Secondary hubs on the rise

posted on 29th May 2019
Secondary hubs on the rise

Stuart Todd reports on whether Europe’s cargo-specialist mid-sized airports can maintain their recent strong performance as market growth weakens

A glance at last year’s annual traffic figures – which were always going to struggle to compare positively with those of the exceptional 2017 – shows that volumes handled at the ‘big four’ cargo-handling air hubs in Europe – Frankfurt Main, Paris Charles de Gaulle, Amsterdam Schiphol and London Heathrow – to be in minor decline or at best flat. But it was a significantly different picture at some of their more modestly sized counterparts – even taking into account that analysis could be skewed a little given the smaller tonnages and a shrinking market – with solid to double-digit growth posted by Leipzig (+7%), Liège (+21%), Brussels (+6%) and Budapest (+15%) airports.

While the continued weakening in air cargo demand in the early months of the current year has started to weigh on air cargo traffic at these airports too – for example, Brussels’ total flown cargo was down 8.5% in Q1 on the first three months of 2018 – Liège maintained its impressive performance with a 10% increase in volumes, and Leipzig set a new record for monthly throughput in March.

Steven Polmans, director for cargo and logistics at Brussels Airport, says: “The bigger airports are full, capacity-wise and often congested or even restricted, impacting their volumes and future growth. This has profited some medium-sized airports who have been focusing on cargo for a long time and are finally seeing their efforts and investments rewarded, such as Liège and Maastricht. But others are not really seeing any benefit at all and are now beyond the point where they will be on the map in a structural way.”

He says a key question is whether cargo growth at the smaller airports is sustainable in the long-term, for example if we see a further decline in volumes. “What the past has shown is that most stakeholders have, in the end, always preferred to remain at the big hubs, even if they were not the best place for them to operate,” he says. “But are we finally seeing a shift in cargo volumes to smaller airports which would amount to a significant change in the industry, ushering in more a diverse handling model away from one which is very focused on hubs? That is another difficult question to answer.”

Amsterdam trigger

The congestion issue at Europe’s major airports was brought into sharp relief at Amsterdam Schiphol in October 2017 when the airport breached an agreed annual quota of 500,000 air traffic movements (ATMs), triggering a slot-reduction process in freighter flights. This led to a number of cargo airlines transferring some of their flights to neighbouring airports, such as Liège and Brussels, on a temporary basis.

Since then, cargo operators and their shipper customers have had to cope with fewer freighter flights operating at Schiphol. In April, the Dutch authorities approved a ‘local rule’ giving freighters more access to unused flight slots, set take effect later this year, although the effects of this are expected to be marginal.

Alan Glen, vice president for cargo development at Menzies Aviation, described slot constraints as “another variable which will put pressure on dedicated freighter operations at major hubs, and may provide opportunities for secondary cargo airports to quickly boost volumes”.

Displacement of cargo

Jason Breakwell, commercial director at Wallenborn Transports, a major pan-European operator of road feeder services (RFS) for air cargo, talks of  “a displacement of cargo” that has been gaining momentum since the second half of 2017 and which becomes apparent when comparing the volume growth rates in 2018 for Europe’s legacy and ‘challenger’ cargo gateways.

“It’s too early to judge if the market slowdown is having an impact, as a few percentage points in the short-term will not solve the longer-term capacity constraints at the legacy airports, which are not only due to slot limitation but are also affected by bilateral (air transport) agreements – it being important to note that most of the world’s fastest-growing cargo airlines are not European – environmental controls, real estate and warehousing capacity,” he says.

“There is some evidence that the full value of logistics activities is becoming clearer to airports and this was a factor in the decision to provide more freighter slots at Schiphol for the winter 2019 schedules.”

Breakwell adds that the successful cargo-friendly airports are not small. “Those that are growing and will grow fastest are already in Europe’s top 10 – Cologne, Leipzig, Liège and Luxembourg. I think other airports will struggle to catch up as these four have already achieved economies of scale and have geographical benefits.”

Max Conrady, senior vice president for cargo at the Frankfurt Airport Authority, Fraport, highlights that some mid-size airports, specialising in cargo, such as Leipzig and Cologne, have showed a significant growth over a number of years, often benefitting from the substantial increase in integrator traffic, mainly driven by e-commerce.

“But even these gateways have experienced a slowdown over the past few months, which is a general trend in the market,” he notes. “The competition between different airports in the field of cargo is not decided yet and probably never will be. However, being a cargo-friendly airport is not a matter of size.”

Liège uplift

Of the smaller, cargo-handling airports in Europe, Liège has been one of the most dynamic in its development in recent years. Already an established European hub for FedEx/TNT, it is also fast-emerging as a focal point for China-Europe e-commerce trade flows.

Menzies’ Glen says the Belgian airport is “an excellent study in executing an effective cargo strategy”, adding: “The Liège team has done a great job in growing the business, maximising the benefits of their location. Given the momentum they’ve built up, I don’t expect this to stop.”

For the second consecutive year, the Belgian airport has set a new record for cargo traffic, volumes rising from 717,000 tonnes in 2017 to more than 870,000 tonnes in 2018.

Last autumn, Liège signed a strategic partnership with AirBridgeCargo’s (ABC) parent company, Volga-Dnepr Group (VDG), to significantly increase their existing level of co-operation. It makes provision to boost ABC’s current schedule of eight weekly frequencies from Liege to up to 30 flights per week by 2020.

This spring, ABC announced that it had chosen Worldwide Flight Services (WFS) as its handling agent at Liege – a new location for the world’s biggest air cargo handler – where it will operate a new 12,500 sqm warehousing facility scheduled to open at the end of the year.

Another 12,500 sqm first-line cargo facility is also scheduled for completion at Liège in 2020, and the airport is also building additional aircraft stands for wide-body planes with access to the enclosed cargo handling areas through an easily-accessible ramp zone.

Cainiao designation

The strategic partnership with VDG/ABC followed Liège’s designation last year as one of five global distribution hubs of Cainiao Smart Logistics Network, the logistics arm of Chinese e-commerce giant Alibaba, the others being Kuala Lumpur, Dubai, Moscow and Hangzhou.

Alibaba group is planning to invest €75 million in the Liège hub, with Cainiao leasing a 220,000 sqm facility that is scheduled to start operations in early 2021. The hub will further support cross-border e-commerce trade, especially between China and Europe.

VP commercial Steven Verhasselt attributes Liège’s power of attraction to the fact that cargo has been the airport’s core business since the start, more than 20 years ago.

“Unlike other airports, where the appetite for cargo depends on the success, or lack of it, of passenger traffic, LGG is a cargo airport, not a cargo-friendly airport,” he stresses. Like others, the airport depends on market conditions and had “surfed the wave of growth in 2017 and 2018”. But despite a difficult market in 2019, first-quarter volumes were 10% better than in the record breaking first quarter of 2018.

“Our #freightersfirst strategy is an asset for all freighter operators in good times and bad times,” he says. “I believe that cargo operators allocate their resources in places they are convinced are supportive to their development. It is clear that the airports that are growing are those that come out with a strong cargo strategy. With specialised infrastructure and dedicated processes, we do believe cargo airports help freighter operators to be even more competitive.”

He acknowledges that ‘traditional’ airports remain the favoured route for lots of cargo. “Consolidators have made their investments there for all the right reasons,” he says. “That is how large cargo communities have been built and they do not move easily.

“But in an ideal world, one without history and historical choices, cargo carriers would operate into the airports where they can be most efficient. These are airports that give priority to their operations, that allow them the flexibility they need to optimise the use of freighters. For the operator, the utilisation of the aircraft is key. For the shipper, the time to market is key. Liege Airport offers both.”

E-commerce – a golden egg

Meanwhile, cross-border e-commerce has been described in some quarters of the air cargo industry as ‘a golden egg’. So, could it prove a major factor in sustaining the development of smaller cargo airports, especially during downturns in general air freight market activity, while also serving as a differentiator in relation to the mega hubs?

“E-commerce is a big name and a flag that covers many loads,” says Brussels Airport’s Polmans. “If an airport has a lot of land available, you are in a better position to attract fulfilment centres for e-commerce. But we also see a lot of e-commerce via mail or bellyhold of passenger aircraft. So many airports and carriers can benefit from the growth in e-commerce; but only a few will benefit in the near future from a large fulfilment centre at their airport.”

Robert Kleppers, commercial director at Jan de Rijk Logistics, another major pan-European RFS operator for air cargo, believes big e-commerce players like Amazon or Alibaba may favour an integrator hub or secondary airport for their traffic as they will have the volume for freighters.

“Others might prefer the more-frequent capacity delivered by the combination of freighters and passenger flights at the major airports. Smaller gateways, such as Liège, will have a role to play, but metro hubs are also investing in additional e-commerce capacity. They have the big advantage of their infrastructure, combined with a network with many connections and frequencies delivered by passenger flights. This is a disadvantage for LGG that relies on freighters only.”

Menzies Aviation’s Glen observes that for e-commerce coming from China, the postal ‘route’ is very attractive. However, the balance could quickly shift if there are any changes in the agreements or treaties governing such shipments. While it’s unlikely that any such shift would have a long-term effect on volume, it could trigger a swift change in the mode of shipment from post to general cargo or integrator traffic, should it ever occur.

“The integrator hubs will continue to grow (as a result of e-commerce) as they have the advantage in the door-to-door market,” he adds. “Secondary hubs that have an integrator presence should leverage this to grow their overall business.”

Space advantage

The fact that e-commerce hubs need to be developed to some extent, and are not dependent on existing cargo ecosystems, could favour the smaller airports, Wallenborn’s Breakwell notes.

“There tends to be more land available just off-airport at the secondary airports than at the legacy airports and this is ideal for phased development of e-commerce hubs,” he adds. “It can also be easier to source flexible and cost-effective labour at secondary airports. However, e-commerce needs connectivity and the legacy airports still have that advantage in terms of frequencies and network scope.”

He estimates that more than 50% of the e-commerce traffic growth will go to the integrator hubs and secondary cargo airports, “although a lot will also pass through the legacy airports from or to hubs at ‘secondary’ airports”.

Fraport’s Conrady emphasises that even though Frankfurt is not an integrator hub, e-commerce is a driving factor in its cargo business. “For example, the airmail volume at Frankfurt rose by 5.6% in 2018, an effect we attribute to the e-commerce growth. So, is e-commerce a game-changer within the competition among airports? Probably not; but a game-changer in the air freight business, for sure.”

He continues: “E-commerce and especially cross-border e-commerce, is predicted to grow significantly in the coming years. Distinctive to this new market is that it promises very short delivery times. These can only be reached by using air cargo. Consequently, air cargo will definitely profit from e-commerce.

“The bottom line is, that all airports can benefit from the growth in e-commerce. But only time will tell if it can be kept at sustainable levels and be turned into a profitable business – not only for the airports but for the air cargo community in general.”

Liège’s Verhasselt underlines that the requirements of e-commerce shippers are focused on reliability and ‘deliver as promised’.

“That makes e-commerce a commodity that prefers freighter capacity over belly capacity,” he claims. “At the moment, on a weekly basis, we have about 15 widebodies that could be considered dedicated e-commerce flights. Still, the total volumes, spread over all the scheduled freighters carrying a mix, are difficult to define. We don’t know what is coming, but the processes we have in place, which prioritise cargo, should help us to cope with the expected changes, challenges and growth.”

He adds that Alibaba/Cainiao-dedicated flights currently operate between Liège and Hangzhou on a scheduled basis, while the e-commerce giant uses a lot of third-party capacity as well into and out from Liège. “Cainiao is already sending thousands of parcels per week via LGG,” he stresses.

Community benefits

As to whether new airport cargo community systems, powered by data-sharing technology, will alleviate the pressure on the metro hubs, further limiting the opportunity for smaller, cargo-friendly airports once more, Steven Polmans says that no matter the size of the hub, such systems can and will play an important role in improving cargo flows and volumes.

“On could argue that because of their size it might be easier for smaller airports to set up such a community (system) between all stakeholders,” he notes. “On the other hand, Amsterdam, one of the larger airports in Europe, has had a community and a community system for many years. So, size should not be an excuse for anybody – not the big ones, not the small ones.”

Menzies Aviation’s Glen says such systems are an important advantage for any airport community that facilitates their use, increasing the efficiency of operations for customers, and the whole supply chain.

“The big hubs have used them to varying degrees – to solidify their position and work closely with the forwarding and trucking communities,” he notes. “Their scale and traffic has made this important. There may be an opportunity for a secondary hub which is forward thinking to kickstart this type of approach and help to grow their business.”

Jan de Rijk’s Robert Kleppers highlights ‘frontrunner’ airports like Brussels, which has the ‘Cargo Cloud’ and Amsterdam, which has for many years had a very good data infrastructure with airlines, customs, and logistics companies.

Industry qualifier

“As communication technology and cloud solutions advance, this will only become more important. It will become a ‘qualifier’ for any airport and the industry as a whole. Jan de Rijk has invested in this area for many years as, in our experience, transparent communication with stakeholders upstream and downstream is the key to success. Therefore, we continue to invest in system-to-system connections, data-sharing platforms, or our own portal for tracking, booking and PoD (proof of delivery).”

However, community systems and data infrastructure are expensive IT projects; and while smaller airports initially might move faster, larger airports have more resources for these investments and can better keep up with the constant advances in technology, he adds.

Fraport’s Conrady says cargo community systems are one of the key factors for the future successful development of cargo-friendly airports, with Frankfurt one of the first airports worldwide to establish such a system. He concludes: “These systems make the entire freight process more predictable and efficient and are advantageous for small airports as well as metro hubs.”