The Cargo Industry and its Relationship with Airport Planning
Eric HaoDecember 10, 2013
Airport Systems Planning
Outline
2
1. History of Aviation and Air Cargo2. Overview of the Air Cargo and Delivery Services Industry
» Growth and Importance of Air Cargo» Characteristics of Air Freight within the Value and Supply Chain» Differences in Product Delivery: Passengers vs. Cargo
3. Cargo Airports in the United States» Role of Airports and Airlines in Cargo-Based Business Model» Modern Domestic Market: Consolidation towards Hub Airports
4. Memphis International Airport: A Case Study» Overview, History, and Technical Features» A Night of Operations for FedEx Express» Challenges in Forecasting
5. Overall Summary: Implications for Airports
History of Air Cargo in the U.S. Industry
3
1910:First demonstration of air
freight—silk is shipped from Dayton to Columbus, OH
1910 – 1973:Freight was only carried by
airlines as a secondary source of revenue on their
passenger networks.
1910 1950 1970 1990 2010
1968:Frederick Smith, Yale
undergrad, challenges economic inefficiencies of passenger routes for dual
use in term paper.
1973:Federal Express, first all-cargo airline and delivery
service, is formed.
1940s – 2000Exponential growth of air freight surged in U.S. until
2001.
2013:Capacity cuts as U.S. industry
matures with two major players. Rapid growth from
emerging Asian markets.
1988:UPS Airlines is formed.
Exponential Growth of Air Cargo in the U.S.
4
• Air cargo is a key indicator of economic vitality and trade.• Since the 1960s (and before), air freight has grown
exponentially within the United States until early 2000s.» Why? 9/11. Recession. Fuel. Also…
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100
2000
4000
6000
8000
10000
12000
14000
16000
18000
Annual Domestic Ton-Miles of Freight Carried in the United States1
Mill
ion
s of
Ton
Mile
s
Growing Emphasis on International Markets
5
• As U.S. markets mature and saturate, more opportunity in emerging international markets.» In 1991, half of freight transported was within U.S. In 2010, only about
one third.
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
Annual Ton-Miles of Freight by U.S. Carriers2
Domestic International
Mill
ion
s of
Ton
-Mile
s
Characteristics of Freight Transported by Air
6
• In terms of weight and volume, freight carried by air represent less than 1% of the share by mode.» However, in terms of value, air freight accounts for about 40%!3
Air0.28%
Truck31%
Railroad37%
Water11%
Pipeline21%
Proportion of U.S. Domestic Freight in Ton-Miles by Mode4
Characteristics of Freight Transported by Air
7
• In terms of weight and volume, freight carried by air represent less than 1% of the share by mode.» However, in terms of value, air freight accounts for about 40%!3
• What makes air transportation special?
• Time! Key value added by air transport.» Just-in-time delivery – reduce levels of inventory required.» Faster delivery – increases customer willingness to pay.» Economies of network size – more potential markets for retailers.» Efficiency – Links suppliers, manufacturers, retailers, end consumers.
• Most common items shipped are electronics and clothing.
Different Products: Passenger vs. Cargo
8
Passenger Cargo
• Focus on load factor for marketing and market share – frequency wins.
• Price-sensitive, volatile demand.
• Objective: minimize costs of delivering base product.
•Demand forecasting• Inventory
control•Network-focus•Hub-and-spokes
• Load factors are around 60%.
• Medium to long-term allotment service.
• Objective: focus on building relationships for long-term profitability and sustainability.
Photo courtesy: Tamas Kolos-Lakatos
Cargo Service Airports in the United States
9
• Different products sold by different companies means different requirements for airports! More in depth later:» Streamlined integration with modal links (local trucking).» Land area for sorting facilities and aircraft loading.» Runway capacity for peak operations, because cargo airlines operate
on a single, nightly connecting bank.
• FAA defines a cargo service airport as an airport having a total annual landed weight of more than 100M pounds.» In 2012, 111 airports qualified and fit this definition.» Qualifies airports to obtain cargo entitlements as part of the Airport
Improvement Project.
Hub Airport is the Central Link in Supply Chain
10
Retailers Consumer
Airport
Trucking
TruckingProcessing
Airport
Logistics
Hub Airport
Photos courtesy: Tamas Kolos-Lakatos
Large Movement Towards Hub Consolidation
11
Airport 2000 2011 ChangeMEM 2,489,078 3,916,410 +57%
LAX 2,038,784 1,696,115 -17%
JFK 1,817,727 1,344,537 -26%
ANC 1,804,221 2,543,155 +41%
MIA 1,642,744 1,841,929 +12%
SDF 1,519,528 2,188,422 +44%
ORD 1,468,553 1,311,622 -11%
IND 1,165,431 971,664 -17%
EWR 1,082,406 813,528 -25%
Top U.S. Cargo Airports in 2000 and 2011 (Metric Tons)5
Why the Growth in Hubs?
12
Gateway to International Markets!
13
Memphis International Airport: Implications for a Major U.S. Hub Airport
14
History of Memphis International Airport
15
1927:Opening of Memphis
Municipal Airport
1920 1970 1980 1990 2010
1973:Federal Express begins
operations at Memphis, its world headquarters.
2008 – Current:Delta—Northwest merger
causes capacity cuts at Memphis to remove
redundancies. As of 2013, passenger enplanements have dropped by 45%.71985:
Designation of a hub for Republic Airlines.
2000
1986:Merger with Northwest
Airlines bolstered traffic to Memphis.
2007:Passenger traffic peaks as Northwest accounts for
about 81% of total enplanements.6
Geographic Location of MEM
16
Layout of Memphis International Airport
17
Passenger Facilities
R1
R2 R3
R4
FedEx Facilities
1 KM
Relationship with FedEx Express
18
• Flexibility required in establishing a major cargo base.» FedEx facilities occupy (lease) 18% of the total land area at MEM.» Centralized sorting operations, corporate offices.» Fourth largest fleet in the world in terms of fleet size.
• Mutually beneficial relationship between company and airport established foundations for the hub:» Over 10,000 people employed in the Memphis area by FedEx Express.
• Reasons for selecting MEM as the headquarters:» Good weather, which is crucial for cargo operations.» Central Time Zone – one extra hour with the proximity of east coast.» Geographic location – centered between west, south, and east coast.» Lure of $6M loan by the airport in 1972.» Founder’s hometown.
Operations Montage
19
• In the evening, the first inbound flights arrive at MEM. » In total, 150 aircraft land and depart, peaking at one operation every
30 seconds.
Photo courtesy: Tamas Kolos-Lakatos Operations Information from FedEx8
Operations Montage
20
• 7,500 associates unload packages off the aircraft and transport them to the Primary Matrix, FedEx’s main sorting facility.
Operations Montage
21
• Around 2.2 million packages get dumped nightly onto the top rack of the Primary Matrix’s 80 conveyor belts.
• 17M shipments on X-MAS.• 42 miles of conveyor belts.• 500K packages/hour.
Operations Montage
22
• The package is scanned by a light curtain, which retrieves information about its origin, destination, weight, and shipper.
Operations Montage
23
• After scanning, the package is collected via robotic controls and sorted at least three times before it clears security and is organized into an outbound container.
Operations Montage
24
• The outbound containers are loaded onto the aircraft, which all leave Memphis by 6:00 AM.
Operations and Implications for Airports
25
• Capacity» Single connecting bank concentrates demand on peak periods.» Recent emphasis on hub-to-hub international flying.» FedEx business model (space reserved for long-term partners) means
large portion of flights fly half empty!
• Weather» Because of the nature of the delivery industry (time is key!), delays are
crippling.» Airline requires privileged access and space to airport terminal and
runways.
• Noise» Nighttime flying.» 8,750 housing units and seven schools affected.» Noise abatement strategies (preferential VFR corridors, FAA Stage 3)
Challenges in Forecasting and Planning
26 Source: MEM Master Plan9
Challenges in Forecasting and Planning
27
2006 2007 2012 2017 20273,500,000
4,000,000
4,500,000
5,000,000
5,500,000
6,000,000
6,500,000
7,000,000
Forecasts for Total Air Cargo Tonnage
Actual Baseline Low Growth High Growth Real
Metr
ic T
ons
of
Carg
o
Historical Forecast
Source: MEM Master Plan9
Overall Summary
28
• Recent Trends» Maturity of the U.S. cargo market and the rise of globalization.» Result for Airports: Emphasis on serving emerging markets results in
need for more hub-to-hub flying.
• Fundamentally Different Business Model» Smaller customer base results in relationship-based industry, longer
term cargo contracts, and higher quality of service.» Time-based product value perishes with delays.» Result for Airports: Higher degree of collaboration and flexibility
required for cargo-based airlines.
• No Airlines, No Airport» Delta-Northwest merger resulted in dramatic loss of service to
Memphis, destroying expectations for forecast increase.» Result for Airports: Future of Memphis International Airport requires
major reconsideration of expansion feasibility.
Bibliography
29
1. RITA – BTS. Air Cargo Summary Data. U.S. Department of Transportation. 2013. Report. Available: http://www.transtats.bts.gov/freight.asp
2. RITA – BTS. Table 1-49: U.S. Ton-Miles of Freight (Millions). U.S. Department of Transportation. 2013. Report. Available: http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_49.html
3. Chopra and Meindl. Supply Chain Management (5th Edition). Prentice Hall, 2012. Print.4. RITA – BTS. Table 1-50: U.S. Ton-Miles of Freight (BTS Special Tabulation) (Millions). U.S. Department of
Transportation. 2013. Report. Available: http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_50.html
5. Airports Council International. Airport Traffic Reports. Airports Council International – North America. Web. Retrieved: November 26, 2013. Available: http://www.aci-na.org/content/airport-traffic- reports.
6. Jacobs Consultancy. Airport Inventory Master Plan Update: Memphis International Airport. Rep. No. MEM548- 1. Memphis, TN: Memphis-Shelby County Airport Authority, 2010. Print. Available:http://www.mscaa.com/themes/memairport/images/MPAIRINV.pdf.
7. RITA – BTS. Table 1-44: Passengers Boarded at the Top 50 U.S. Airports. U.S. Department of Transportation. 2013. Report. Available: http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_44.html.
8. FedEx YouTube Channel. Inside the FedEx Memphis “Super Hub”. Web. Retrieved: November 27, 2013. http://www.youtube.com/watch?v=iYzQ7JSBIGU.
9. Jacobs Consultancy. Aviation Demand Forecasts: Master Plan Update for Memphis International Airport. Rep. No. MEM548-2. Memphis, TN: Memphis-Shelby County Airport Authority, 2010. Print.
http://www.mscaa.com/themes/memairport/images/MPADF.pdf.