The Cargo Industry and
its Relationship with Airport Planning
Eric Hao
December 10, 2013
Airport Systems Planning
Outline
1. History of Aviation and Air Cargo
2. 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
2
History of Air Cargo in the U.S. Industry
1910 – 1973:
Freight was only carried by
airlines as a secondary
source of revenue on their
passenger networks.
1940s – 2000
Exponential growth of air
freight surged in U.S. until
2001.
1950
1910
1970
1968:
Frederick Smith, Yale
undergrad, challenges
economic inefficiencies of
passenger routes for dual
use in term paper.
1910:
First demonstration of air
freight—silk is shipped from
Dayton to Columbus, OH
1990
2010
1988:
UPS Airlines is formed.
1973:
Federal Express, first allcargo airline and delivery
service, is formed.
3
2013:
Capacity cuts as U.S. industry
matures with two major
players. Rapid growth from
emerging Asian markets.
Exponential Growth of Air Cargo in the U.S.
• 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…
Annual Domestic Ton-Miles of Freight Carried in the United States1
18000
16000
Millions of Ton Miles
14000
12000
10000
8000
6000
4000
2000
0
1960
1965
1970
1975
1980
1985
4
1990
1995
2000
2005
2010
Growing Emphasis on International Markets
• 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. Annual Ton-Miles of Freight by U.S. Carriers2
40,000
Millions of Ton-Miles
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1991
1993
1995
1997
1999
Domestic
2001
International
5
2003
2005
2007
2009
Characteristics of Freight Transported by Air
• 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
Proportion of U.S. Domestic Freight in Ton-Miles by Mode4
Air
0.28%
Pipeline
21%
Truck
31%
Water
11%
Railroad
37%
6
Characteristics of Freight Transported by Air
• 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.
7
Different Products: Passenger vs. Cargo
Passenger
• Focus on load factor for
marketing and market
share – frequency wins.
• Price-sensitive, volatile
demand.
• Objective: minimize
costs of delivering base
product.
Photo courtesy: Tamas Kolos-Lakatos
Cargo
• Load factors are around
60%.
• Demand
• Medium to long-term
forecasting
allotment service.
• Inventory
control
• Objective: focus on
• Network-focus
building relationships for
long-term profitability
• Hub-andspokes
and sustainability.
8
Cargo Service Airports in the United States
• 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.
9
Hub Airport is the Central Link in Supply Chain
Retailers
Processing
Trucking
Consumer
Logistics
Hub Airport
Airport
Airport
Photos courtesy: Tamas Kolos-Lakatos
Trucking
10
Large Movement Towards Hub Consolidation
Top U.S. Cargo Airports in 2000 and 2011 (Metric Tons)5
Airport
MEM
2000
2,489,078
2011
3,916,410
Change
+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%
11
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
1986:
Merger with Northwest
Airlines bolstered traffic to
Memphis.
1920
1970
1980
1990
1973:
Federal Express begins
operations at Memphis, its
world headquarters.
1927:
Opening of Memphis
Municipal Airport
1985:
Designation of a hub for
Republic Airlines.
15
2007:
Passenger traffic peaks as
Northwest accounts for
about 81% of total
enplanements.6
2000
2010
2008 – Current:
Delta—Northwest merger
causes capacity cuts at
Memphis to remove
redundancies. As of 2013,
passenger enplanements
have dropped by 45%.7
Geographic Location of MEM
16
Layout of Memphis International Airport
R1
FedEx
Facilities
Passenger
Facilities
R4
R2
1 KM
17
R3
Relationship with FedEx Express
• 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.
18
Operations Montage
• 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
19
Operations Information from FedEx8
Operations Montage
• 7,500 associates unload packages off the aircraft and
transport them to the Primary Matrix, FedEx’s main sorting
facility.
20
Operations Montage
• 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.
21
Operations Montage
• The package is scanned by a light curtain, which retrieves
information about its origin, destination, weight, and
shipper.
22
Operations Montage
• 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.
23
Operations Montage
• The outbound containers are loaded onto the aircraft, which
all leave Memphis by 6:00 AM.
24
Operations and Implications for Airports
• 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)
25
Challenges in Forecasting and Planning
26
Source: MEM Master Plan9
Challenges in Forecasting and Planning
Forecasts for Total Air Cargo Tonnage
7,000,000
Historical
Forecast
Metric Tons of Cargo
6,500,000
6,000,000
5,500,000
5,000,000
4,500,000
4,000,000
3,500,000
2006
Actual
2007
Baseline
2012
Low Growth
27
2017
High Growth
2027
Real
Source: MEM Master Plan9
Overall Summary
• 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.
28
Bibliography
1.
2.
3.
4.
5.
6.
7.
8.
9.
RITA – BTS. Air Cargo Summary Data. U.S. Department of Transportation. 2013. Report. Available:
http://www.transtats.bts.gov/freight.asp
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
Chopra and Meindl. Supply Chain Management (5th Edition). Prentice Hall, 2012. Print.
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
Airports Council International. Airport Traffic Reports. Airports Council International – North America.
Web. Retrieved: November 26, 2013. Available: http://www.aci-na.org/content/airport-trafficreports.
Jacobs Consultancy. Airport Inventory Master Plan Update: Memphis International Airport. Rep. No. MEM5481. Memphis, TN: Memphis-Shelby County Airport Authority, 2010. Print. Available:
http://www.mscaa.com/themes/memairport/images/MPAIRINV.pdf.
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.
FedEx YouTube Channel. Inside the FedEx Memphis “Super Hub”. Web. Retrieved: November 27, 2013.
http://www.youtube.com/watch?v=iYzQ7JSBIGU.
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.
29