs Service of Russia. In particular, an order of the Ministry of Transport has been prepared implementation of an air e-invoice.”

However, there has been a significant obstacle to serious progress in the implementation of an e-freight standard in Russia: the country’s reluctance to ratify the Montreal Convention of 1999. But in November 2016, this issue took a positive shift when the government committee approved bills about Russia joining the Montreal Convention.

SVO notes: “Sheremetyevo, which has been already implementing registration and handling of air cargo in electronic format in a test mode, expects to continue to be one of the leaders in the implementation of the e-freight standard in Russia, because the airport convinced that the lack of this standard significantly reduces the transit potential of the airport.”