Some Latin American economies may have slowed in recent months, but airports in South and North America have continued to build their cargo capabilities to serve its emerging markets, reports Rainbow Nelson
Latin America may be feeling a short-term chill from the financial fallout in Europe and other leading economies, but the continent with the eternally sunny disposition is refusing to let grim economic news dim its boundless optimism. And wit h the World Cup and Olympics heading to Brazil in 2014 and 2016, the spotlight has turned towards the region like never before, and particularly towards its aviation sector.
Despite a slowdown in the last 18 months, surging economic and geopolitical confidence in Latin America’s largest economies has been bolstered by stable fiscal management and a healthy flow of foreign investment that has opened the way to important infrastructure improvements in the last five years. The promise of more investments following the privatisation of Brazil’s three most important airports, sold for R$24.5bn (US$10.6bn) in 2012, is offering a glimmer of hope for air cargo operators throughout the Americas, which have, in many cases, made do with substandard airport cargo infrastructure.
With Latin America still very much the US ‘back yard’, cargo from the region, perishables in particular, have helped prop up volumes in the principal airports in the US in the last 12 months. Indeed, the expectation of free trade agreements, open-sky treaties and greater intra-regional trade – still small when compared to other regions – is one of the few bright spots on the horizon for cargo terminal operators from Los Angeles to New York.
Mike Thorpe, assistant vice president for air service development at Dallas/Fort Worth International Airport (DFW), says perishable cargo volumes at Dallas were up 20% last year, helping to offset the drop in “hard cargo” such as electronic goods, which with diminishing commodity values and rock bottom maritime freight rates are now increasingly likely to be shipped by sea. He comments: “The global economic slowdown is going to affect demand for hard cargo and in particular is going to be a challenge for Asian exports [to destinations including North and South America]. Exports from China, Korea, and Vietnam might have stalled, but now it has reversed for Latin American products, such as perishables, fruit, flowers and fish.” These Latin American products are now increasingly heading to Asia, replacing volumes that had been dominated by electronic goods heading to Latin America.
Thorpe adds: “There has been growth in Brazil and the other producing nations so we have seen a shift from where the volume is comprised, a major shift from electronics to perishables.”
IATA reported that the freight volumes carried by Latin American carriers grew by 3.7% in the first half of 2013 – after declining 1.2% in 2012 – supported by a 4% increase in capacity. Its mid-year update on global air freight trends said trade volumes in Latin America, in particular exports, had shown the strongest growth momentum of all regions over recent months. However, figures for the region’s airports suggest a less-buoyant picture, with broadly flat volumes last year and the first half of 2013, according to ACI’s FreightFlash survey.
Michael Göntgens, head of PR and internal communications at Lufthansa Cargo, says that volumes have been steadily growing from the South Atlantic to the North Atlantic, enabling airports like Miami to continue to build their position as the gateway to South America. “Of course southbound demand is not that strong and has been shrinking slightly,” he adds. Göntgens says the key to success is the ability to offer proper infrastructure together with intermodal connections.
Improvements to the capacity and handling facilities of major airports in key exporting countries, Bogota, Quito and Lima, have all been positive for the air cargo pipeline linking Latin America with airports in the US. Bogota completed the first phase of its US$1.1bn expansion programme in 2013. As part of the expansion, Colombia’s leading airport now boasts 37,000 sq. metres of new cargo storage facilities that have taken the total area available for cargo storage to 60,000 sq. metres. It can now handle 25 freighters simultaneously. Colombia’s airports as a whole moved 1.8m tonnes of international cargo in 2012, a 3.4% rise on the volumes handled in 2011, with Bogota responsible for 632,000 tonnes of this, up 2.5% last year. Almost a third of Colmbia’s air cargo volumes to the US move from Bogota to Miami.
Meanwhile in Quito, the US$687m Mariscal Sucre International Airport opened for business in April 2013 with a runway capable of receiving the world’s largest aircraft and new state-of-the-art perishable facilities designed to handle Ecuador’s 50,000 tonnes of flower exports shipped north every year. Mariscal Sucre’s new 45,000 sq. metre cargo handling facilities have increased capacity to 250,000 tonnes a year with scope to grow further to 440,000 tonnes a year.
Both the Bogota and Quito developments have improved the supply chain for flower shipments and other perishables for the likes of LAN Cargo, Martinair and Tampa Cargo, the three largest shippers of air cargo in both countries.
But the region’s star attraction remains Brazil, where the world’s sixth largest economy is on a race to be ready for two sporting showcases that will test the ‘sleeping giant’s’ ability to lead from the front. Behind schedule on its R$247bn (US$108bn) infrastructure improvement programme, the incumbent administration of Brazilian president Dilma Rousseff has pushed through the privatisation of the country’s largest airports in a rush to be ready for the millions of visitors expected for the World Cup in 2014 and the Olympics in 2016.
Key cargo gateways Guarulhos (GRU) and Viracopos (VCP) were auctioned for R$16bn and R3.8bn respectively, while the concession to handle passenger hub Brasilia will add another R$4.5bn to state coffers. The premiums offered by bidders – in some cases three times higher than the government’s stipulated minimum bid price – surprised many observers, raising fears that the bidders will need to push through large-scale price increases to carriers to make the investments pay.
“The risk of increased airport fees is significant,” says Brazilian lawyer Kenneth Basch, founding partner of Brazilian corporate law firm Basch & Rameh. Similar privatisations in Europe, Latin America and Australia have all resulted in hefty cost increases for users. Basch says some increase is to be expected, in consideration of improved services and inflation, although the National Civil Aviation Agency may need to set caps on certain fees in order to avoid excessive increases.
With the focus on improving passenger facilities, Goengtens says there is unlikely to be any immediate improvement in the cargo bottlenecks in Guarulhos or Viracopos following auctions in February and planned auctions for airports in Rio de Janeiro and Belo Horizonte in September.
“The upcoming events in Brazil have boosted investments in some airports, mostly focused on passenger increase,” he says. “Little is expected to improve in the cargo infrastructure for the World Cup and Olympics. On the other hand, the main airports GRU, VCP and BSB have been sold to the private sector and long-term investments are expected after those events,” he says.
VCP remains the main bottleneck in the region, he adds, as “despite its cargo focus, its customs processes and structure did not grow in line with volumes”. In addition, he says the airport’s flight network is currently too limited to develop the airport into the country’s main cargo hub. VCP saw volumes slip 1.3% in 2012 to 264,000, while GRU saw a 2.2% drop in volumes to 477,000 tonnes.
But DFW’s Thorpe argues that the opening of new passenger services with one eye on the World Cup are set to benefit cargo volumes by expanding the available belly-hold capacity. “Clearly there are infrastructure issues and challenges,” he says. “The one thing that will help is as the US and Brazil opens up their boundaries, there are more opportunities to fly to different airports. We will have more non-stop flights to Belem, Belo Horizonte, Salvador and you can fly over São Paulo to get to these destinations.”
The ability of carriers to move aircraft into “thinner” routes will “lift the load off Guarulhos. Everything doesn’t have to flow through that one airport,” Thorpe adds.
Growing ties between US oil contractors and Brazilian state-owned oil giant, Petrobras, which is investing USD$237bn over the next five years, have created strong growth in shipments of key equipment between Houston and Brazil’s oil heartland of Rio de Janeiro, according to Luis Aviles, senior executive for air service development for Houston Airports International.
“Brazil continues to be Houston’s number one air cargo trade partner in the Americas with approximately 6,400 tonnes handled in 2012,” says Aviles.
“Although imports from Brazil slowed down, exports from Houston to Brazil grew by more than 20% to total 4,269 metric tonnes in 2012. Most of these exports are equipment and machinery for the oil and gas industry, which is growing tremendously in Brazil,” he says.
Houston has invested in a 1,200 sq. metre perishable handling warehouse facility in a bid to attract more inbound cargo and secure a direct freighter service between Houston and Brazil, in an attempt to avoid shipping this oil-related cargo via road to Miami.
“The Houston cargo community has been asking for a direct flight to Brazil and we continue talking to companies in the cargo industry to establish freighter service to Brazil,” says Aviles.
“We are ready to import perishables from Latin America, we have the ideal facilities in place, and Houston’s industries provide huge amounts of freight for different Latin America markets – for example, oil and gas machinery, industrial and medical equipment.”
Houston’s volumes overall increased by 2.3% last year to 407,000 tones, although this increase was largely due to new freighter services from Qatar Cargo and Lufthansa Cargo. In fact, Houston’s air cargo trade with the Americas reduced by 10% in 2012, as the airport felt the impact of the economic slowdown in certain Latin American countries last year. Among the economies to slow last year was Mexico, and although most of the freight between Mexico and Houston is moved by truck, due to their geographical proximity, air cargo between Houston and Mexico dropped by 34% in 2012.
Meanwhile, DFW has steadily strengthened its hand and the airport saw 1.6% air cargo growth last year to 603,000 tonnes, benefiting from growth in Texas and the city’s intermodal links. “Texas is clearly leading the US economy in terms of growth, but it’s the geography that makes us the 6th busiest airport in the US,” says DFW’s Thorpe. “You can reach any part of the US within 48 hours by truck. We don’t offer the economies of scale that Chicago, New York or LA do, but we are getting a lot of interest from freighter services because of this.”
Nevertheless, shifting the focus away from Miami is the biggest struggle for the North American airports courting Latin American export and import cargo. Airports like Dallas, Houston and Los Angeles are all implementing infrastructure improvements aimed at taking a bigger share of the South American perishables traffic. Los Angeles has made its play to cement itself as a hub for flowers and other perishables heading east to Asia. With 200,000 sq. metres of warehousing in the airport grounds and an additional 400,000 sq. metres of warehousing in the immediate vicinity of the airport, it has established itself as a principal hub for the trade in Colombian and Ecuadorean flowers flowing to Asia.
In 2011, Mercury Air Cargo added a new 1,600 sq. metre refrigeration facility and perishable centre at LAX, the largest of its kind on the US west coast. The new terminal has consolidated LAN Cargo’s shipments to Asia and helped the airport ship 1.8 million tonnes of cargo in 2012, up 4.3% on the previous year, thanks to Latin America’s more than US$40 billion of trade with China, Japan, Vietnam, South Korea and other Asian economies.
Raising the bar
Miami’s grip on the Latin American market, however, shows little sign of slipping. With 350,000 sq. metres of cargo warehouse facilities and more scheduled non-stop cargo flights to Latin America and the Caribbean than Orlando, Houston, New Orleans, Atlanta, Tampa, and New York’s Kennedy airports combined, Miami remains the undisputed gateway to Latin America. Last year, 69.7% of US imports of perishable goods moved via Miami and just over 80% of all US imports and exports to and from Latin America were handled in the country’s third largest airport. Of its 1.9 million tonnes of cargo last year, which was up by 4.6%, around 80% was to and from Latin America and the Caribbean. However, the airport’s growth has slowed in 2013 largely due to less than anticipated Latin American-Caribbean gains of merely 1.1%, according to marketing director Chris Mangos.
Meanwhile, further strengthening its position, Centurion Air Cargo opened a new 85,000 sq. metre cargo warehouse, office and storage facility at the airport in March. With 15,000 sq. metres of refrigerated storage space, it is designed to handle a growing flow of flowers, fruits, vegetables and fish imported from Latin America. Built to accommodate eight Boeing 747-400 equivalent wide body freighters, 30,000 sq. metres has also been allocated to hangars and 10,000 sq. metres to office space. The complex, says the company, is “by far the largest privately owned all cargo airline facility in North America”.
Ian Morgan, Centurion Air Cargo president, observes: “It’s a world-class airport facility. It raises the bar in Miami in what can be expected for handling perishables.”