Customer focus: The future of forwarding

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How great is the threat from disruption to the traditional air freight model? Megan Ramsay reports

Cincinnati/Northern Kentucky Airport is set to receive an extraordinary boost to its cargo operations from May as Amazon begins its US air hub operations at North America’s eighth-largest and fastest-growing cargo airport, in what will initially be a partnership with the airport’s current biggest cargo tenant DHL, writes Will Waters.

After the e-commerce giant announced in February that it had chosen CVG to build a long-term US air hub, it gradually emerged that in the short and medium-term, Amazon would need ground support there from DHL, which since 2009 has used CVG as its air hub for the Americas.

Both Amazon and DHL had been reluctant to confirm the arrangement or reveal the details, extent, or duration of the partnership, although one DHL source revealed that DHL “has been contracted to provide a range of services to Amazon at the DHL Cincinnati Hub, including sorting operations and ground handling for the Amazon air network”. And at an investor relations conference in March, DHL Express CEO Ken Allen also confirmed that while Amazon is building its own US air hub at CVG, on land that DHL had “first rights” on, “in the interim, we’ll be helping them on a technical basis”.

Amazon has now confirmed to CAAS that it “will have a partnership with DHL” at CVG when it moves its air hub operations there from nearby Wilmington, Ohio (ILN). Amazon had been trialling and building up its air express activities at ILN since late 2015, in partnership with aircraft operator and ground services provider Air Transport Services Group (ATSG) − using ground and sort infrastructure there also previously used by DHL − but revealed in February its preference for building its long-term hub at CVG.

In terms of timings, Amazon declined to confirm a May start date at CVG, but said: “We are looking forward to the first Amazon planes appearing at CVG this spring.”

Although the company declined to provide any further details, the broad outline of the arrangements have gradually become apparent. Sources close to CVG and ATSG say they expect the 15-strong B767 freighter aircraft ATSG had been operating for Amazon at ILN to move in May to CVG, where ATSG will continue to lease and operate the aircraft for Amazon, adding five more aircraft later this year. ATSG will also continue to provide “gateway and logistics services” for the Amazon flights at all locations except CVG, services that include marshalling, unloading, refueling, and loading of the aircraft along with leasing space at the airport, plus handling and warehousing freight.

But at CVG, those “gateway and logistics services” for Amazon will be operated or organised by DHL, CAAS understands.

DHL’s new day-sort operation

In March DHL revealed that it was recruiting around 900 staff for its hub at CVG, requiring them to be available for work from 1 May, “as the company completes the latest $108 million expansion of its Americas hub”. It added: “The expansion to a new day-sort operation and projected growth in shipments is expected to increase the hub’s workforce to more than 3,300 from the current 2,400 employees.”

Mike Parra, CEO for DHL Express Americas, said the company was “excited to leverage our newly expanded Americas hub”, although he did not explain precisely why the sudden 37% expansion of the hub’s workforce and the introduction of the new daytime sort operation was needed from 1 May. However, the reasons for the May expansion have become increasingly apparent. A source close to DHL told local news service The Lane Report: “DHL will still do their night-time work, but Amazon will use that (facility) during the daytime. That’s why DHL is having a big hiring surge for a daytime shift.”

DHL’s latest expansion at CVG will also features a new north ramp that is built on 4 hectares (45 acres) of land and provides parking space for 16 additional planes, bringing the hub’s total capacity to 65 aircraft gates. The expansion also includes additional automated sorting capability and 40 new reload positions that “will enhance the hub’s ability to handle the growing shipment volume expected to be seen in the United States and throughout the Americas. It also adds new storage and warehouse space for ramp equipment and shipping containers”, DHL said.

Since 2009, DHL has invested more than $280 million in its Americas hub at CVG, which serves North and South America as well as the Caribbean. In 2013, DHL celebrated the culmination of a $105 million, four-year effort to enhance its CVG facility “to meet the growing international shipping demand of large multinational corporations as well as small business customers”, which it described at the time as “the completion of the CVG hub”. In addition to its global hubs in Hong Kong and Leipzig, Germany, the CVG hub completes “the backbone of the DHL intercontinental network”, the group added.

Amazon’s long-term plan

When Amazon in February announced its plans to create a new “long-term” centralised US air cargo hub at CVG “to support its growing fleet of Prime Air cargo planes”, the company gave no details about when the new facility would open, what capabilities and capacity it would have, and who would operate it. However, state officials said Amazon plans to invest $1.49 billion in the hub and has agreed to a 50-year lease with the airport, with provisions to provide up to 900 acres (360 hectares) of land.

Asked in February about the timelines for its plans, Amazon said: “Our investments and job creation at CVG will occur over time. We have not yet announced timelines for construction but we hope to break ground soon.” However, CAAS understands that there are still some environmental requirements before any construction can begin, with observers speculating that Amazon’s own hub facilities are probably at least a year or two away.

ILN rejection

Amazon also did not explain in detail why it had rejected ATSG’s home airport, ILN, in favour of a new long-term air hub around 80 kilometres southwest of ILN at Hebron – beyond highlighting “a large, skilled workforce, centralized location with great connectivity to our nearby fulfilment locations, and an excellent quality of living for employees” at Hebron. Analysts including airport consultant Michael Webber noted back in February that “the decision to collocate at the same airport that hosts DHL’s hub is more than coincidence”, pointing out that the same ACMI carriers have been used by both. But Webber said Amazon had also faced a similar decision to the one DHL faced in 2009, also concluding that the benefits of operating at a full commercial airport (CVG) outweighed those of continuing to operate at an airport with no other scheduled carriers (ILN).

When Amazon’s full fleet of 40 B767-300 cargo aircraft, leased from and operated by ATSG and Atlas Air, are operating from late 2018, analysts expect them to perform around 200 flights a day. The aircraft each have a maximum payload of around 50 tonnes, potentially creating daily capacity of 10,000 tonnes. Of those 40 freighters, 16 are currently in service for Amazon – 15 supplied by ATSG and one by Atlas.

Double-digit year-over-year growth in four of the last five years has increased annual cargo throughput at CVG to 818,000 tonnes in 2016.