Bouncing back

posted on 4th April 2018

North American airlines managed first-half FTK growth of 1.6%, according to IATA figures, and ACI’s preliminary statistics suggest first-half tonnage increases of just over 2%. However, the region’s main airports show considerable variation. First-half volumes through LAX were flat at 951,000 tonnes, whereas Chicago O’Hare reported an 8.5% first-half increase to 738,000 tonnes, and Dallas Fort Worth posted 5% growth to almost 335,000 tonnes. Miami, meanwhile, was closer to trend, with volumes up 1.9% to 936,000 tonnes.

Consolidated Aviation Services (CAS – formerly Cargo Airport Services), which handles cargo at 19 airports in North America, describes the recovery as a mixed picture. Peter Weir, Senior Vice President Sales & Marketing at CAS, says: “We are certainly seeing a ‘rebound’ improvement in volumes with many of our carrier customers on markets including Europe, Asia inbound, and Latin America. We are also seeing lots of cargo charter activity, and that is one of the biggest increases.”

Despite debate about the future of freighters, he has observed over the last three to four years “a real curve increase of freighters, carrying pharmaceuticals, automobile parts, etc., and we are on for a record year in terms of charters handled, particularly at airports like Indianapolis, Kansas City, Houston, and another couple of places that are very concentrated on the charter business.”

Weir says CAS has recorded double-digit growth on a like-for-like basis with existing customers, although he adds: “We are coming from a low base; over the last four years, because of the tough economic times, the numbers have fallen for many of our carriers. So it is encouraging to see some of these volumes coming back.”

Of course, it is not all rosy, with Eva Air, for example, pulling its freighter operations from JFK.

“But we are remaining positive for the rest of 2014, as we have already been advised by two of our largest freighter operators that they will be adding another rotation to their existing schedules for the winter. So it is encouraging.”

JFK battleground

JFK has been a battleground not just for carriers, but also for cargo handlers, with Menzies pulling out of the New York cargo market two years ago and Swissport withdrawing in July. “It is a very, very competitive market, and with the infrastructure there, it is a very tough market to make money in,” says Weir. He says the facilities and the whole cargo village are very out-dated, which is the case for a number of US airports. “In Dallas, where I am now, the facilities and infrastructure are first-class; so there are real hotspots of good infrastructure. But whereas JFK would have been the envy of many airports around the world 20 or 30 years ago, some of the major airports in the US would be lucky if they were in the top 50 airports in terms of their infrastructure, and JFK would be a very good example of that,” Weir observes. “There are buildings that are derelict, and there doesn’t seem to be any incentives for developers or even handling companies to invest – although that has changed in the last 12 months.”

One bright prospect is that JFK’s cargo building 78 is being demolished, to be developed by landlord the Port Authority of New York and New Jersey to create a 100,000 sq ft (10,000 sqm) new facility for cargo handling from next year and a similar-sized animal reception centre (ARC).

“CAS has signed an intent to take that cargo handling building, and we are actually going to run the ARC for them as well,” says Weir. “It does prove a point that when the landlord starts building, there are people willing to pay the new market rate to try and give an improved product, because you get a better building and you get all the spin-offs of being able to design it so that it runs better logistically for you.”

He praised the Port Authority for talking to the market about the best ways to develop the site. “But from my point of view, the Port Authority has got a lot to do in New York to bring cargo back to where it was – and to where they would probably get some more interest from some of the global players back again.”

Recent challenges for cargo handlers across the US have included “living wage ordinance” rules. “San Francisco, Los Angeles went through that last year, and Seattle is on the fringe of doing that as well, which creates huge changes to our cost base,” says Weir. “The JFK port authority is also forcing through these increases in staff salaries of $1 per hour, effective 1 January, and I can see other cities and states following suit.

“So these are the kinds of changes that we have got to respond to, and you have to go back to your customers and say that the dynamics of our contracts have really changed overnight; the movement percentagewise is massive.”

He says the industry has got to recognise that these changes are coming. “From my experience in the European and Australian markets, with the hourly rates there you can make a good living in ground handling,” he explains. “In the US, the way the market and the rates have been, and because you charge the airline per kilo rather than relying on a terminal handling tariff, it is a totally different dynamic, and you need sometimes to go cap in hand back your customers when these changes come in. That is a fear, especially when you are renegotiating contracts, that you have to put the wording in your contracts to cover these things.”

He says some customers are more understanding and believe in the value of partnership and quality, appreciating that their partners need to get a certain return if they are going to invest and generate innovation.

Generally, the wages and conditions of US cargo handlers are all very similar. “We don’t pay minimum wage, but it is not far off that,” says Weir. “Of course, we try and give better training and better benefits to keep the attrition rates low, and there has been a change of the last year to 18 months.

“But it is still not up with many markets. A lot of change is still required in this market, but the good thing is that people are waking up and trying to do something about it.”

CAS’s takeover of IAS last year is, in itself, another significant development in the North American handling market. Weir, who joined from the IAS side, says CAS’s willingness to invest in innovation and “working smarter” has been “a breath of fresh air” in a market where, since 2008, many cargo handlers have been simply focused on survival. The merger also brought CAS’s cargo operating system to the IAS business, which had been less of a cargo specialist but which contributed a presence at a large number of airports through its ramp and passenger handling activities, taking the group’s network to 49 airports.

Premier league

“I know some of the major global operators have these cargo operating systems, but we were essentially two ‘Mom and Pop’ ground handling companies that have come together that would like to think that we can be in the premier league with the big boys. We are not a global handling company yet, but we have aspirations; we know where we want to go,” says Weir.

Broadly, this means going to the locations where its customers want it to be. “So we are also looking at growing our business in South America and recently were successful in our bid to handle AF-KLM in Ecuador,” he says. “We are trying to grow our passenger handling footprint and continuing to innovate where we can with investment in our own in-house handling system ‘Epic’.”

The company is also not ruling out further acquisitions, “but we are still integrating and building the new CAS”, says Weir.

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Reno and Rickenbacker chosen as Amerijet domestic freighter hubs

One noteworthy event this year has been the launch in July of Amerijet’s nationwide US scheduled freighter network, using Rickenbacker and Reno airports as domestic hubs. The Florida-headquartered US cargo airline and multimodal forwarding and logistics group has launched daily B767 freighter operations to and from its new Ohio and Nevada hubs, connecting eleven US cities with long-haul domestic and intercontinental air freight services.

Amerijet says the network provides a one- to two-day connection between Seattle, San Francisco, Los Angeles, Phoenix and Reno on the west coast and Columbus, Chicago, Detroit, Philadelphia, Newark and Atlanta on the east coast, also connecting to Amerijet’s international hub in Miami. It aims to fill a gap once served by companies such as BAX, Kitty Hawk, Emery and other carriers that did not survive the economic turmoil of the last decade, targeting shipments moving on lanes over 2,000 km, especially time-critical and high-value, temperature-controlled or hazardous material shipments.

The arrangements include long-term lease agreements for a 20,000 sq ft facility at Rickenbacker and a 10,000 sq ft facility at Reno, each with five loading dock doors. Marily Mora, CEO of Reno-Tahoe International Airport, says Amerijet’s business model, blending air cargo with trucking to create a relatively cost-effective service, is a perfect fit for the growing list of distribution centres at or around the airport.

Weir agrees that Reno and Rickenbacker are both promising cargo airports. Indeed, CAS is the handling agent for Amerijet at Reno, where it has just set up operations, and CAS will also start operating services at Rickenbacker when Cathay Pacific starts flying there in September. Cargolux also operates there.

“There must be incentives that this airport is generating from a logistical point of view that makes sense to feed freighters,” he says. “We see Rickenbacker as an opportunity for us, so we are pleased to have got in there.”

Although secondary cargo airports have had a tough time since 2008, in part because weak volumes have put less pressure on metropolitan airport capacity, Weir believes their potential to offer lower costs and less congestion make them an interesting option.

“And these kinds of airports are where some of the charters are going through as well, and the good thing is that we are located in a lot of these airports too – mainly because we handle a lot of the DHL and UPS business as well, and their planes. So it is encouraging.”