Changi’s freight renaissance

posted on 25th April 2018

After a decade of stagnation, Singapore’s air freight traffic has revived, in part thanks to intelligent airport governance and investment, Mike King reports

While Singapore’s Changi Airport continued growing into one of the world’s largest passenger hubs, handling 62.2 million passengers last year, for most of the last decade Changi Airport Group (CAG)’s cargo business stalled. According to Airports Council International, SIN was the world’s tenth-largest cargo airport by tonnage in 2006 when it handled 1.85 million tonnes of freight; by 2015 it was down to 15th in the global rankings, with total cargo handled in the year of 1.88 million tonnes, barely a flicker above its throughput a decade earlier. That was a decade when many of SIN’s peers in Asia enjoyed heady growth rates.
Yet since 2015, Changi has come roaring back. Growth of 6.3% in 2016 was followed by 7.9% traffic expansion in 2017 when the airport passed the 2 million tonnes mark for the first time in its history. Preliminary figures for 2017 suggest SIN is now the seventh largest international freight hub in the world.

Lim Ching Kiat, managing director for air hub development at Changi Airport Group, attributes the renaissance to a combination of timely investments in growing markets, incentives to carriers that have helped build up the hub’s network, positive international trade tailwinds and “a bit of luck also”.
He says the global upswing in air freight demand was a major factor in pushing total throughput to 2.13 million tonnes in 2017. This consisted of 42% transhipment traffic, 33% imports and 25% exports. Exports recorded the fastest year-on-year growth at 14%, followed by 8% for imports and 4% for transhipments.
“Nine of Changi’s top 10 cargo markets showed positive growth, notably China, Germany and South Korea,” he observes. “Some of this is down to global trends. There was an overall economic recovery. We’re seeing a lot more e-commerce, which is obviously more time-dependent.
“There were also changes in Singapore’s manufacturing scene which still represents 25% of GDP but has moved to higher-value cargoes, and higher-value per tonnage products which favour air. We have also had some consolidation from sea freight.”
Changi also benefits from being located in the most-efficient country in the Asia Pacific region for logistics, with Singapore ranked fifth globally in the latest World Bank Logistics Performance Index – a national performance in-part facilitated by SIN.
Steven J. K. Lee, chairman of the Singapore Aircargo Agents Association, says air freight demand has been positive for the last two years − and during the first quarter of 2018 − not least on intra-Asia trades. “There is growth of manufacturing in electronic equipment, semi-conductor and aviation volumes coming from Rolls Royce and others,” he says. “Semi-conductors are produced in Singapore and mostly flown between China and south-east Asia, for example.”

E-commerce boom
E-commerce volumes grew by almost 30% last year, he notes, adding: “Singapore has become a distribution hub for the region. Alibaba, working closely with SingPost, and Amazon have their hubs here and they distribute across south-east Asia. That means more air freight for short-hauls but also long-haul. This mostly goes bellyhold with carriers via agents and forwarders, or with integrators.”
CAG’s “luck” in recent years was that regional airlines with home ports in competing hubs such as Bangkok and Kuala Lumpur had performed relatively poorly, while SIA Cargo had continued to grow. “There has been some regional consolidation – in a sense SIA Cargo is the last man standing,” CAG’s Lim added. “But worldwide, not many airlines are investing in freighter fleets. There has also been healthy growth in bellyhold capacity here and across the rest of the world. Our network to India and China grew very well last year, for example.”
But some would say the “luck” that Lim modestly attributes some of the success to is self-made, and rather typical of governance in Singapore city-state as a whole. “CAG has been promoting cargo growth more aggressively and they have upgraded terminals to take more wide-bodied aircraft, and this has helped volume growth,” notes Lee.
Certainly, CAG has planned well, building high-tech facilities perfect for fast-growing and valuable niches just as demand for these cargo services spiked. For example, CAG has supported the development of SIN as a strategic express and e-commerce hub, most notably through the opening of SATS’ e-Commerce AirHub in April last year with SingPost as its anchor customer. This followed the launch of DHL Express’s South-Asia Hub in 2016 (see box).
“By 2025, south-east Asia e-commerce is expected to grow 16 times to US$88 billion, so we expect more growth,” says Lim. “The SATS facility includes a fully automated mail sortation system that increases processing capacity by more than three times.”

Pharma certification
Changi was also the first air cargo community in the Asia Pacific region to attain IATA CEIV Pharma certification, and CAG is also a member of Pharma.Aero, an organisation that draws together stakeholders in the pharmaceutical air cargo handling supply chain.
“We host a lot of pharma companies and activities in Singapore and more are investing and need specialist handling at SATS’ and dnata’s facilities,” says Lim. “Pharma.aero helps us learn from other airports like Miami and Brussels about how to engage shippers better, how to act as a community.
“Shippers want to know what happens from when their product leaves the warehouse; they want visibility – whether that’s with airlines or forwarders. Any break in the chain will compromise the integrity of the product. So we’ve started an ongoing dialogue, and we ask shippers how we can do better.”
“It’s the same as with pharma for e-commerce − we’re in constant dialogue with partners about what we can do better.”
CAG has also targeted fast-growing perishables markets and is working with the city-state’s world-leading container hub, operated by PSA, to provide custom intermodal transhipment solutions. Lim notes that Asia is already the world’s largest market and, by 2050, Asia’s population will rise to 5 billion, an increase of 900 million, further boosting demand for perishables. He said SATS had now obtained EU clearance to provide transhipment services for meat, enabling New Zealand shippers to fly product into Singapore for breakdown and consolidation. From Changi it is then onward shipped by sea to EU markets. “This saves two weeks on transit, which means two weeks of extra shelf life,” he adds.
CAG has also incentivised carriers to start new services, to help fill out its global service network. Lim is actively looking to attract more integrators to the hub (see box). “Of course, investment has also spurred growth,” he says. “We focus on new links, airlines that give us connectivity to other parts of the world we’re not linked to. We actively seek new airlines and offer discounts for new destinations.
“It’s the same for freighters – we now have 25 pure freight operators here.”

Capacity expansion
More long-term, CAG has plans to vastly increase capacity. Alongside the developments of terminals T5A, T5B, T5C and T5D, CAG plans to build a new Changi East Industrial Zone, which would sit adjacent to both Changi Airfreight Centre and T5D. This would increase handling capacity from the 3 million tonnes theoretically possible now to 5.4 million tonnes per annum, and double the number of freight bays available. “The Changi East development is about the same size as our current Terminals 1, 2 and 3 combined and will be ready by 2030,” says Claudia Wong, manager for corporate and marketing communications at CAG. “Preparation has started already and we’ll be looking to optimise the use of technology in this space, with the greater use of innovations such as autonomous vehicles.”
Asked if 5.4m tonnes is perhaps too ambitious, Lim says the plan remains flexible. “We have consulted with all our key partners, economic agencies and ground handlers and all expect to need more space, but between now and then we can fine-tune this,” he explains. “If the land isn’t needed for cargo, we can use it for something else. If MRO is booming and cargo is flat, we can allocate more space to that, and vice versa. It will unfold it as we go.”
Certainly, Lee is positive about the future under CAG’s management. “Our members have welcomed all these positive developments,” he says. “We wish to see continued success and I’m optimistic. It’s not only e-commerce; Singapore now has a diverse business model. It’s a supply chain hub. So we are generating lots of different flows. China’s One Belt, One Road is also encouraging cross-border solutions that favour Singapore, like truck-air.
“It’s fantastic that we’ve finally turned the corner after a hard decade.”

 

Strength in numbers

A key pillar of Changi’s recent success has been its ability to leverage its strong relationships with integrators. Both DHL and FedEx have established major regional hubs airside.
“We don’t have UPS, not yet,” notes Lim Ching Kiat, MD of air hub development at Changi Airport Group. “We’re also keen to talk to Chinese integrators. They are important players. Amazon is already in Singapore, but we want to talk Alibaba, jd.com and Lazada – these are key players in this part of the world. We want them to work with us and Singapore as a whole via the Economic Development Board so we can give them a business proposition and they want to have a distribution hub here.”
For DHL, Singapore is a key regional hub; its new ‘South Asia Hub’ opened in 2016 at a cost of S$140 million. Located within Changi Airfreight Centre (CAC), the 23,600 sqm facility is open 24 hours a day and is fitted with fully automated systems that improve sorting speed and accuracy, multi-dimensional tunnel scanners that accelerate barcode reading, and automated X-ray machines. Along with similar hubs in Hong Kong, Shanghai and Bangkok, DHL says its South Asia Hub enables it to link over 70 DHL gateways throughout the region.
“As Asia continues to rise as the new economic powerhouse, many businesses are looking towards the region to expand their business,” says Sean Wall, EVP for network operations and aviation at DHL Express Asia Pacific. “The surge of investments pouring into the region makes it important for Singapore to move swiftly to capture the incoming interest.
“The facility better supports businesses operating in and out of Singapore as it serves to consolidate and distribute shipments to south and south-east Asia, as well as international destinations. As such, the South Asia Hub allows DHL to strengthen our market position in Asia, as part of our multi-hub strategy for companies doing business not just in Singapore, but across the region.”


Wall says its South Asia Hub had improved the movement of goods between aircraft and the hub, allowing consignments to be shipped or transhipped within an hour. The facility processes up to 24,000 shipments and documents per hour and can handle cargo throughput of more than 628 tonnes of cargo during the peak processing window − tripling cargo handling capacity and processing shipments six times faster than when they were performed manually at DHL’s previous facility.
“With the hub, some export shipments can also be sent directly to the hub, bypassing the service centre,” he adds. “This streamlines overall operations by reducing travel and shipment handling time.”
DHL’s regional network is served by a dedicated fleet of 22 aircraft covering more than 40 countries and territories, and the firm also uses around 800 commercial flights per day in the Asia Pacific region, supported by “the excellent air connections” in Singapore. “Since 2015, we have seen a year-on-year growth in shipment volume in terms of shipment count and physical weight; we registered a 20% growth from 2015 to 2017,” Wall says.
He describes CAG as “an invaluable partner, walking in step with us in our quest to bring air cargo and logistics handling to the next level − and bolster Singapore’s position as the preferred logistics and supply chain management hub”.