Judging by the recent rash of U.S. air cargo expansion projects, you’d think demand was skyrocketing. It’s not.
Like the rest of the world, U.S. air cargo traffic is sluggish, but the market differs from most emerging regions, namely Asia, in that there is plenty of ground capacity. That doesn’t mean new capacity expansions in Chicago, St. Louis and Fort Wayne, Ind., are ill fated. But considering the moderate cargo growth projections, government agencies should invest in projects where there is demand, not just “build-it-will-come” hopes, said Michael Webber, a Kansas City-based air cargo consultant.
The lure of global air cargo business appears to have again hooked St. Louis-area government officials. In February, St. Clair County approved $550 million in tax-exempt bonds for an expansion project at MidAmerica St. Louis Airport, but investors behind Strategic Air Cargo think they will be able to come up with the construction funding themselves, according to reports. County officials also gave roughly $2 million toward the construction of a $5.7 million distribution center at the airport.
St. Louis appears to have a poor record of using government incentives to attract air cargo business. MidAmerica, oft-criticized as a $313 million government boondoggle, hasn’t had commercial service since early 2009, and Lambert-St. Louis International has fared little better in attracting international cargo service. China Cargo Airlines connected with Lambert twice before suspending service last fall, squashing a push to award $360 million in incentives for warehouse construction at an airport with plenty of capacity vacant already.
The $200 million investment in an 820,000-square-foot expansion project at O’Hare International Airport looks like a better bet. Aeroterm, the developer, will spend about $130 million to open the hub next year, and the airport will kick in more than $62 million, according to reports. New, larger runways and taxiways will enable the airport to handle the newest generation of Boeing 747-8 freighters, allowing Chicago to reinforce its position as the Midwest’s top air cargo gateway. The Windy City handles more than a quarter of U.S. air cargo exports to China, and Chicago in 2010 knocked off Los Angeles International Airport as the top gateway for air cargo imports from China.
“Chicago has the best reason to expand,” said Cathy Roberson, senior analyst for research and analysis firm Transport Intelligence. “St. Louis was hoping to attract the growth seen in Memphis, but I think the whole issue has blown up in their faces.”
Aside from being the largest U.S. inland port, Chicago benefits from robust international passenger services that provide forwarders with cheaper cargo capacity and more frequency. “If you are a freight forwarder and looking for regular service to Asia, you’re in big trouble if there is a mechanical issue and you have to wait another week for service,” Webber said. “In Chicago, you can find another flight to China in four hours.”
Chicago Rockford Airport, home of UPS’s second-largest sorting facility, and Fort Wayne International Airport, which is undertaking a $1 million private expansion, also could get spillover business from Chicago, Roberson said. Like Rockford, Indianapolis International Airport has benefited from being a regional hub for a major parcel giant, and has leveraged its position within the FedEx Express network to attract pharmaceutical freight business, Webber said.
But the scattering of abandoned or underused air cargo facilities nationwide is a reminder that the industry is still realigning itself to demand. North American domestic cargo traffic shrank 2.6 percent annually between 1999 and 2009, and is expected to expand 5.9 percent annually until 2029, according to a Boeing forecast released before the air cargo slump.
Aside from North America-Europe cargo traffic, which is expected to expand 4.2 percent each year over the next 17 years, trade with China and Latin America will grow more than 5 percent annually in the same period. Global air cargo traffic is expected to triple by 2029, with volume expanding 5.9 percent annually.
Much of that growth depends on how shippers set up their supply chains in relation to slower ocean shipping times and tighter inventories. Longer ocean shipping times could spur shippers to reverse the cost-cutting shift in exchange for more assured delivery.
“Slow-steaming is adding two to three days to our supply chain cycle,” said Rick Jackson, executive vice president of Mast Global Logistics, a subsidiary of Limited Brands. The retail giant’s shifting of freight from ships to plane bellies is good news for cargo hubs such as Chicago that have plenty of international passenger service. For air cargo hub hopefuls, however, they look no closer to tapping such a modal change if the greenfield stays undeveloped or not.