Exploring the potential of forwarder handling partnerships

posted on 12th September 2022
Exploring the potential of forwarder handling partnerships

Leading third-party air cargo handlers are looking to expand their involvement in cargo handling on behalf of freight forwarding companies – encouraged by an increasing appetite and openness to cross-industry collaboration and forwarders’ increasing involvement in developing their own-controlled capacity. But major forwarders also want to tighten their control of handling, where possible, reports Will Waters

Some leading third-party air cargo handlers are seeking to expand their involvement in ‘forwarder handling’, performing air cargo handling on behalf of freight forwarding companies, seeing it as a natural progression from the greater industry collaboration since the start of the Covid pandemic and an opportunity to potentially further streamline air logistics processes and build their businesses. Handlers say it partly also reflects the role of freight forwarders evolving, with forwarders increasingly chartering their own-controlled capacity and in some cases operating or seeking airside facilities, something that has also developed further in the last two years.
For example, Geodis and Worldwide Flight Services (WFS) in January expanded their cargo handling partnership in France, with WFS supplying a dedicated team of 28 cargo handling professionals to operate Geodis’ new 4,000sqm cargo facility at Paris Charles de Gaulle Airport (CDG), which is expected to handle up to 20,000 tonnes of air cargo annually. The WFS team will be responsible for cargo reception, palletisation, cargo security, DGR checks, transferring cargo to airlines, documentation, and specialist pharma handling. WFS already supports Geodis with similar services at its locations in Paris Orly, Lyon, Marseille, Montpellier, Toulouse, Bordeaux, Nantes and Strasbourg.
Laurent Bernard, VP Cargo France at WFS, says “more forwarders are looking to work closer with WFS to benefit from its expertise”, including WFS’ “ability to set up efficient warehouse operations and to optimise ULD and pallet capacity”, as well as its locations across France and connecting trucking network. Its “experience of providing in-house freight forwarder assistance and IATA CEIV-certified pharma handling services is also appreciated”, with WFS hoping “to gain more opportunities like the one we enjoy with Geodis”, Bernard highlighted.
And Swissport, which has been performing forwarder handling for some time at Vienna Airport (VIE) at a smaller off-airport facility, this year opened a new 8,000 sqm second-line facility at VIE with a particular focus on forwarder handling. Located in the DLH SkyLog Park close to the airport’s airside cargo terminals, it is also conveniently located immediately adjacent to DHL Global Forwarding (DGF)’s VIE warehouse, with Swissport partnering with DGF to provide export cargo handling on its behalf. But Swissport is also piloting forwarder handling at other locations including Frankfurt (FRA), Liege (LGG) and Graz (GRZ), says Dirk Goovaerts, head of Middle East & Africa and global cargo chair at Swissport International.

Collaboration across stakeholders
Goovaerts says these developments need to be seen in a wider context – in which Covid highlighted the importance of air cargo and “there was much more focus to professionalise the whole value chain by all the stakeholders”, to respond to the crisis and deliver materials and vaccines. “That also triggered the need to collaborate and cooperate with different stakeholders in the value chain,” he notes.
“I think this is not going to go away. If anything, this collaboration has to increase for the better of the industry. And Swissport can play quite a significant role in this: we are global; we are in 287 airports; we have warehouses; we have the relationships with the airports and forwarders – with all the stakeholders. We don’t want to sit still; we want to engage and drive these initiatives.
“So, we see these (forwarder handling partnerships) as a pillar to be developed,” he continues. “Warehouse capacity is scarce; human resources are scarce; time is scarce. It’s about breaking down the silos; creating efficiency in the value chain – if you put the right processes in place between the different partners; if you utilise the right systems; if you create transparency…
“It’s also in the context where airports with well-established air cargo communities are growing faster than airports without established cargo communities. It’s the same principle: linking up the different stakeholders.”

Specific forwarder partners
These initiatives at VIE, FRA, LGG and GRZ are partnerships with specific forwarder partners rather than community initiatives, although the idea of forwarder handling is already quite well established at some airports and airport cargo communities – such as VIE and Tel Aviv (TLV). Goovaerts estimates that at VIE, “about 80% of the market is handled in that integrated way. And in Tel Aviv, we have also a very well-established collaboration with general sales agents, and forwarders. But in Tel Aviv it is also driven by the view of the airport community, because it has been set up like an integrated cargo village.”
Goovaerts adds: “In general, when you integrate the processes of the different stakeholders, automatically, it creates efficiencies – processing time is faster; the total cost is optimised.”
Although he describes the initiatives at FRA, LGG and GRZS as ‘pilots’, Goovaerts expects these will turn relatively quickly into something sustainable, “if the right services are delivered at the right cost, at the right speed; if we meet the initial objective”.
Significant potential
He believes forwarder handling could become a significant business for cargo handlers that have the right processes and tools. “It depends on the locations and the cost rates of the locations. Where there is limited availability of warehouses, this could grow fast, because it’s in the interest of both parties. If you can’t grow, you are obliged to work together,” he notes.
“But we still have the core business: cargo handling for airlines. And, of course, our partners and stakeholders also have their warehouses. If they can’t utilise that floor space for something else, they will continue to operate the way they operate today.
“So, these initiatives are also driven by practical constraints. But if we can prove these initiatives are bringing added value, it will become more mainstream.”
Goovaerts says a forwarder-handler partnership can be done inside the cargo handler’s facility or by providing staff in the forwarder’s warehouse.
“It depends on the practical constraints in certain airports. Take the example of Vienna: there, DHL is wall-to-wall to us, so, it’s very simply connected. And the pilots we are doing in the other stations, we are providing the service for certain forwarders in our warehouse.”

Operational improvements for all
Goovaerts sees potential operational improvements for all parties. “The traditional way is import cargo, for example, goes into a warehouse, is broken down and made available for the forwarder; then the forwarder picks it up, brings it to his warehouse and then does additional transactions – maybe to distribute it onto different trucks for final delivery.
“If you integrate this into the first warehouse, you cut out 40% of the process; you will optimise that process. And that is what we see. For example, in Tel Aviv, we have now introduced a sorter for our ecommerce. In the past, that ecommerce was distributed in a separate, warehouse. So, whatever you can do at the first point of arrival is more effective.”

Other benefits
Other benefits include synergies of warehousing space, of human resources, and transport, Goovaerts highlights. “With the traditional model, you transport cargo from our warehouse to the next warehouse. Then you have congestion, the risk of damage, the more you have to handle (the cargo).” And potential error introduction.
Goovaerts also believes forwarder handling and collaboration can help alleviate wider handling issues at airports, where problems come mainly because of high volume and capacity constraints. “If you integrate the process, you are providing additional floor space. To build a new warehouse will take time; by integrating your processes, you can be up and running in a month,” he notes. “So, for me it’s a no brainer to collaborate.”
Collaborating can also help solve that common challenge third-party cargo handlers face when opening up a new facility: they have excess capacity for a time until they bring in new customers or volumes.
And there is an added opportunity “when large warehouses are built, where you have already handlers and forwarders sharing the same shell – not necessarily being integrated, but being neighbours – it’s very easy to integrate”.

Forwarders seeking control
However, Thomas Mack, EVP and head of global airfreight at DHL Global Forwarding (DGF), says bigger freight forwarders like DGF are seeking to have greater control of the cargo handling process wherever possible and practical – and that means performed by their own staff – rather than seeking to outsource more, at least in the major hubs. That would ideally include forwarders operating first-line or even ramp ground handling, although he acknowledges that “the competition would not necessarily appreciate that” – which is one reason that has largely remained a neutral party’s responsibility.

Controlling hub operations
“But on the (forwarder’s own air freight warehouse) hub operation, at all our major gateways we basically do our own handling, wherever it is legally possible,” Mack says. “And if we have one that is not yet with our own staff, we will most likely convert it to our own staff in the next year.”
One reason forwarders seek greater control is because of inadequate or inconsistent cargo handling quality at some airports, often due to inefficient cargo infrastructure or insufficient investment, Mack says. He notes that cargo handling is also not the best rewarded, which means handlers may struggle to recruit adequate or sufficient staff.
And so DGF and other forwarders have discussions with third-party cargo handlers “on what we can do in order to optimise the process”, even if it’s the carrier that usually signs the contract with the ground handler. “However, we pay for that, because that is included in air freight rate,” Mack notes. “But it is still, of course, a bottleneck. That service was already a problem before Corona, and it is now continuing.”

Inconsistent quality
He continues: “It’s up and down, and depending on infrastructure. If you look at, for example, Los Angeles, Chicago, these are airports where you’re basically exceeding the limits that you can handle. And that is why we look for alternative airports.”
Mack says “at the majority of the big airports, you have infrastructure problems”. And that is understandable, since many of the major metropolitan airports were built 50 years ago and are subject to growth restrictions due to being surrounded by residential areas, “where you still have the same available land you had 10 years ago. Meanwhile, after Corona, we are still looking at midterm growth of between 3% and 4% per year in global air cargo,” Mack notes.
“As of right now, you have a problem that is more related to staff, related to the impact of Covid. But prior to Corona, we had the problem already with the infrastructure.”

Through-ULD efficiencies
He continues: “So, to overcome that, we consolidate cargo in our major hubs; we build our own ULDs; we move our own ULDs; and we pick up our own ULDs. And that speeds up the handling dramatically. If it’s a through ULD for a forwarder, they can pick up the whole intact ULD. The building of the ULD, the consolidation and also the deconsolidation, that is in general done by DHL staff, wherever legally possible. And we will continue to do that.”
In contrast, the partnership at Vienna, where “we have a Swissport in our facility”, is an exceptional example that DHL would only consider at a smaller airport. “We use Vienna as a consolidation point for Eastern Europe. But it is a relatively small operation, and they (Swissport) are operating the air freight export gateway,” Mack says.
“But that is not a copy-and-paste for other airports. It is a unique situation. I don’t think we will use that in one of our bigger gateways.”

Size matters
He contrasts the scale of the Vienna operation with DGF’s Chicago operation, where “we have about 250 blue-collar employees, all DHL employees. So, that is a completely different ballgame, and also reflects the importance in our network. The same in Los Angeles: we operate it with our own people; Dallas, we will open a new facility in December; and Atlanta, they are all DHL employees.”
Mack says DGF is instead working on other ways of improving air freight processes. “For example, we have a pilot now in Chicago, and we will roll it out during the course of the year in four of our major hubs, where all cargo handled by DHL will have a passive RFID label. The idea is that we still build our pallets, we hand over the pallet to the airline, and on the receiving side, instead of scanning each piece, we simply scan the whole ULD. And thanks to the RFID technology, everyone knows exactly what is on that ULD.”
“The advantage here is that 99.5% of our cargo we label with our own staff, so we control that process.”

Commitment to customers
For Mack, the intention remains to only use third parties for handling in exceptional situations, “because we want control over our processes. This is what we sell to our customers. And if you want that, you need your own staff. DHL Express basically does the same: at all of the major hubs, they operate with DHL staff – because they sell an integrated service to their customers.

“If I work with a ground handler and hand over my second line, and they do the consolidation and everything, that would mean I no longer have control over the process. So, for me that would not be an option.”
From what he hears from customers, Mack believes this is the direction most of the biggest freight forwarding agents are also going: “Taking control over their processes and selling that as an integrated product”.

Other forwarders
Peter Penseel, chief operating officer for air freight at CEVA Logistics, comments: “Our strategic approach is to manage the air cargo handling in our own network. Our commitment to our customers drives this decision to maintain control over the quality and service of the major gateways within our network.
“In a small number of cases, we use third-party handlers. These tend to be in locations with specific local constraints or fluctuating tonnages that make outsourcing a reasonable option. In these instances, we work closely with the third-party handlers to ensure our quality and service standards are maintained.”

Cost versus control
He says the pros and cons centre around cost and control, noting: “With direct control comes the benefit of close, clear oversight of things like quality and service. Being able to monitor and provide consistent services and processes to the customer across the network is our preferred approach.
“Variable costs and fluctuating tonnages also play into the decision for certain locations. There are certainly very capable third-party handlers, so in some cases, we choose to balance the pros and cons in a different way, while always ensuring our standards are met.
“At this stage, we do not see a major change in these kinds of partnerships. Our strategy will remain the same in maintaining control over the handling within our network. We’re always ready to be agile and adapt to market conditions, but we do not currently foresee any significant changes at this time.”

Forwarders operating aircraft
But the lines become more blurred and the potential for forwarder handling partnerships increase where forwarders are also operating their own cargo charter networks – something that has increased significantly during the pandemic. In those situations, Goovaerts believes that “from an efficiency point of view, collaboration with the forwarders becomes more natural; that handling and forwarding get a bit more integrated”.
Mack acknowledges those situations are somewhat different, but says the desire among the major freight forwarders is still to become more involved in the handling, where possible, not less.
But he says there are limited facilities available with access to the tarmac, and it’s often not economically viable for forwarders to lease such space. If the forwarder can only handle its own flights, “it’s not enough business to start ground handling. For every forwarder, that is the smallest part of their business. The biggest chunk of their business is part charters, where they have 10, 20, or 5 maindecks on a flight. And that is when, of course, other cargo is in the aircraft; the carrier makes the decision on the ground handler.”

DSV’s long charter experience
DSV has been running an own-controlled scheduled charter network for more than 30 years – thanks largely to the Panalpina business it acquired in 2019 – and says ground handling “is an integrated part of this service”. Stefan Krikken, DSV’s US senior manager for Air & Sea, observes: “The viewpoint is that adding capacity is one part of the equation, but the difference is made on the ground. As such, DSV is involved in ground handling – be it with the direct execution at the airport or through a third-party with DSV staff present to supervise.”
On the pros and cons of ‘direct execution’, he says “direct leased airside facilities and dedicated airside staff come at a cost and these can result in higher pricing towards our customer. The advantages it brings is a more controlled environment where DSV can decide what has priority or can provide the white glove service the shipments require. For example, aircraft engines which require special break/build conditions; pharma and other commodities that need to move under a temperature-controlled environment; and urgent shipments that can be prioritised for same-day delivery upon arrival.”
He sees a positive future for this kind of ‘3PL-influenced’ close handling partnership, noting: “Airports are becoming more congested and constrained due to the increased number of passenger flight movements and slot restrictions driven by labour shortages and achieving environmental goals. Therefore, cargo is expected to move to second-tier airports with a higher form of 3PL-influenced ground handling.” Examples include Chicago Rockford (RFD), Huntsville (HSV), Rickenbacker (LCK), Liege (LGG), Luxembourg (LUX), Maastricht (MST) and Zhengzhou (CGO).

Covid highlights handling element
“This trend is expected to continue, as during Covid the importance of ground handling and proper infrastructure to support it became evident.”
Krikken says DSV “will continue to have a form of own-controlled cargo network, but it will move in accordance to the demand and capacity serviced in the commercial market. It will be scalable on frequencies and equipment (aircraft types) to support where commercial capacity is underserved or airport infrastructure not meeting our service expectations. Markets where DSV believes there is room for dedicated capacity and controlled ground handling will continue to be developed.”
With commercial scheduled capacity returning to the market as the effects of Covid recede, Krikken says any new services “will focus on specific areas where we believe capacity and controlled ground handling will bring additional value for DSV customers – be it from a geographical view or industry verticals which require dedicated freighter capacity”.
On an industry level, he expects that “certain capacity will shrink back as ocean markets recover and PAX capacity returns. With the Covid pandemic and other supply chain disruption (expected) to continue, we believe there will be a shipper base willing to continue paying a premium for a more integrated, end-to-end service by the 3PL.”
Goovaerts is unconcerned that these forwarder-controlled chartered freighter networks may shrink back, noting: “Aviation logistics will grow, and I think it’s a matter of engaging to the future instead of trying to be defensive of what was the past.

Being part of the change
“There are more and more IT tools every day. It’s clear we need to make the jump forward and be part of the change instead of undergoing change. That’s why I’m a firm believer in air cargo community systems and communities, because they link the different stakeholders for the benefit of the entire cargo community in a particular airport. Airports with very strong cargo community become more attractive.”
So, for Goovaerts, it’s about “making the pie bigger. First of all, get everybody aligned behind the cargo community vision, attract more volume into the airport, and it will create more economical added value employments because you will add to the distribution centre production centres.”
With new technologies and this greater appetite for collaboration, Goovaerts sees some significant new prospects of the overall air freight air cargo system becoming better integrated.
“We have to engage on innovation. If we are not going to do that, as industry leaders or as industry players, somebody else will do it. So, it’s a matter of continuing to invest in innovation in systems, in transparency, in making the whole air cargo chain more effective.”
He says Swissport has the resources to invest in those things, noting: “We have already a very strong backbone. We have real-time visibility in what we do globally. It’s just a matter of having a clear strategy, that we want to push this forward, and that we want to drive to be the industry leader in innovation.”