The ‘Sun Belt’ strategy

posted on 8th February 2019
The ‘Sun Belt’ strategy

Dallas Fort Worth International Airport (DFW) has embarked on an ambitious plan to become the number one North American gateway between Asia and Latin America, in passenger and in cargo – and the airport’s first ever cargo strategy, launched less than three years ago, appears to be delivering results.

“The airport had never previously had a cargo strategy and I think that is unfortunately typical for a lot of US airports,” acknowledges John Ackerman, executive vice president for global strategy and development. “We thought we had a big opportunity to change that, so we put a strategy in place in 2016 and in the first two years, we were able to grow our cargo volumes approximately 20%. That proved to us that, not surprisingly, if you actually have a plan and you act according to the plan, you can make improvements.”

Like the market overall, growth of around 8% in 2017 slowed somewhat in 2018 to approximately 3%, taking the airport’s annual cargo volumes to around 900,000 tonnes – including a rise in shipments of dense cargo related to the automotive and aerospace sectors as well as the oil and gas industry.

“It’s difficult to know what would’ve happened without a strategy, but what we found is we really weren’t well known,” Ackerman notes. “Miami, New York, Chicago, LA, over the years have got most of the business; and that makes sense − that’s where the population centres have historically been in the United States. But we looked at the centre of the country and there was this wide open space. And that is the fastest-growing part of our country – the ‘Sun Belt’ region.

Chance of success
“There’s a net migration out of the Rust Belt – in the northern United States – into the Sun Belt, the southern United States,” he explains. “So, for population and for GDP, we’re growing quite a bit faster than the rest of the country. So when we looked at the macro picture, we felt like we could be successful.”

He says those other major gateways have been doing business with forwarders and shippers for dozens of years, and it takes time to break through and get noticed. “So, some of it has been turning up at conferences, talking to people and telling people about our capabilities. We find that once they learn about DFW, it becomes an attractive gateway for them: we have no such thing as slots; we don’t have a curfew; we have seven runways; we have near unlimited capacity, both on the airside and on the landside. We have about 4,000 acres of land that’s available for development.

“So, we have got more capacity than any of those other airports and we’re in the fastest-growing part of the country; when we put that all together, that gives us at least the opportunity to succeed,”
he notes

“Like everybody else, we then looked at what markets are going to grow faster and where the best opportunities are, identifying perishables, pharmaceuticals and e-commerce, not surprisingly. And then we took a hard look at ourselves and identified gaps. For instance, we had no true state-of-the-art perishable handling facility, so we put a plan in place and we opened that a little over a year ago.”

Operated by Dnata, that opened in September 2017: a 3,500 sqm multi-temperature, perishables facility with dual pharma chambers. “That facility at times is already full,” he notes. “So, Dnata is already looking for other adjacent spaces to expand into because the business is going so well for them. So, that showed a lot of pent-up demand.”

Alongside the dedicated pharma chambers, it also handles the “classic” air freight perishable food products such as mangoes out of Mexico, asparagus, and other fruit and vegetables, alongside meats.

“When we started the planning process, in the middle of 2016, we had planned it with one pharma chamber, and before we even finished the design, we felt that there was enough demand that we actually changed it: added a second pharma chamber because of the demand we saw before the facility was even opened. So we are seeing quite a bit of success there, and our partner Dnata is very happy with the performance of that.”

CEIV Pharma status
Along with having the right physical characteristics − handling facilities and buildings − you also have to have the right people, the right mix of companies, and the right training, he notes. “So, we also are pursuing the IATA CEIV Pharma community status.”

The participating companies in that CEIV Pharma programme had their first training sessions in October and now have to make modifications to their facilities ahead of their final audit and inspection. “We expect to be only the second CEIV community in the United States by the spring, some time in the first quarter,” Ackerman says. Miami airport was the first in the US to gain CEIV Pharma community status.

“So now we can tell pharma shippers and manufacturers that we not only have the facility but we have companies that have the highest training and highest certifications that will be able to handle those pharmaceutical products and take proper care of them to make sure that they get to their destination in the condition that they are supposed to be in,” he notes. “These are phenomenally expensive, very sensitive products, so this certification will give the shippers the confidence to use our airport.”

That certification as a community means having a certain number of airlines and handlers trained and certified. DFW currently has all of the major international handlers at the airport, serving 14 freighter airlines and the integrators, as well the airport’s belly cargo operators.

Serious intent
“We wanted to send a message to the world,” he adds. “A lot of people talk about their ambitions in cargo; we are actually deploying our own capital in this business, so we funded part of that training. We went to these companies and we said ‘we’re serious about cargo; we’re serious about pharmaceuticals; and we’d like you to get this training’.” To some extent, pharma cargo had already been transiting through DFW prior to the new facility and the CEIV training. “But we’ve seen that business building, and we are seeing trade lanes starting to develop,” Ackerman adds.

He has visited Hyderabad several times in the past year “because there is a tremendous demand”, with DFW working with Hyderabad airport. “And we’ve met with many of the Indian pharma manufacturers and shippers and they are all very keen to have flights from Hyderabad to DFW because they don’t see any way to easily access this central part of the United States; so they’re very keen to have these flights.

“And we’ve been working with a couple of cargo airlines and saying, ‘we have manufacturers, we have shippers who want this service’. So, we’re trying to get these people together and build this trade link. But it takes time.”

A lot of what is produced in and around Hyderabad is currently trucked and flown out of Mumbai. “Hyderabad airport would prefer that it be flown out of Hyderabad; the manufacturers would prefer that, and we think we could provide a logical point on the US side of that as well.”

That traffic is going out of Mumbai at the moment because that’s where the capacity is, whereas to justify a new freighter link, there has to be enough business. “They have to truck that all the way to Mumbai, which I understand, with the traffic and the roads there, is about a day, all told,” he notes. “So if you can just cut that out, they can move things quicker.”

Pharma DCs
Eventually, the idea would then be to attract some distribution centres specialised in that kind of traffic to the DFW area.

“We are talking with the local economic development agencies that surround the airport about the potential to build a pharma cluster; but everybody wants that,” Ackerman says. “In the US, a lot of the pharma companies have been historically centred around the New York, New Jersey, Pennsylvania region, and they have manufacturing and distribution there. But as the US population shifts, that’s shifting as well.”

E-commerce business
While everyone in air freight has been talking about the growth of e-commerce business, Ackerman sees an opportunity to shift some of this away from the congested coastal airports.

“When the US changed the ‘de minimis’ threshold up to US$800, it made so many more express parcels eligible for that. US Customs and Border Patrol is having a very difficult time handling those volumes and a lot of it is going in to the same traditional gateways − LA, Chicago, New York, Miami − and they (the shippers) need an outlet in the centre of the country. So, we think we can serve as that point and bring a lot of that into our region of the US. “If you think about LAX and Kennedy, there’s no available land on the airport and even around the airport; they are very congested. Chicago has some room to expand, Miami has some room, but again those are already congested airports; so we feel that there is an opportunity for us to provide an alternative that can add speed. It’s all about speed and time, so if you’ve got a congested airport, it’s difficult to move goods on and off the airport. We think we can offer an attractive alternative to that.”

DFW is already one of the airports that Amazon’s Prime Air flies to, greatly inflating the airport’s domestic cargo numbers at certain times of the year, although the volume “tends to flex up and down quite a bit; they tend to peak up for the holidays and back down”, Ackerman notes, using Prime Air in a tactical way to add flexibility in the company’s air network capacity.

Amazon also has a big DC nearby, about 1.6 million sq ft (150,000 sqm) just at the edge of the airport, which opened in early 2015. By the end of 2019, that is set to more than triple in size to almost 5,000,000 sq ft (450,000 sqm). While Amazon is obviously a key customer,

there is also a much broader e-commerce community to serve. “E-commerce coming from China is massive, so we think there are opportunities to bring Chinese e-commerce directly to DFW, rather than one of those coastal gateways,” Ackerman notes. “I think that will ultimately be a bigger market then what we’re looking at right now. And we’ve had some interest from Chinese airlines to go directly to DFW rather than having to serve the US market over those coastal gateways.”

Major population centre
Essentially, Dallas is a metropolitan airport that doesn’t have the congestion challenges others face, with its 17,000 acre site. “Our metropolitan area is about 7.5 million people; it’s smaller than New York and Los Angeles, obviously, but still a very big and fast-growing area,” Ackerman notes. “We have really paid attention to the road network; as an airport, we obviously look after all of our infrastructure in the airport, but we have a team that works with the regional authorities that surround us to make sure that the flow of goods getting on and off the airport is unimpeded as well.

“Converging near the airport are four major US interstate highways, and then five regional highways. So we’ve got this really omni-directional distribution opportunity − south to Mexico and to the centre of the US; we’ve got this amazing area around us with a great road feeder system. Sometimes the easiest thing is getting the cargo to the airport, on the airplane; trucking things to the airport or off the airport can be challenging. So, it’s a competitive advantage.”

Freight forwarders
As a major metropolitan airport, DFW has all the major freight forwarders present. And as the coastal airports get more and more congested, Ackerman strongly believes future volume

growth has to go somewhere else, “and we think that a lot of that growth can come to DFW if we do a good job of providing the right facilities and the right kind of cargo community and environment”.

He says the airport is “working on a facility plan right now”, adding: “We have a lot of cargo buildings, handling buildings. Some of them are quite old; a lot of them have been leased to third parties. And so we’re working on a multi redevelopment plan for our cargo areas, and there are some things we hope to announce in the first quarter of 2019 that we think are game changers; that we think really do offer something different at DFW than other places have been able to offer.” But he can’t talk publicly in detail about the plans just yet.

Chicken or the egg
But as far as what comes first in the ‘chicken or the egg’ game for airports of building demand and capacity, “the first thing is awareness”, Ackerman says. This applies to the big prize available of attracting some of the perishables business that currently flies via Miami direct to DFW – saving shippers one or two days of trucking time to the Dallas-Fort Worth area.

“So we think that the first customer we get will be the tipping point,” he says. “The other thing is we have freighters coming out of Mexico City, but for actual proper South America we do not have any freighters coming up to DFW. They all go to Miami. So we are working hard on convincing some of the airlines and the market that things can be flown directly to DFW.

Belly capacity
“We’re very fortunate American Airlines has a massive network in Latin America so we have quite a bit of goods already flowing via their belly capacity; but obviously a freighter changes the game.”

He says many US airports have had a business plan that states all they have to do is take 20% of Miami’s business and they will be successful, and there is an equally long list of airports that have failed to do that. “We are not trying to go after Miami’s business. But we think that some of its incremental business can flow over DFW as demand grows, and it’s going to be better for the shippers and better for the end-users. “We’re not out claiming we’re the best gateway for every trade lane.”

Data-driven business case
Ackerman says airlines, forwarders and shippers and other stakeholders across the supply chain are looking for more data-driven logic for their decisions. “So, we hired a consultant to analyse about 550 trade lanes − and I’m defining a trade lane as something like ‘fish from Chile to China’ as one trade lane: a product and an origin-destination pair.” The data-driven comparisons of airports cover things like catchment area identification, industry demographics within the catchment area, and industry routings comparing DFW with other airports. And another interesting comparison is analysis of shippers’ ‘total landed costs’, “so we can answer the question: ‘Where does DFW have a total landed costs advantage versus other airports’?” he says.

Total landed cost
“For someone shipping flowers from Bogota to Amsterdam, this model will show you that Miami is the best ‘total landed costs’ option by far. But if we look at shipping salmon from Chile to China, then we have a ‘total landed cost’ advantage,” explains Ackerman. “So this allows us to direct our resources where it makes sense.”

And so despite Miami’s general dominance of the Latin America perishables air freight market, he says: “We do feel DFW has a niche for those transit perishables from Latin America to Asia, where we have this ‘total landed cost’ advantage.”
Besides completeing the CEIV Pharma process, other plans for this year include creating a cloud-based platform within DFW’s cargo community where everybody can share key elements of information relevant to their role in the logistics chain. “Sharing this information in real time and enhancing transparency for key stakeholders in the supply chain are critical for time- and temperature-sensitive commodities, particularly pharmaceutical products,” Ackerman notes.

Net importer from China
Like most US airports, DFW is a net importer when it comes to trade with China, the airport’s largest trade partner. “One of our initiatives is to support our Asian freighter operators by developing new markets to fill their back-haul capacity on their westbound segments with pharmaceuticals and perishables from Latin America and our catchment area in the central United States,” Ackerman notes.

And e-commerce is set to continue being a major driver for cargo growth, “and we are working closely with our real estate colleagues to ensure we have the right facilities to capitalise on this growth trend”.

So, things do seem to look very promising for DFW, at least in theory. “Our global footprint is growing; we have 244 destinations worldwide and we have the largest domestic network in the US, with service to 182 cities,” Ackerman underlines. “The Dallas Fort Worth region is the fourth-largest in the US with a population of 7.4 million”, and growing rapidly – in population and GDP terms. And it is also one of the few large airports in the US with available space for development. “Currently we have two greenfield sites airside, both of which are more than 120 acres each, and one brownfield site in our cargo area, which can accommodate up to 15 additional aircraft parking positions,” Ackerman says.

So he believes it is just a matter of time until the airport makes further breakthroughs that help it build even more critical mass – and “travelling the world to talk with potential customers and partners about the advantages of DFW for the cargo and logistics community”.