Cargo Development and Strategies for airports

Cargo Development and Strategies for airports

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Cargo has received unprecedented attention recently due to its role in delivering critical shipments, such as for the distribution of the Covid-19 vaccines. In addition, cargo growth proved resilient in comparison with passenger traffic. During the first ten months of 2020, passenger traffic dropped by 63% according to ACI’s Annual World Traffic Report, while cargo decreased (only) by 11%. Air freight’s performance is partly due to high demand for e-commerce goods and a recovering industrial sector, in particular in Asia – a well-known indicator for global air cargo. China’s GDP recorded a positive growth in 2020 (2.3%), contrasting with a global GDP contraction of -3.5%.

Despite the recent attention, the potential of cargo development may not be entirely clear to airports. This is since cargo generally represents a limited share of airport revenues on average. Yet beyond its financial value, air freight has a strategic value to airports as it is key to its customers and stakeholders, namely: the airlines, ground handlers, freight forwarders and shippers. Additionally, air cargo generates significant economic value to the airport’s region/country, enabling local trade and attracting new high-value industries. This role emphasises the importance of airports working together with their local community and trade representatives.

For these reasons, it is important for airports to consider cargo opportunities and understand their potential. Even though airports may not be directly involved in the supply chain, they play a key leadership role in developing cargo and ensuring a competitive regulatory framework.

Enabling Cargo Potential

Economic Analysis is a first step to establish the foundations of successful cargo advocacy. Air cargo’s contribution to employment and economic output is substantial. According to the Air Transport Action Group, air transport carries around 35% of world trade by value and less than 1% by volume., The broader socio-economic multiplier effect from air cargo can be difficult to accurately measure. This is due to a general lack of cargo data and complexity of isolating air cargo from the broader logistics sector. Yet it is important for airports to understand cargo’s economic impact and leverage it to create a dialogue with local policy makers and trade representatives. Such dialogue is critical to create co-ownership of cargo development opportunities.

Over the last decade, trade tariffs and other impediments may have limited cargo’s potential worldwide. Conversely, bilateral and regional trade policies have enabled the seamless flows of goods. Customs-related policies can make a significant impact on timely processing of shipments, in particular in the case of e-commerce shipments. In addition, access to slots, addition of ad-hoc capacity (charters) and availability of night-time operations are some of the critical regulatory hurdles that cargo operators may face. Airports can play an active role in proposing a long-term agenda that supports the value of cargo with local regulators.

Developing Cargo Capabilities

Growing an airport’s cargo traffic largely relies on the ability to provide sufficient and quality air capacity. Indeed, connectivity is one of the most important factors for air cargo operators within the end-to-end supply chain. In developing their cargo business, airports should strive to provide a wide network covering cargo markets of interest and a range of operators and routes. This includes cargo airlines, integrators and belly cargo (preferably with wide-body capacity). Good cargo connectivity also requires multiple routing options – both direct and transit routes, as well as multimodal routes, leveraging the ground distribution network, ocean freight or rail freight depending on the market context.

In addition, quality of air cargo infrastructure largely varies worldwide. Airports that effectively manage their cargo investments have created the right environment for cargo operators to maximise their potential. Availability of ground handling capacity and quality of infrastructure – including for special cargo handling, are important factors for airlines in managing their networks. This does not only apply to airport facilities and premises, but also to the larger logistics area surrounding the airport, including road access. In addition to the physical infrastructure, upgrading the data and digital infrastructure could enable the development of applications that facilitate efficient end-to-end delivery.

Leading the Cargo Community

While most airports are not directly involved in cargo operations, it is important to recognise that it is a prominent factor in reaching their cargo potential. As such, airports can monitor the efficiency of their cargo operations and ensure availability of a quality service for its airlines. This means fast processing, reliable delivery and secure handling. Process standards – e.g. for handling special cargo products, enable local cargo operators to propose a wide range of products to meet airlines and freight forwarders expectations.

The success of a cargo hub relies on a large number of stakeholders operating together – including (but not limited to) shippers, freight forwarders, ground handlers, truckers, customs, airlines, integrators, regulators and airports. Cargo development strategies rely on such a cargo ecosystem because “the chain is only as strong as its weakest link.” Each of the cargo chain actors has a specific role and responsibility, yet they are all partners within the local cargo community; the airport’s leadership is central to the success of the cargo community’s strategy. By facilitating the local cargo ecosystem and enabling collaboration, airports can ensure that the planned developments materialise. In addition, using their innovation capabilities, airports can play an active part in responding to emerging cargo challenges such as digitisation and sustainability – which are greatly rising in importance.

The way forward

Developing a cargo strategy is not an easy task, considering potential obstacles such as the lack of data, inflexible policies or simply, the lack of familiarity with a topic that has suffered from inattention at many airports. Yet a logical step-by-step process applies whereby airports should at a minimum understand their current market situation. Furthermore, once value drivers are identified and aligned with its local community, the airport can outline its vision and develop cargo capabilities.

Developing cargo can take considerable effort from airports, given its complexity and potential investment needed. Yet for those airports that chose to do so, it has proven to be a meaningful source of revenue diversification during the pandemic crisis as well as help generate a long-term positive impact on their local economies. As such, it is important for airports to study their cargo potential and design a conscious cargo strategy which involves the local communities and government through quantitative and qualitative analysis of cargo’s economic impact.

To assist airports in progressing their cargo strategies and diversifying their revenue streams, ACI and NACO will be providing further guidance on development of cargo strategies for airport operators throughout 2021.