Date: Wednesday, June 9th, 2021
Ground service providers drowning in shipments delivered by airlines are responding to massive gridlock at Chicago O’Hare by permanently relocating some warehouse operations outside the property to increase capacity in what could increasingly become a model at major U.S. airports that haven’t prioritized investment in cargo facilities.
Alliance Ground International (AGI), with stations around the country, and local ground handling agent Maestro International Cargo this month are both opening large, off-airport transfer facilities to enable faster pickup of import cargo, which currently can take up to six days to retrieve after an aircraft’s arrival.
Alliance officials told American Shipper they are putting the final touches on a 253,000-square-foot building located about 10 minutes west of O’Hare and close to many of the freight forwarders responsible for picking up and delivering customers’ cargo. Alliance, the largest cargo processor at O’Hare, manages 640,000 square feet of space in four airport terminals. The Elk Grove Village facility will take the company’s total footprint to 900,000 square feet and has more space than any tenant controls in a single warehouse at the airport.
Maestro is leasing a 164,000-square-foot facility about five minutes from the airport for five years, CEO Edip Pektas said. At O’Hare it has about 115,000 square feet of warehouse space.
Adding auxiliary facilities further from the airport runs counter to the traditional industry model of processing loads close to the aircraft to enable fast handoffs, but now is viewed as increasingly necessary to prevent cargo bottlenecks. Under the hybrid strategy, cargo handlers will move as much inbound cargo as possible away from the airport, depending on whether their service agreements with airlines allow it, and keep export processing in place because logistics providers want to drop outbound shipments as close to flight time as possible in order to make flights.
“I think it will significantly improve their service because right now it’s not great. This will give them the upper hand,” said Neel Jones Shah, executive vice president and global head of airfreight at Flexport, a major freight management company based in San Francisco. “It’s going to be a trend in the industry as a lot of these airport facilities are way underinvested in. So you’re going to have to go off-airport, split your operation and get creative as hell.”
Chicago O’Hare International Airport is one of the biggest U.S. airfreight gateway for cargo, prized for its central location and size, access to extensive ground transportation and logistics infrastructure, and proximity to manufacturing centers. The pandemic significantly increased cargo activity as pure freighters and cargo-only passenger aircraft carrying critical COVID supplies, as well as increased orders for e-commerce and other goods, swarmed the airport. Last year cargo volume grew 15% to more than 2 million metric tons, with the number of freighter flights escalating 25% to 30,400.
Notably, international imports carried on widebody jets jumped 22%, more than any other major gateway in the U.S., according to an analysis by consultant Logistics Capital & Strategy.
Cargo bottlenecks are common at O’Hare during peak shipping periods because of limited warehouse space and truck zones, and paper-based processes, but have become a constant source of aggravation for shippers since the pandemic. The spike in freighter activity swamped facilities used to a steadier shipment flow from a mix of freighters and passenger aircraft pumping in small, frequent loads. At some facilities, it is common for four or five widebody freighters to disgorge huge loads in a single day.
At the same time, third-party ground handlers released many workers when airlines scaled back passenger flights and lost others to illness. Social distancing also makes warehouse operations less efficient, and cargo-only passenger flights require larger crews to hand-carry boxes in the cabin.
Pektas said the record influx of imports is like “getting hit by cargo tornadoes every day. We were just blown away. We couldn’t keep up.”
Many cargo handlers responded by establishing temporary facilities outside the airport campus, according to logistics managers in the area, but the new AGI and Maestro facilities are of a much greater scale and future-proof the companies for long-term growth.
Pop-up facilities designed to handle overflow “don’t tend to work as well because there’s no set process and it’s like a fire drill,” Jones Shah said.
Maestro initially leased a small off-airport facility on a month-to-month basis, but after six months moved to a 72,000-square-foot facility before expanding again. The company, which handles cargo for airlines such as Air China Cargo and Emirates, plans to keep the smaller facility to help process export cargo, Pektas said.
Swissport also recently opened a smaller import processing center near the airport, according to local logistics professionals. Swissport officials did not respond to emails requesting confirmation.
Absent new terminal development, ground handlers say they simply don’t have any extra place to put the cargo pouring into the airport. Some major freight forwarders have even relocated some business to Chicago Rockford International Airport, about 70 miles west of O’Hare.
“The idea for us was to open up a facility that was big enough to provide relief to our on-airport buildings and really improve [the situation] for the air cargo community at O’Hare,” said AGI Chief Operating Officer Jared Azcuy.
Airline customers will transition in stages to the new import center, which has 57 dock doors and 34 trailer parking positions, but pharmaceutical shipments will stay at the airport to preserve the cold chain, he explained.
Shipments will be immediately offloaded from aircraft directly into trucks and taken to the customs-bonded freight station. Freight shuttled over from passenger terminals by tugs will also go straight into trucks on the ramp.
The size of the new facility will accommodate longer storage times for forwarders willing to pay, although most users try hard to pick up shipments before the 24-hour free time expires because storage fees are expensive. At 18 cents per kilo, or $180 for 1,000 kilos per day, it doesn’t make financial sense for freight intermediaries to use airport facilities as warehouses for large consignments, said one source, who referred to an AGI rate sheet.
But Azcuy said some forwarders are leaving cargo longer because they, or their trucking partners, have no room in their warehouses. Smaller forwarders often don’t have storage facilities of their own and may be forced to make a tough choice if the warehouse they rent is full, or they can’t make an immediate delivery to the customer, according to other logistics managers.
Ground handlers say that when forwarders delay pickups it clogs their facilities, making it more difficult to break down and locate shipments for arriving truckers.
“We are not a warehouse facility to store cargo. We are a transit warehouse,” said Warren Jones, AGI’s vice president of business development. “We want to get cargo off a truck and onto an airplane. We have limited space to store cargo. And some of these forwarders are paying us high storage fees. We don’t want that. We want cargo in and out.
“We just want to make sure that we have enough space to accommodate extended stays. We can’t put ourselves in a logjam position.”
Forwarders need to change their business practices too, he added, and make weekend pickups more routine. Large forwarders with their own truck fleets do make weekend pickups, but smaller outfits have to rely on contract carriers with driver-shortage issues of their own, industry experts say.
Alliance Ground is installing a payment and appointment system from CargoSprint in the new building, as it has at other O’Hare facilities. Azcuy said it has so many dock doors that appointments likely won’t be necessary, except for pickups outside regular hours. The SprintPay system allows forwarders to submit payments online so truck drivers can simply retrieve the cargo without waiting at the counter to resolve charges or stopping by on the way to the airport to pick up a paper check.
Off-airport real estate is cheaper, but some savings will be offset by the cost of truck shuttles, said a Chicagoland terminal manager who is not authorized to speak to the press. It takes nine to 10 truckloads to carry all the cargo in a full Boeing 777 or 747 freighter.
Split operations can sometimes cause a problem if receivers aren’t sure which facility has their cargo, but logistics specialists say it shouldn’t be a problem if everyone is informed and there are enough trucks to keep the freight flowing quickly to the import location.
“They just need to communicate which airlines are going to which building and then stick to it,” said Scott Case, president of the International Air Cargo Association of Chicago.
The International Civil Aviation Organization is requiring member states to screen 100% of all export cargo before loading on commercial freighters, as is already done for cargo carried on passenger aircraft. Approved security approaches — X-ray machines, explosives trace detection, physical search or canine detectors — vary in cost, efficiency and availability, but security experts say they require more space to carry out. That’s because long, narrow and flat warehouses typically found at airports aren’t well suited for staging cargo to go through X-ray machines, many products like pharmaceuticals and fish can’t be identified by scanning technology, and detector dogs need cargo spread out to do their job.
A Transportation Security Administration program designed to alleviate airport backlogs by allowing forwarders to become certified cargo screening facilities and conduct security checks upstream is expected to extend to the all-cargo environment, but it’s unclear how many forwarders will register.
Azcuy said it’s safe to assume that at least half of all cargo will be delivered already screened, but moving out import cargo will give AGI the room to do more security checks, if necessary.
Maestro’s supplementary export facility will also be used to provide security screening services for freight forwarders, Pektas said. The company recently ordered a large X-ray machine from Rapiscan that can accommodate cargo on small wooden pallets.
Cargo stakeholders say they expect the near-airport import facilities to help reduce delays.
“I do commend AGI for very quickly saying, ‘OK, we’re under water, we’ve got to solve this,” Flexport’s Jones Shah said. “They went out and got a massive facility and they’re standing it up relatively quickly [since] signing the contract.”