With new technology set to enter air cargo handling in the coming years, building flexibility within cargo terminals is more important than ever, SEGRO’s Gareth Baker tells Will Waters
Heathrow Airport’s cargo handling facilities have been the subject of fierce debate – and often complaint – for decades, with key parts of the cargo estate straining under the challenges of handling large volumes, aircraft, and road freight vehicles that they were not designed for when built more than 50 years ago.
But now under the sole control of European warehousing and industrial property specialist SEGRO, things seem set to change, with major plans under development to transform the Sandringham Road and Shoreham Road airside cargo estates completely over the next few years.
While in part a local UK air freight issue, the challenges and issues facing Heathrow Airport’s cargo facilities are shared by a number of established metropolitan airports around the world, coming up against growth demands and capacity restrictions and a longstanding history of airports neglecting to invest in their cargo facilities. And on top of that, the need to accommodate and adapt to new cargo management and handling technology, processes, and changes in cargo types and mix are challenges for all cargo terminal operators – and those that own or manage airport cargo real estate.
SEGRO’s Heathrow assets sit within its London portfolio, in what used to be the Airport Property Partnership. SEGRO acquired BAA’s 50% interest in the Airport Property Partnership in 2010 and bought the remaining 50% stake from joint-venture partner Aviva in March 2017, bringing most of the airside cargo assets at Heathrow under SEGRO’s control, as well as most of the airside cargo assets at the UK’s Gatwick and Stansted airports.
“In addition to Heathrow Cargo Centre we have about 3.5 million sq ft (325,000 sqm) of further warehousing space within a 3- or 4-mile radius of Heathrow, where we have numerous freight forwarders and other companies in the aviation industry, including airline catering, manufacturing, companies servicing aircraft and aircraft engines,” says Gareth Baker, SEGRO’s regional director for Heathrow. “So, we’ve got quite a diverse range of companies on airport and off airport.
“Other aviation related logistics properties around the UK include East Midlands Gateway, which is just a stone’s throw north of the airport, where we have already constructed 2.7 million sq ft of warehousing and the opportunity for around a further 4 million sq ft. And we also have logistics and urban logistics real estate across London and the nine countries across Europe as well.”
The airside assets at Heathrow under SEGRO’s control include the Sandringham Road, Shoreham Road – known as ‘the horseshoe’ – and the IAG World Cargo Centre. “For all of these assets, we are the effective freeholder – we have a 250-year lease with Heathrow Airport – of which there are about 235 years remaining,” Baker explains.
SEGRO has responsibility for the land and the cargo buildings up to the airside boundary round the back of the sheds, all the way to the entrance to Shoreham Road and at Sandringham Road. “So, we are responsible for the landside management of those estates. Obviously, the airside is managed by Heathrow Airport.”
On SEGRO’s plans for developing that estate, he says: “The buildings are 50 years old, so they were built and designed to be built pre-widebody aircraft, and prior to modern HGV trucks, so we’re fully aware that there are operational challenges there in terms of landside delivery and in terms of how the buildings have been built – i.e. with numerous pillars and columns, which isn’t ideal for modern warehousing.
“In addition to that, there is a very high office content. The industry is relatively ‘high paperwork’. So, the high office content and pillars have made it a challenging asset, coupled with the volume that has been going through the airport over the last three or four years.”
Furthermore, the recent demand growth spurt has meant it has become even more challenging in terms of the congestion around the horseshoe than previously.
In terms of the direction those plans are heading, Baker says it is “probably a little bit too early” to give a detailed view, but he adds: “Discussions are ongoing with Heathrow airport, but we have a design that we are looking at. We’re considering turning the cargo facilities through 90° so they are parallel with the runway, rather than in their current configurations – which we think will improve operational efficiency and productivity through the transit shed.”
He continues: “If these ideas progress, the intention would be to rebuild all those facilities completely, which would be carried out in a number of phases.” Describing the challenge of juggling the development work with continuing cargo operations as “a difficult jigsaw puzzle to piece together”, he adds: “But our intention would be to start at the western end, that is the Sandringham Road end, and then build a phase, and move some of their customers into that phase, and then build-move, build-move, build-move, until completion.”
While the plans are “still a work in progress”, it is expected that as well as modernising the facilities, various changes including reducing the amount of office space could create an extra 350,000 sq ft of cargo transit warehouse space within roughly the same building footprint, maximising the footprint by creating multilevel facilities.
“We are looking at intensification, and that would be by multilevel,” says Baker. “We’ll be looking to create around 1 million sq ft in total, but this is all subject to further discussion with Heathrow Airport.” That would mean an increase of almost 35% in the warehouse footprint available for cargo operations.
In terms of the length of project, Baker is reluctant to make precise predictions, but it will clearly be a multi-year project – potentially up to 10 years. “I would hope it would be a little bit less, but we’ll see how it progresses over the next 6 to 12 months,” he says.
“It is all still to be confirmed, and it depends on the occupier and their fit-out, as to when they are going to move; but I think we’re looking at a fairly lengthy project,” he notes.
To help steer the development, SEGRO has had various consultations with Heathrow Airport and some of its existing customers.
While existing cargo handlers clearly want to try to solve the current layout and space issues, in terms of what else they want now that is different from what they’ve got currently, he says: “From our perspective, we are creating a modern flexible space. I think ‘flexible’ is probably the key word. Our occupiers will fit out, depending on their business requirements and needs.
“We see technology and automation increasing, especially in the wider logistics market, and that is definitely something we see coming into the air cargo real estate world. And by that we’re talking about the height of the buildings, (a need for a reduced level of) office content,” Baker notes, highlighting other key issues in the design considerations including the number of access doors to facilities, landside and airside, “but in addition to that, ensuring that there is enough power capability, and connectivity for potential automation and technology moving forward”.
Use of automation
Baker agrees that air freight handling has remained a fairly manual process in many respects, compared with the significant rise in the use of automation within higher-end general logistics facilities, but he expects this will gradually be introduced to air cargo handling facilities.
“I think it will go that way,” he notes. “The fact is that there are not too many modern cargo facilities that have been built recently, in the UK especially. And what we have to remember is that the current facility has 10 or 11 customers, so we are talking about a facility that is a multi-let estate, whereas if you look at airports, for example the Middle East, where carriers have been doing that (building new cargo terminal facilities), there is quite heavy automation there. But there it is just one airline or cargo handler.”
Clearly, the needs and expectations – and budgets – of cargo tenants within a multi-let cargo estate are likely to be very different from those of a fast-expanding airline at its main hub airport.
Baker says discussions on what has to be in the designs are ongoing with the airport authority at the moment. “We haven’t worked out our ideal position, but flexibility is obviously a key there.”
Flexibility in practice
So, what does that need to retain flexibility mean in practice? “In terms of what we design and build, there is a discussion to be held around that; but on a very micro scale, it is about where walls are going to be, dividing facilities, thinking around how the internal layout will be, what sort of mechanisation users may be using. Will it be as manual as it is at the moment? Will there be a need for pits to build up freighter pallets? That kind of thing,” he explains.
But in terms of the technology itself, that will tend to be the responsibility of the tenants. “Effectively, we create and build that space for them, and they fit out and operate as they wish,” he confirms.
In the past, tenants have tended to have lease contracts of 3 to 5 years, something that will also be up for discussion, although the arrangements are likely to vary according to the different tenants and the length of commitment that they seek.
While future proofing and flexibility are key within designs, especially as the potential offered by technology and automation continue to evolve, other trends affecting what customers are currently looking for include issues and opportunities around e-commerce, says Baker – including the rate of growth and challenges around volume and weight as well; “i.e. less weight, but more of it”, he notes. “Looking at the real estate perspective, there is a wider issue around efficiency, getting the goods through the shed to the aircraft, and vice versa, as quickly and seamlessly as possible, and without too many manual touch points.”
As the landlord, he says SEGRO needs to be involved in those kinds of discussions, noting: “We are engaging with customers and the airport authority to try and improve that speed and predictability through the facility. We are working with the wider community, not just with handler and integrator customers, but also with freight forwarders and hauliers, to try and improve the efficiency for the whole supply chain.
Airport cargo communities have been a hot topic of late in Europe, and Heathrow Airport’s head of cargo Nick Platts has been looking at how to build communications and collaboration among members of Heathrow’s airport cargo community along the lines of successful initiatives at leading airports such as Brussels.
And that is something that the landlord also needs to be involved with, says Baker, “especially because we’re looking to create a redeveloped Heathrow Cargo Centre”.
Although that Heathrow cargo community will continue to be made up of many separate, competing companies, working effectively and efficiently within the relatively confined space that is available does benefit from cooperation or collaboration between firms.
“Absolutely,” agrees Baker. “How this operates will benefit the whole community, in terms of a potential remote lorry park, potential technology, access control coming onto the estates, throughput through the shed; there is a win-win for everybody.”
The creation of a remote lorry park, connected via ‘call-forth’ technology to control the access of lorries coming onto the cargo estates, is something that Heathrow Airport has been working on and sees major potential benefits from in managing landside vehicle flows and limiting congestion of road freight vehicles accessing the cargo sheds. This has been and remains a major problem, especially at the horseshoe.
Heathrow has been looking for a space to create an off-airport lorry park, with the airport understood to have identified some potential sites that fall within its own land, although Baker says that is something that Heathrow itself would need to confirm.
But the issue of access to the cargo areas is something it needs to be involved in. While IAG Cargo has its own arrangements for its facilities, for the other cargo areas at Heathrow, at the moment the identity of the lorry takes place at the shed, with no current barrier or call-forth capability.
To create greater control, efficiency and predictability, both SEGRO and Heathrow are looking at the need of some kind of barrier before lorries enter the cargo areas, “so it is as efficient as it can be – for example, the goods may not be ready to collect, or for exports, the shed may not be ready to accept them yet”, notes Baker.
He confirms that the outcomes of these discussions will be important in terms of its plans, with the company not just looking to redesign the buildings themselves, but also the whole area around them.
“We’re not looking to replace new for old – we’re looking at the whole picture, and doing what we can to improve efficiencies and throughput.”
And in terms of the e-commerce question, a vital one currently within airport cargo handling discussions, Baker says the issue of how that plays out is a very interesting one – for example, whether we see greater use being made of off-airport facilities for e-commerce sort centres, and therefore a need to create new processes that efficiently link with those.
“I think it’s a case of wait and see at the moment,” he says. “I’m sure the forwarders are reviewing that at the moment and wondering how they are going to play that, moving forward.”
Other important trends include a growing focus on sustainability, an area Baker says SEGRO is very keen to play a positive role, “be it electrical vehicles, autonomous vehicles, carbon-neutral development where possible, ‘Breeam Excellent’ facilities”.
He continues: “The East Midlands Gateway, albeit not airside, will be a great example of integrating and linking road, rail, and air freight.”
And on the technology side, Baker says the company is aware that some companies are exploring using robots in air freight sheds. However, although it is something that air cargo real estate developers need to be aware of, it is more an issue for the fit-out stage than a significant factor in its building designs. But the technology behind that wouldn’t be something that the landlord would be involved in, neither of the hardware nor the IT side.
“For us, it will be about creating that space, that flexible modern accommodation that would allow robots or humans to handle cargo, and ensuring that there is the power capacity there to allow the occupiers to be able to operate the facilities as they wish,” he notes, concluding: “We are creating the space; yes, we are very keen to see what’s happening and areas where there are potential industry changes; but that would be for the occupiers to review and use as they would wish.”