Airlines’ ever-increasing focus on temperature-sensitive cargo has been forcing handling agents to put more resources into this segment – even if they are sometimes unable to charge carriers any extra to cover their investments, reports Ian Putzger
After two years of tearaway growth, demand for air cargo capacity has been on the retreat in recent months and uncertainty about the global economy is prompting concerns about future demand and yields. For example, average yields sank 2.5% in January, according to WorldACD Market Data.
This situation is likely to further reinforce airlines’ efforts to chase a larger share of the premium cargo market. WorldACD’s statistics for January indicate that high-yield traffic mitigated the general drop in volume: whereas chargeable weight overall was down 2% precipitated by a 5% decline in general cargo, special cargo grew 4.6%. Indeed, apart from general cargo, valuables and dangerous goods, all categories saw year-on-year growth, WorldACD notes, despite the overall decline in volumes. The big categories of perishables and high tech grew by 6% and 4%, respectively, while pharmaceuticals volumes grew by 5% and the much smaller live animals segment grew by 9%.
While the stagnation of general air cargo volumes is expected to continue this year, so is the upward momentum in specialist cargo verticals. A pharma market research report published by the Business Research Company last year projects the global pharmaceuticals market to climb from US$934 billion in 2017 to $1,170 billion in 2021, an increase of 25.1%. Technology research and advisory firm Technavio forecasts 8% compound annual growth for perishables in the 2018-2022 period.
As more and more airlines are homing in on these sectors, handlers are adjusting accordingly. For example, Worldwide Flight Services (WFS) is currently building new pharma facilities in Paris and Copenhagen. “We focus on which markets our clients want us to handle pharmaceuticals,” says Dan Parker, WFS’ senior vice-president of commercial and cargo for EMEAA.
“We recognise that for our clients to break into these specials, there must be investment on the ground. As regulations get tighter and tighter, marketing is no longer sufficient. You can’t just talk, you have to make the investment,” says Parker.
Hong Kong-based handler Hactl has also been investing heavily in equipment, resources, processes and training. Vivien Lau, executive director of, notes: “We have to move with the new trends in the industry, and what is attractive to our customers is attractive to us. We regard our investment as simply an essential aspect of our service partnership.”
This goes well beyond installing temperature-controlled facilities, confirms Robert Fordree, senior vice-president commercial at Menzies Aviation. “It’s about changing the culture, and training is a big piece; it’s not just getting somebody to build a cooler,” he notes.
Andreas Behnke, Swissport’s station manager and nominated CEO for Basel airport, notes that training is costly. All staff have to be trained to comply with international standards like CEIV and the specific requirements of the clientele, who vet the set-up, he points out.
Likewise, WFS’s new pharma facility at Paris CDG airport will be audited by all the big pharma manufacturers based in France, says Parker.
And the regulatory pressure will continue to increase, Behnke predicts. Increasingly the objective is to have a seamless operation, he says.
In addition to GDP certification, there is mounting pressure on handlers and carriers to embrace IATA’s CEIV standard as well, a time-consuming and costly process. Some airports are striving to position themselves in tandem with others to create pharma corridors, which is upping the pressure on handlers on their turf to obtain the CEIV badge.
Requirements on the handling of perishables are less exacting, but there the bar is also going up. In early March IATA unveiled its CEIV programme for perishables. HACTL and the ground handling arm of Cathay Pacific were the first operators to get their operations certified.
Still, the processes to be observed with pharmaceuticals are a lot more complex. In addition, the use of devices monitoring ambient conditions that use lithium-ion batteries often requires checks for hazardous materials, although this is on the wane, notes Behnke. “Now more new loggers do not require DG checks,” he says.
On the other hand, requirements for more seamless temperature monitoring mean that handlers have to invest in additional technology, such as IoT beacons to be installed in their facilities.
“Integration of systems and increased use of IoT technology will become increasingly prevalent, as temperature-controlled supply chains demand ever greater visibility and control,” comments Lau.
All of this is having an impact on productivity. Thanks to a dedicated zone and a fast track to move pharma shipments through Hactl’s terminal, temperature-controlled cargo is not more time-consuming to handle than general cargo, but it is more resource-intensive, remarks Lau.
Demands on space
It is not just the additional effort and resources but also the demands on space that handlers have to contend with, says Fordree. This is most pronounced in gateways where Menzies is facing capacity restrictions.
“The capacity that pharma takes up is quite significant. It is not flexible, it is dedicated, so you don’t have the ability to handle other product types in that space. It’s quite restrictive,” he says.
“We tend to be saturated in bigger facilities,” agrees Parker. WFS has three facilities at Madrid-Barajas airport, all of which are operating above the 100% utilisation rate.
“Customers expect a full array of cargo products, which is a challenge. You try to be creative or aggressive in securing additional capacity,” he adds. WFS has managed to get hold of a 6,400 sqm site at Barajas, which it intends to turn into a dedicated pharma facility.
In theory, cargo handlers can boost utilisation of temperature-controlled spaces by handling both pharmaceuticals and perishables there, says Behnke, but market conditions can get in the way. While Basel is the big gateway for pharma traffic, perishables are chiefly routed over Zurich, he notes.
For his part, Parker sees little scope to exploit synergies. Using cooler infrastructure to deal with both types of cargo is becoming increasingly unacceptable to shippers and regulators, he remarks.
“In large markets, you get different flows; you’ve got to have different processes,” he says. “With perishables, you tend to see a different profile in their handling needs. Customers want to see imports shoot through the facility very quickly. For exports, you have to have ample cooling facilities. It’s a different model from the tech-based process approach with pharma.”
Rapid pharma growth
In response to rapid growth in pharma traffic out of Copenhagen, WFS is building a dedicated pharma facility that is located between its two existing terminals at the airport. According to Parker, this is “quite a significant investment”.
Meanwhile, at Basel, Swissport is planning a cross-dock facility that will allow “seamless” loading of active temperature-control ULDs. Expected to come on stream in 2020, it will be an industry first, says Behnke. A pharma bypass is already in place in Swissport’s Basel terminal; this allows moving ULDs from the warehouse to the hull of the aircraft in less than two minutes.
For the airlines, the investment in special equipment and capabilities to handle premium cargo generates better yields, but on the handling side the picture is less clear.
“In practice there is little, if any, difference between the standard contract rate and that for temperature-controlled cargo,” remarks Lau. “We are led by the trends of the global handling market and by what our customers are therefore prepared to pay.”
Swissport has a published tariff for pharmaceuticals that spells out a 15% premium on top of regular handling charges. At the end of the day, though, arrangements vary by customer, Behnke says, adding that he has no visibility on the margins that the airlines are making on special products.
Parker says: “We can structure our pricing in ways that ultimately suit our clients. This can be a negotiated premium in the core handling price.”
Cargo handlers say their agreements with carriers can vary considerably, whether under ‘bonus-malus’ schemes or a tariff structure.
Parker notes that a growing number of airlines are showing willingness to talk about risk sharing and ‘bonus-malus arrangements’, provided the handler can demonstrate added value. Still, in many cases it is still the airline’s procurement department that selects ground handlers.
Some cargo handlers have also noted that airlines’ pharma yields are not what they used to be, limiting the opportunity for handlers to charge a premium for what previously was a premium cargo product.
Hactl’s Lau takes a philosophical stance on margins for handling special cargo. “Hactl does not really think in terms of handling costs related to specific cargo types,” she says. “We exist to serve our airline customers, and that means we must provide a comprehensive capability to handle all and any cargo they choose to carry. We accept that some of this cargo is less resource-intensive, and other cargo requires more resource and manpower. We focus on making our customers competitive through the scope and quality of services we enable them to offer; and our reward is to share in their success through increased handling volumes,” she comments.
For Swissport, pharma flows out of Basel bring a lot of predictability, reports Behnke. “We don’t have the same volatility as with the fashion industry. We don’t have the spikes and capacity problems, and we are not so affected by seasonality. This helps with planning and staffing,” he says.
It certainly helps that Basel is at the epicentre of the European pharma industry. Elsewhere the case for investment in pharma handling capabilities is less compelling. “In some locations the market is not there,” says Fordree. In markets where it does make sense to invest, often the volumes are not there in the beginning for the facility to pay for itself, he adds, and it will take time for volumes to build up to a level where the investment pays off.