Air Carriers Open Giant Cargo Facilities in Europe

By Michael Babb -- Logistics Management, 3/1/1999

Copenhagen--Late in 1998, SAS Cargo executives cut the ribbon on their $85 million cargo facility at Copenhagen Airport--Europe's newest international freight terminal and the biggest single investment in SAS Cargo's history.

The 291,000 square-foot multi-level building has enough automation equipment to handle 350,000 tons of cargo annually, said Neils Boserup, director of Copenhagen Airport, at the cargo center's opening ceremony.

The fully automated terminal boasts specially designed sections for temperature-controlled, radioactive, and high-value cargo. It has more than two dozen loading/receiving docks designed for use by trucks, tractors, and forklifts; three storage levels; and automated storage/retrieval and freight-transfer systems. All shipments are labeled with bar codes upon arrival and are immediately expedited to a unit load device (ULD), vertical storage position, or one of the 40 workstations where freight is reloaded for transshipment. The "europallet" storage area has 1,560 pallet-storage positions and can handle 204 operations per hour.

SAS Cargo isn't the only carrier investing in facilities at European airports. In October, Air France took the wraps off its million-square-foot "G1XL" cargo showcase at Paris's Charles De Gaulle Airport. Last year also saw Cargolux, the all-cargo carrier operated by Luxair, opening a 600,000 square-foot facility in Luxembourg that will handle 500,000 tons of cargo annually. British Airways has its own plans to open a high-tech facility at London's Heathrow Airport that will handle 800,000 tons of cargo per year--70 percent of it transshipments. And Germany's Lufthansa Cargo is dropping $80 million into an expansion of its already-overcrowded Frankfurt cargo hub.

Optimistic About Growth

Why so much investment in aircargo handling? These investments are seen as indicators of the optimism carrier executives have about profitable expansion in Europe, in spite of mixed signals from industry analysts, who forecast relatively slow growth in European aircargo markets.

That certainly seems to be the case at SAS. Despite flat second and third quarters, 1998 was a banner year for infrastructure investment by the carrier. In addition to the new Copenhagen facility, the multinational airline last year opened new freight terminals at Newark, N.J., in the United States and at Oslo's Gardermoen Airport in Norway. Jan Stenberg, SAS president and CEO, says the total investment for the three new freight terminals is $150 million.

SAS Cargo's turnover for 1997 was a respectable $250 million, but that amounts to only 6 percent of SAS's total $4.8 billion revenues, most of which come from passenger service. Cargo tonnage for 1997, however, increased 19 percent over the previous year's business--a statistic that got management's attention and confirmed its decision to invest in new cargo-handling facilities.

Another reason why airlines are building new cargo facilities is that air carriers are recognizing that the real differentiation between their services is how they treat the cargo while it's on the ground. "The paradox of air freight is that the flight itself has relatively little impact on the quality of the cargo service," explains John Harpsoe, director of SAS's cargo operations. "The time it takes to fly from one destination to another is more or less the same, regardless of the carrier. The difference lies in how your goods are handled on the ground."

The role that air freight plays in supporting growing manufacturing and distribution strategies, including just-in-time and lean manufacturing practices, is yet another reason infrastructure investment makes sense right now. Those strategies have resulted in more frequent and smaller shipments--just the type of business the aircargo industry is optimized to handle. Distributors of high-value, short life-cycle products--such as computers, software, and electronics--see air freight as a cost-effective alternative to tying up their valuable inventory in transit and storage, which prolongs their time to market. Indeed, this growing emphasis on logistics has seen freight regain prominence among the major air carriers, some of which have spun off their cargo operations into separate profit centers.

Investing for the Future

Investing in aircargo infrastructure today will pay off in the future, believes Peter Gronlund, vice president of SAS Cargo. Highly automated cargo-handling facilities will help SAS and other airlines reduce door-to-door transit times from the present five and six days to between two and three days--or even faster. "We can do same-day delivery in Europe," he says, "and there's no reason why we can't likewise speed up intercontinental cargo."

One very bright spot for the future of air cargo in Europe actually focuses on the ground: air-truck operations. In spite of its congested highways, Europe's overwhelming choice for transport from a central distribution point to outlying regions is truck, and air-truck operations are experiencing rapid growth.

Air-truck operations could become very important to Copenhagen Airport. A new bridge linking Sweden with Denmark will open in June of next year, and the southern approach of the huge bridge is adjacent to the Copenhagen Airport. Scandinavian officials see their elevated structure as the historic final link in a highway system that will connect Northern Finland with Southern Italy.