Guidebook for Air Cargo Facility Planning and Development (2015)

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5 2.1 The Role of the Airport in Air Cargo Transport The cargo industry changed significantly over the 25 years of 1988 to 2013. As the world econ- omy has become more global, markets and manufacturing have developed, shifted, and in many instances, relocated to markets with low labor rates. New logistics and supply-chain concepts based on low fuel costs and labor costs developed along with trends in just-in-time production and final manufacturing assembly at destination. As new product shelf life decreased, such as for consumer electronics, during this time period, and as the value of goods shipped has increased, the demand for expeditious transport and control, as well as transparency, has correspondingly increased. Domestic air cargo in the United States also experienced shifts, particularly as fuel costs increased in recent years and integrated express carriers developed deferred delivery busi- ness models, reducing the demand for overnight delivery by aircraft and relying increasingly on truck networks. The air cargo terminal is a critical part in the air cargo supply chain. An inadequately sized air cargo building that is unable to accommodate peak volumes may result in shipment delays, while a cargo warehouse that is not designed with flexibility in mind to meet demand may become obso- lete during its service life. Airports routinely accommodating air cargo operations typically have space dedicated to support this activity (Figure 2-1). The space is commonly made up of aircraft parking apron, air cargo buildings, and truck parking and maneuvering areas. Cargo throughput between the land and air mode is either through the warehouse buildings or a through-the-fence security gate. These air cargo installations on airports function as a platform that allows for the interface between land and air modes, with the goal of providing the expeditious processing of cargo. This platform has a role to play in ensuring that cargo products arrive at their destina- tion on time and intact, that customers have easy access to the cargo facilities for collection and delivery, and that the truck access is relatively uncongested and does not interfere with passenger- related traffic. Cargo storage is an attribute of these facilities, but the duration is to be limited by design. For the cargo carrier, it is most optimal for air cargo to arrive at the precise time for load- ing onto aircraft with no on-airport storage or processing time needed. Since there are typically numerous arrivals on cargo trucks to an air cargo terminal, space for processing, build up, and storage is required. These space requirements vary with carrier type and the size of the airport’s air cargo market. 2.1.1 Air Cargo Demand Air cargo demand is generated when there is a need for expeditious transportation of material and goods between two points. In the business world, logistics managers must justify the use of C H A P T E R 2 Airports and Air Cargo—Overview

6 Guidebook for Air Cargo Facility Planning and Development air cargo as their preferred mode of transport since shipping by air is of greater cost than ship- ping via truck, rail, or water. Factors involved in deciding to transport via air include: • Cost of transporting the material, • Level of service commitment to the customer or end user, • Value of the material, and • Time sensitivity of the material. Products that benefit from increased speed of distribution or better stock availability provided by air cargo shipping include those that are of high value, are relatively lightweight, and where shipping is time critical. These include: • Aerospace—equipment and parts; • Automotive—equipment and parts; • Documents; • Banking materials; • Pharmaceuticals; • Pharmaceuticals—active product ingredients; • Jewelry; • Medical diagnostic equipment; • Medical devices; • Textiles—garments, apparel, shoes, and textile parts; Source: CDM Smith. Figure 2-1. Simple air cargo area diagram.

Airports and Air Cargo—Overview 7 • Consumer electronics; • Computers and computer components; • Telecommunications equipment—cell phones, iPhones; • Perishables—flowers, fruit, vegetables, and seafood; and • Economically perishable materials—printed material. The following four economic factors are the general primary drivers behind air freight growth: • Economic growth. Air freight is a subset of world trade, which is directly related to world economic growth. Trade has grown explosively over the past four decades. From 1970 to 2010, the value of exports has grown by a factor of 48 if measured in current dollars, while gross domestic product (GDP) increased 22 times and population increased 1.8 times. • Globalization. Each day, the world economy becomes more integrated and interdependent. Progressive economic integration and steady reduction in protectionism boost overall trade flows and, in conjunction, air freight traffic. Air freight accounts for 35% of global freight value (some $6.4 trillion) due to small, high-value categories of inventory and just-in-time processes inherent in parts of the supply chain. • Lean-inventory strategies. More companies, large and small, are focusing on order-cycle time reduction and lean-inventory strategies—including just-in-time and make-to-order—as a competitive advantage. Firms use air freight to shorten delivery times to the end customer. • E-Commerce. Increased sales in both the business-to-business (B-to-B) and business-to- consumer (B-to-C) areas via the Internet have made E-commerce a $220-billion industry, growing at almost 20% per year. E-commerce, whether B-to-B or B-to-C, has had a significant impact on the growth of air freight. 2.1.2 Air Cargo Process Air freight is transported in dedicated cargo aircraft and in the cargo space of passenger aircraft (belly cargo). Inbound belly cargo is unloaded and transported to cargo facilities or from one aircraft to another aircraft, while outbound belly cargo is transported from trucks to the cargo terminal and loaded onto the aircraft prior to departure. International cargo arriving as imports may have been pre-cleared electronically or may be subject to additional inspection by regula- tors before being cleared to leave the airport. As with baggage handling, cargo on narrow-body and smaller aircraft is loaded individually, while cargo on wide-body aircraft is containerized. Perhaps one of the most unique attributes of the air cargo industry is the rapid loading and unloading of commodities onto wide-body and narrow-body freighter aircraft via unit load devices (ULDs), including pallets and igloos. Cargo aircraft have large doors and rollers fastened to the deck of the aircraft. These aircraft allow containers and pallets laden with freight and mail to be rolled on and off either manually or through a mechanized system. All large domestic air carriers report annual operating statistics to the U.S. Department of Transportation (U.S. DOT) by filing Form 41, which includes information on revenue passen- ger miles, revenue ton-miles, and fuel consumption. Figure 2-2 shows trends during the 1990s in air freight revenue ton-miles by U.S. carriers (domestic and international service). In 1994, passenger and all-cargo carriers handled approximately equal amounts of air freight. Since that time, air freight on all-cargo aircraft has grown 64%, while air freight on passenger carriers has remained nearly constant. This is in part a reflection of the trend toward improving passenger load factors, changes in the aircraft gauge of passenger airlines, and reductions in domestic wide- body aircraft lanes, which result in less capacity for freight. Looking at just domestic flights, air freight handled by passenger carriers declined 28% between 1994 and 2002 as freight and mail shifted to the integrated express carriers, and the U.S. Postal Service relied less on passenger airlines and more on integrated express carriers to transport mail. While domestic cargo has

8 Guidebook for Air Cargo Facility Planning and Development been increasingly dominated by integrated carriers operating all-cargo aircraft, gateways serving transcontinental routes have recently experienced the opposite trend as more cargo-friendly pas- senger aircraft have taken market share from freighters. 2.2 Existing Conditions Many cargo buildings at airports today were constructed in an era that had many more passenger and air cargo airlines. Today the air cargo industry on the U.S. domestic front has four remaining legacy passenger carriers and two integrated express carriers. The duopoly of FedEx Express and UPS dominate the U.S. domestic market since DHL pulled out of domestic cargo and transports only international cargo. This reduction in carriers is the result of airline mergers as well as the realities of a difficult economic period. Even low-cost passenger carri- ers have merged (Southwest and AirTran, for example), as well as integrated express carriers (such as DHL and Airborne and UPS and Menlo/Emery). The result of this shaking out within the domestic air cargo industry in terms of air cargo facilities is that many air cargo facilities at airports no longer have a wide customer base. This has led to many vacant cargo facilities or space that is not well utilized. For example, the U.S. Postal Service used to have airmail sorting facilities at most medium and large airports but has closed many since 2001 since much of its Express and Priority Mail has switched from passenger airlines to contract agreements with FedEx Express and UPS. On the international air cargo front, the passenger gateway airports continue to experience greater tonnage growth than the domestic airports, and more passenger routes and freighter routes continue to expand into U.S. airports. 2.2.1 Carrier Types There are three primary air cargo transport business models that affect airport facility plan- ning. These are passenger airlines, all-cargo companies, and integrated express carriers (FedEx Express and UPS). A fourth type of carrier, albeit a rarity in the industry, is a carrier that has both passenger and freighter aircraft in its fleet. Descriptions of each type of carrier are presented. 2.2.1.1 Passenger Airlines A passenger airline provides cargo services to the industry by offering for sale the capacity of the belly compartment of its aircraft (see Figure 2-3) that is available after the passenger-related Source: FAA Aerospace Forecasts (multiple years). 5,000 – 10,000 15,000 20,000 25,000 30,000 35,000 1990 1995 2000 2005 2010 2015 Air Cargo Revenue Ton-Miles (In Millions) All Cargo Carriers Passenger Carriers Figure 2-2. Air freight revenue ton-miles by carrier type, 1994–2013.

Airports and Air Cargo—Overview 9 items such as food/beverages, company material, and passenger luggage are loaded. Delta Air Lines and Southwest Airlines are examples of passenger carriers that sell belly space for cargo. Passenger airlines have limitations in the size of cargo they accept since they face capacity restrictions because of the combined services they offer, the size of cargo doors and payload capacity, and airframe limitations. However, these airlines can provide the industry with air cargo transport flexibility in the form of frequent flights to destinations. Moreover, in the case of Southwest, they use the same gauge of aircraft in their system, making flight transfers easier for shippers. Such service capability reduces the chances of the cargo being bumped from a flight. Air cargo services provided by passenger airlines vary in scope and size from airline to airline, based on the gauge of aircraft operating within their fleets. A regional airline, with a fleet of turbo- prop and regional jets, cannot accommodate bulky cargo due to limited cargo capacity in baggage compartments. Many passenger airlines operating transcontinental service do so with wide-body aircraft capable of accommodating containerized cargo and larger shipments, although narrow- body aircraft are increasingly being used on transcontinental routes. Passenger airlines generally provide airport-to-airport service, with freight and mail carried as belly cargo. Freight on pas- senger airlines is dropped off at a warehouse at the origination airport by a freight forwarder (or the shipper); the freight is then picked up at the destination airport by the customer (or freight forwarder) after arriving on the passenger airline. 2.2.1.2 All-Cargo Carriers All-cargo carriers operate airport-to-airport air cargo and freight services for their customers but do not offer passenger service. All-cargo carriers include Polar Air Cargo, Atlas Air, and Kalitta Air Cargo, to name a few. Prior to its merger with Delta Air Lines, Northwest Airlines was one of the world’s largest cargo airlines, operating a dedicated fleet of 14 B747F freighters. It was the only U.S. combination carrier (passenger and cargo service) to operate dedicated 747 freighters. As a result of the Northwest/Delta merger, the dedicated Northwest cargo freighters have been phased out, and Delta Cargo is focused on being a belly-only carrier. Internationally, Korean Air, China Airlines, Singapore Airlines, Lufthansa, and Emirates are also passenger airlines with their own fleet of dedicated freighter aircraft. All-cargo carriers offer scheduled service to major markets throughout the world using wide-body or containerized cargo aircraft. Source: Wikimedia Commons, by Asiir. Figure 2-3. Airbus A300 aircraft cross-section displaying cargo containers on lower deck.

10 Guidebook for Air Cargo Facility Planning and Development Heavy-lift cargo freighters fall into the all-cargo carrier category and are operated by charter cargo airlines such as Volga-Dnepr Airlines and Antonov Airlines, which provide specialized heavy-lift operations with their fleets of Antonov An-124 and An-225 aircraft, respectively. Lim- ited numbers of these aircraft exist since they are some of the largest aircraft in the world; there- fore, operations are typically highly specialized charters and are seldom done on a scheduled basis. These carriers transport goods and equipment for businesses and governments. This type of cargo operation is commonly referred to in the industry as “project cargo.” 2.2.1.3 Integrated Express Carriers (FedEx Express, UPS, and DHL) Integrated express operators move the customer’s goods door-to-door, providing shipment collection, transport via air/truck, and delivery. Dominant integrated express operators in North America include FedEx Express, UPS, and DHL. (DHL’s U.S. domestic pickup and delivery service was discontinued in January 2009.) Express companies provide next-day and deferred, time-definite delivery of documents and small packages (2 to 70 pounds). Integrated express operators are increasingly transporting heavy freight (over 70 pounds). This is the next logical step in leveraging the unique scale of operations, network, and other resources that operators can bring to each business sector. Additionally, with the bankruptcies of heavy cargo carriers such as Kitty Hawk and the merger of Menlo and UPS, the integrators are increasing market share in heavy freight. Inte- grated express operators use a hub-and-spoke transport model, similar to that used by passenger airlines. The air cargo hub used for package sortation and aircraft transfer is the backbone of integrated express operators. This allows for total product connection to each market in the operator’s system. Each day of operation, flights from around North America arrive at the hub, where packages are unloaded, sorted by destination market, and loaded onto outbound aircraft. Integrators often make heavy use of automated sorting at their hub terminals in order to achieve desired turnaround times and delivery commitments. Regional air cargo carriers operate smaller turboprop aircraft between origin-and-destination (O&D)/local market stations and smaller or more remote cargo markets, typically in support of a larger integrated express cargo operator such as FedEx, UPS, or DHL. Wiggins Airways and Mountain Air Cargo are examples of contracted feeder airlines to both UPS and FedEx. Feeder flights often transport cargo from a smaller market and feed cargo to an awaiting cargo jet bound for the carrier’s hub. Feeder aircraft may also fly directly to a hub. 2.2.1.4 Combination Aircraft Carriers Carriers that have both passenger and freighter aircraft in their fleet are considered “combination carriers.” These carriers include Cathay Pacific, Emirates, and Lufthansa. For example, Lufthansa operates freighter versions of the MD-11F and the B777F. Combination aircraft carriers are often confused with a type of aircraft that carries both passengers and cargo on the main deck of the aircraft. Combination (combi) aircraft in commercial aviation are aircraft that can be used to carry either passengers (as an airliner) or cargo (as a freighter) and may have a bulkhead partition in the cabin to allow both uses at once. These combi aircraft typically feature an oversized cargo door as well as tracks on the cabin floor to allow the seats to be added or removed quickly. These aircraft were marketed early on by Boeing as “convertible” or “QC” (quick change), since they facilitated a rapid conversion between roles. Alaska Airlines operates B737-400 combi aircraft primarily to service airports in Alaska. At the international level, Asiana and KLM continue to operate B747-400 combi aircraft, which allow ULD containers and pallets to be loaded onto the rear portion of the main deck through a large cargo door while passengers travel in the forward portion of the main deck.

Airports and Air Cargo—Overview 11 2.3 Airport Types While the public generally understands the difference between commercial service airports and general aviation airports, the FAA provides a detailed classification of airports based on their levels of activity. These classifications are useful to airport planners in assessing the size and scale of aviation activity at these facilities. The guidelines presented in this report go a step further and provide descriptive groups of airports based on the type of air cargo activity that takes place on a regular basis. These groupings are not terms recognized by the FAA but are commonly used within the air cargo industry to describe the function of cargo carrier activity at an airport. 2.3.1 FAA Airport Classifications The FAA places airports into five categories of airport activities: 1. Commercial service airports are publicly owned airports that have at least 2,500 passenger boardings each calendar year and receive scheduled passenger service. Passenger boardings refer to revenue passenger boardings on an aircraft in service in air commerce, whether or not in scheduled service. The definition also includes passengers who continue on an aircraft in international flight that stops at an airport in any of the 50 states for a non-traffic purpose, such as refueling or aircraft maintenance, rather than passenger activity. Passenger boardings at airports that receive scheduled passenger service are also referred to as “enplanements.” 2. Non-primary commercial service airports are commercial service airports that have at least 2,500 and no more than 10,000 passenger boardings each year. 3. Primary airports are commercial service airports that have more than 10,000 passenger boardings each year. 4. Cargo service airports are airports that, in addition to any other air transportation services that may be available, are served by aircraft providing air transportation of only cargo with a total annual landed weight of more than 100 million pounds. “Landed weight” means the weight of aircraft transporting only cargo in intrastate, interstate, and foreign air transporta- tion. An airport may be both a commercial service and a cargo service airport. 5. Reliever airports are airports designated by the FAA to relieve congestion at commercial ser- vice airports and to provide improved general aviation access to the overall community. These may be publicly or privately owned. This classification is a FAA National Plan of Integrated Airport Systems (NPIAS) classification (Federal Aviation Administration 2014). The remaining airports, while not specifically defined in Title 49 United States Code (USC), are commonly described as general aviation airports. This airport type is the largest single group of airports in the U.S. system. This category also includes privately owned, public-use airports that enplane 2,500 or more passengers annually and receive scheduled airline service. 2.3.2 Airport Roles In order to gain a better understanding of what drives air cargo operations to one particular airport versus another, it is important to differentiate the roles and uses of air cargo facilities, the operations they conduct, and the markets they serve. The function of an air cargo facility can be divided into the following six distinct roles, which are not mutually exclusive: • International gateways, • National cargo hubs, • Regional hubs, • O&D/local market stations,

12 Guidebook for Air Cargo Facility Planning and Development • Cargo airports, • Intercontinental hubs, and • Alternate gateways. It is important to point out that these roles describe how an airport functions in the air cargo industry and are not used by the FAA as airport classifications. 2.3.2.1 International Gateways The gateway functions as a consolidation, distribution, and processing point for inter national air cargo. To a certain extent, an international air cargo gateway is similar to a hub airport in that the gateway airport is not reliant on the surrounding market area to generate sufficient cargo to justify air cargo–related operations. As with the air cargo hub, much of the cargo moving through a gateway airport does not originate and is not destined for the gateway airport’s surrounding market area. Airports in the United States that are considered international gate- way airports include those serving Miami, New York (JFK), Los Angeles, and Chicago. Evolv- ing gateway airports include those serving Atlanta, Dallas, and Houston. The Detroit airport functions as a gateway to a lesser degree since it accommodates Delta international flights to Asia and Europe. 2.3.2.2 National Cargo Hubs The hub is the backbone of an integrated express carrier since it provides connections to each market in the integrator’s system. Each day of operation, flights from around the world arrive at the hub. Once at the hub, packages are unloaded, sorted for the appropriate destination market, and loaded onto the appropriate outbound aircraft. The majority of enplaned air cargo traffic at a hub/sort facility is generated from the aircraft-to-sort-to-aircraft process. The cargo traf- fic originating or destined for the local market is often a small percentage of the airport’s total enplaned cargo traffic. In effect, the hub imports and exports demand for air cargo facilities and operations at the host airport. Major hub airports in the United States include those serving Memphis, where FedEx Express operates its “super” hub; Louisville, where UPS has its global hub; and Cincinnati, where DHL operates its U.S. hub. The market area of an airport’s cargo hub is typically located within a 3-hour driving radius of the airport. Typically there are no cargo flights from the hub to airports within this radius since trucking is a less expensive alternative. 2.3.2.3 Regional Hubs Regional hubs serve the region in which they are located by performing the cargo sorting and distribution functions of that specific carrier’s primary hub. UPS has regional hubs in the following locations: Dallas, Texas; Rockford, Illinois; Columbia, South Carolina; and Ontario, California. Cargo within those markets is able to bypass UPS’ main hub in Louisville. UPS oper- ates deferred parcel hubs in Des Moines, Iowa, and Spokane, Washington. Similarly, FedEx Express has regional hubs in Oakland, California; Fort Worth (Alliance), Texas; Greensboro, North Carolina; and Indianapolis, Indiana, enabling cargo within those markets to bypass FedEx’s main hub in Memphis. 2.3.2.4 O&D/Local Market Stations The criteria for a local market station, or direct air cargo service (O&D service to an airport’s surrounding market area), generally coincide with population centers where there is a concen- tration of industry, commerce, and transportation infrastructure. Often referred to as a “node” within a cargo carrier’s network, the local market station is the simplest and most common type of air cargo facility. These airports represent the spoke in a hub-and-spoke air carrier network. For airport-to-airport service providers, the local market station represents the origin or desti- nation point for the cargo they are transporting.

Airports and Air Cargo—Overview 13 The sole function of a direct air cargo service facility is to collect outbound air cargo from customers and distribute customers’ inbound air cargo to the airport’s surrounding market area. In order to make direct air cargo service economically feasible, the airport’s surrounding market area (or catchment area) must generate enough inbound and outbound cargo and revenue to offset the carrier’s aircraft operational costs. If the carrier cannot meet the aircraft operational costs, the cargo is trucked to the hub or another local market station where it is loaded onto an aircraft. 2.3.2.5 Cargo Airports Cargo airports are dedicated to the movement of air cargo and offer the advantage of uncon- gested airspace relative to airports with passenger airline service. Just as the lack of passenger service is an advantage to cargo carriers operating at these airports, it is also a disadvantage for forwarders and other customers since belly space for cargo parcels is unavailable. As a result, few examples of strictly cargo airports exist. Prior to closure in 2009, Airborne Airpark, located in Wilmington, Ohio, was the only true cargo airport as it was owned and operated by DHL (and formerly Airborne Express) solely as its primary integrated express hub. 2.3.2.6 Intercontinental Hubs An intercontinental hub connects two or three continents by air cargo and passenger aircraft and can be located in a relatively remote part of the world, away from dense populations. These airports offer cargo hub capability as well as aircraft service centers for aircraft needing to refuel and change crews. Ted Stevens–Anchorage International Airport falls into this category. 2.3.2.7 Alternate Gateways There are several airports in the United States that have earned the reputation of operating as alternate gateways or cargo airports for the air cargo industry. These airports either marketed themselves heavily to the air cargo industry during the industry’s formative years (during the late 1980s and early 1990s), or they have locations in proximity to major distribution or production centers of time-sensitive commodities. These airports and their anchor industries are shown in Table 2-1. Airports pursuing development of freighter routes often argue that operations at their airports offer a less congested environment for cargo aircraft. While there are savings to operating in less busy airports, air carriers prefer dealing with congestion, as well as frequently higher airport costs and land rents, in order to locate where steady demand exists and profits can be attained. Connectivity—sheer volume and diversity of frequencies, destinations, and carriers—is impor- tant to garnering consolidations that also attract competition in supporting vendors such as for ground handlers and trucking. It is also important to point out that non-American air cargo car- riers do not have comparable U.S. domestic networks, so they interline with U.S. passenger and cargo carriers and rely on allied service providers—extensively trucking—for interior transport. Therefore, the flow of international carriers from one gateway to another is unsurprising. This service superiority attracts shippers and forwarders, whose demand then supports even more service at the gateway. Airport City Anchor Industry Rickenbacker International Airport Columbus, OH Apparel Huntsville International Airport Huntsville, AL Automotive, defense, aerospace Indianapolis International Airport Indianapolis, IN Pharmaceuticals Source: CDM Smith. Table 2-1. Examples of alternate air cargo gateways.

14 Guidebook for Air Cargo Facility Planning and Development Air forwarders rely on a mix of belly and freighter capacity. Consolidations lead to gravitation to gateways where air options are greatest. Network offices merely feed those consolidations, mostly with trucks. Simply having a variety of forwarders in an area does not guarantee alterna- tive gateways the critical mass required to support international operations. Local forwarder station managers have little autonomy in routings when the company must satisfy volume- dependent block-space guarantee agreements with passenger and freighter carriers at major gateways. As such, developing an airport as an alternative gateway is often an uphill battle since well-established gateway airports have considerable inertia—in the form of lift and supporting services—in their favor.