mp - chapter 8 - air cargo.pdf

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8CHAP T ER

A IR C ARGO

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8 . 2 K E Y M A R K E T S A N D

COM M OD I T I E S

Air-eligible goods can be charac-

terized as being time-sensitive in a

physical or economic sense with

high value-to-weight ratios.

Although the most expensive

mode, air transportation can also

be the most effective in terms of

security, damage control and

speed. Key North American

import and export commodity

categories include capital equip-

ment, intermediate materials,

computers, apparel, telecommuni-

cations equipment, consumer

products, technology products,

refrigerated foods, and transporta-

tion equipment. Top goods

imported and exported at TorontoPearson – high tech, specialized

manufactures, perishables and

pharmaceuticals – are in keeping

with North American trends.

Chapter 8 > A IR C AR GO

A I R C A R GO

Chapter 8

8 . 1 I N T R OD U CT I ON

Within an increasingly global

business economy, the availability

of an efficient and reliable air

mode alternative for competitive

supply chain management has

never been more important.

Although air transportation repre-

sents less than one per cent of all

goods moved by volume, it

already accounts for more than

22 per cent of Canadian imports

and exports outside of the United

States by value1.

Situated within the heart of

Canada’s logistics industry,

Toronto Pearson International

Airport leads the nation in air

cargo activity: in 2005, over40 per cent of total air cargo in

Canada was processed at Toronto

Pearson. With more than 50

scheduled and charter airlines pro-

viding non-stop service to 37

domestic and 83 US destinations

and same-plane service to 100

international cities, Toronto

Pearson offers route connections

at local, regional, and global levels.

From both geographic and opera-

tional standpoints, the Airport is

strongly positioned to facilitate

market activity and contribute to

the economic growth of surround-

ing businesses and industries. In

recognition of these strengths,

major freight forwarders, trucking

firms and warehousing solutions

providers have chosen to establish

their operations within close

proximity of the Airport.

Unlike passenger operations where

the total travel time and directness

of the route between end points is

a measure of service, cargo opera-

tions measure service primarily by

adherence to the expected travel

time between end points. As ship-

pers seek to minimize costs associ-

ated with transportation and

logistics, the emphasis has shifted

from just-in-time delivery to time-

definite delivery. This willingness

among customers to accept

deferred, but defined, delivery times has increased the viability of

alternative modes, especially

ground transport, and allowed

shippers to incorporate modal

transfers into their network links.

The potential for the GTA to

expand and further its competi-

tiveness within the cargo and

logistics industry will depend

on an airport operating envi-ronment that can respond

efficiently to the demands

of such a network system.

1 Transport Canada. Transportation in Canada 2005 Annual Report (Minister of Public Works and Government Services, Canada, 2005)http://www.tc.gc.ca/pol/en/Report/anre2005/add/taba913.htm(accessed April 24, 2007)


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all-cargo aircraft, have signifi-

cantly increased.

Cargo carriers which operate at

the Airport include the following:

Bellyhold: AF/KLM, Air Canada,

Air India, Alitalia, American Air-

lines, Austrian Airlines, British

Airways, Cathay Pacific, Conti-

nental Airlines, Delta Airlines,

Korean Air, Lufthansa, Northwest

Airlines and WestJet.

All-Cargo: Air Canada Cargo,

Cathay Pacific Cargo, Cubana

Cargo, Korean Air Cargo, DHL,

FedEx, UPS and Volga Dnepr.

8.3.2 Freight Forwardersand Customs Brokers

Freight Forwarders

Freight forwarders coordinate the

transportation of goods across

supply chains. Typically, freight

forwarders are intermediaries that

link shippers with freight carriers

(airlines, trucking companies,

railroads, ocean carriers) without

owning the actual means of trans-

port. Freight forwarders are a vital

component of the air cargo indus-

try because they can organize

freight transportation more effi-

ciently and cost-effectively than

forwarders and customs brokers,

for customer interface. While the

carriers clearly provide the capacity

in this sector of the cargo market,the freight forwarders and logistics

providers control the actual move-

ment and routing of the heavy and

international freight activity.

Integrators provide a complete

service from door to door by using

their own trucks for pickup or

delivery to or from an airport and

their own aircraft networks from

airport to airport.

Traditionally, air cargo at Toronto

Pearson has been predominantly

carried in aircraft belly compart-

ments of passenger aircraft. In the

past five years, however, aircraft

movements by freighters, or

The top ten import and export

markets served by Toronto Pearson

are listed in Table 8.1.

While the United States remains

an important trading partner, the

amount of cargo imported from

China has increased over the past

few years. Overall traffic from Asia

to North America is forecast to

grow at an average annual rate of

8.4 per cent2. The top ten coun-

tries identified represent over

70 per cent of all import markets

and over 80 per cent of all exportmarkets by value.

8 . 3 E X I S T I N G

S T A K E H OL D E R S

From door to door, goods are

generally shipped following one of

the two paths shown in Figure 8-1.

8.3.1 Air Carriers

Cargo airlines provide air freight

transportation from airport to air-

port through the use of passenger,

combination or freighter aircraft.

Air freight carriers are dependent

on intermediaries, such as freight

Chapter 8 > A IR C AR GO

8.2

T O P T O RO N T O P E A RS O N A I R I M P O RT / E X P O RTM A R K E T S B Y V A L U E ( 2 0 0 4 )

Rank Import Export

1 United States United States

2 China United Kingdom

3 United Kingdom Belgium

4 Germany France5 Japan Germany

6 Ireland Japan

7 South Korea China

8 France Hong Kong

9 Switzerland Switzerland

10 Sweden Netherlands

T A B LE 8 - 1

INTEGRATEDBusiness Model

NON-INTEGRATEDBusiness Model

Source: MergeGlobal Inc.

ORIGIN Origination Customer to A irport A irport to Complet ion DESTINATIONA ir port to Ai rpor t Cus tomer

Interface (Inter-City) Interface

SHIPPER

Integrator Integrator Integrator Integrator Integrator

Forwarder ForwarderAirline

Trucker

Forwarder

TruckerForwarder

CONSIGNEE

F I G U RE 8 - 1

Air Cargo Industry Structure

2 Clancy and Hoppin. American Shipper: Steady Climb (MergeGlobal, 2006)http://www.mergeglobal.com/articles/2006-08_SteadyClimb_Article.pdf (accessed April 24, 2007)


4/13Chapter 8 > A IR C AR GO

end-customers themselves, and

they take responsibility for organ-

izing and monitoring door-to-door

delivery.

A critical component of an effec-tive cargo gateway is the ability for

freight forwarders to access both

freighter and passenger aircraft.

Traditionally, large passenger gate-

ways are also the largest cargo gate-

ways due to the access to low-cost

passenger belly cargo capacity. The

freight forwarding community is

strongly attracted to the cargo

capacity in the belly space of wide-body passenger aircraft on interna-

tional routes at airports that serve

international gateway cities.

Many world class freight forward-

ing companies have their Canadian

headquarters located in the Peel

Region. The locations of registered

freight forwarders within the GTA

are shown in Figure 8-2. Key

freight forwarders using TorontoPearson as a gateway include

Agility, DHL Global Forwarding,

Eagle Global Logistics, Expeditors,

Kuehne & Nagel, Nippon Express,

Panalpina, Schenker, SDV and

UPS Supply Chain Solutions,

among others.

Customs Brokers

Customs brokers manage ship-

ments through the customs clear-

ance process. The majority of

customs brokers within the GTA

are located around the perimeter

of the Airport.

8.3.3 Cargo Handlers andWarehouse Solution Providers

Warehouse space at Toronto

Pearson is needed by cargo carriers

and cargo handling agents to

accommodate: storing, pick-and-

pack, routing, pallet-buildup,

repackaging, and other handling

activities. Sufferance warehouses

are used for international air

freight handling activities such as:

storage, customs clearance, and

forwarding of goods. In many

cases, cargo handlers are the link

between the freight forwarders

and the cargo carriers.

Cargo handling agents at Toronto

Pearson include Cargo Zone,

Excel Cargo, Swissport, VCC

Cargo Services, and Worldwide

Flight Services.

8 . 4 E X I S T I N G F A CI L I T I E S

Cargo operations at Toronto

Pearson are currently located at

three different locations (west, east

and north) on the airport site.

See Figure 8-3.

8.4.1 Cargo West – Infield Cargo

In 2001, new cargo facilities occu-

pying an area of approximately

30.4 ha opened as part of the

infield development between the

two north-south runways. Cargo

West, or the Infield Cargo area,

includes three cargo buildings, a

cargo apron, vehicle parking, andtruck manoeuvering areas. Canada

Inspection Services are available

on site 24 hours per day, seven

days per week. Figure 8-4 illus-

trates the Infield cargo facilities.

Cargo Buildings 1, 2 and 3 were

designed with an air-truck interface

to allow the direct and efficient

transfer of goods from aircraft to

truck. The large common-use

apron at Cargo West can simulta-

neously handle nine B747 and

one B767 aircraft and is equipped

with two in-ground fuelling sta-

tions as well as a nose-tethering

device for B747 freighters. Truck

manoeuvering areas are generously

sized for tractor trailer turning

movements.

A 598 m, four-lane vehicle tunnel

constructed in 1998 provides a

10-minute airside connection

between the Infield and the pas-

senger terminal apron.

Cargo West – Infield Cargo



8.4

Situated on Britannia Road,

Cargo West is well-connected tothe highway system via Convair

Drive to Hwy 427 and Hwy 401

via Dixie Road.

Cargo 1: Cargo 1 is leased and

operated by Air Canada. It con-

tains 26,100 m2 (281,100 ft2) of

warehouse space, 2,200 m2

(23,500 ft2) of office space, andhas 49 groundside loading docks.

The facility is highly automated

and equipped with sophisticated

cargo handling systems.

Cargo 2: Cargo 2 is a multi-

tenant facility with 22,400 m2

(241,000 ft2) of warehouse space

with a clear height of 16.7 m(55 ft) and 4,500 m2 (48,700 ft2)

of office space. The building has

51 loading dock doors groundside

and seven on the airside. It is con-

nected to Cargo 3 via a pedestrian

bridge so that tenants within the



building can access Canada

Customs services directly.

Key tenants in Cargo 2 include

BAX Global and Cargo Zone. The

GTAA also operates its logistics

centre from this facility.

Cargo 3: Cargo 3 is a multi-

tenant facility built to meet the

requirements of small- to mid-size

cargo handlers and freight

forwarders. The building contains

4,680 m2 (50,300 ft2) of ware-

house space with a clear height of

13.7 m (45 ft) and 9,600 m2

(103,200 ft2) of office space

located on the mezzanine level of

the warehouse area as well as a

three-storey office tower on the

west side of the facility.



8.6

Current tenants at Cargo 3 in-

clude American Airlines, WestJet,

and Worldwide Flight Services.

Canadian Border Security Agency (CBSA) also provides customs

services from this facility 24 hours

per day, seven days per week.

8.4.2 Cargo East – Vista

Vista Cargo Terminal is a privately

owned and operated cargo com-

plex located on 11.5 ha at the east

side of the Airport (see Figure 8-5).The adjacent apron area can

simultaneously accommodate

four narrow-body freighters

(DC8F/B727F) or two wide-body

freighters (B747-400F). The

facility consists of 29,700 m2

(320,000 ft2) of warehouse space

with clear heights of up to 12 m

(40 ft) and 8,360 m2 (90,000 ft2)

of office space. The multi-tenanted

U-shaped facility is serviced by a ring road that provides ground

access to truck docks.

The varied mix of tenants at Vista

includes airlines, couriers, cargo

handlers, freight forwarders and

off-line airlines. Air France, DHL,

Excel, Handlex, Lufthansa,

Swissport, UPS and VCC Cargo

Services are included among ten-

ants at the Vista Cargo Terminal.

8.4.3 Cargo North – FedEx

Cargo North is occupied entirely

by FedEx which opened its

Canadian hub there in 2002. As

illustrated in Figure 8-6, Federal

Express operates out of a two-

building complex covering approx-

imately 30,190 m2 (325,000 ft2)

with dedicated ramp space.

8 . 5 D E M A N D / CA P A CI T Y

8.5.1 Demand

Forecast air cargo demand for

Toronto Pearson is based on the

national system of forecasts pre-

pared by Transport Canada as

shown in Figure 8-7. Historical

demand is illustrated up to 2006and forecast demand is provided

from 2010 to 2030. After 2010,

Transport Canada medium-level

growth rates are applied to 2030.

Starting in 2006, actual data

Cargo East – Vista



collected by the GTAA is shown,

while historic data from 1993 to

2005 is derived from Statistics

Canada. It is generally recognized

that a potentially significant

portion of enplaned/deplaned air

cargo data is not capturedthrough required airline reports

from which Transport Canada

compiles data.

From 2006 to 2030, air cargo

demand at Toronto Pearson is

forecast to grow at an average

annual rate of 3.9 per cent. In

2006, the Airport processed

approximately 516,000 tonnes of

cargo, the majority of which wasdestined for the United States.

With emerging and growing mar-

kets overseas in Asia and Europe,

average annual growth to 2030 is

expected to be strongest in the

international sector at 4.5 per

cent. Growth in the transborder

and domestic sectors will be lower,

at 3.9 per cent and 2.8 per cent

respectively. Sector breakdowns areshown in Figure 8-8.

Over time, the share of interna-

tional cargo is expected to increase

to approximately 40 per cent, off-

set by a corresponding decline in

the domestic cargo share.

As airlines down-gauge passenger

aircraft, an increasing proportion

of cargo is shifting from passengerto freighter aircraft: long-range

fuel-efficient aircraft with signifi-

cant cargo capacity. Overall, cargo

capacity will increase in the inter-

national sector, while capacities in

other sectors will decrease because

of the combined effect of smaller

aircraft and increased restrictions



8.8

with respect to carry-on luggage

and reduced bellyhold capacity

for cargo.

As manufacturers adapt their sup-

ply chains to new transportation

strategies, an increasing proportionof cargo is shifting from aircraft to

truck. As shown in Figure 8-9,

approximately 10 per cent of

Toronto Pearson cargo was trucked

while 46 per cent was carried by

belly aircraft and 44 per cent

by freighters.

In terms of total incoming and

outgoing cargo between 2005 and

2006, belly cargo volumes

declined by one per cent while

freighter volumes increased by

12 per cent and trucked volumesincreased by 25 per cent.

8.5.2 Capacity

Facilities

The efficiency of cargo facility

operations can be measured by cal-

culating the ratio of annual cargo

volumes to warehouse ground

floor area, or annual tonnes per

square metre [ATPSM]. The over-

all maximum capacity at Toronto

Pearson is 1,200,000 metric tones

per year of throughput. In 2006,

516,000 metric tonnes of total

cargo was processed through

114,172 m2 of warehouse space

which equates to an average of

4.5 tonnes per square metre.

Utilization within the variouscargo areas at Toronto Pearson

differs because of the different

tenant operations. However, there

is sufficient throughput capacity at

the Airport to meet forecast

demand to approximately 2023.

8 . 6 F U T U R E

D E VE L OP M E N T S

8.6.1 Industry Trends

Consolidation and

Reorganization

The trend toward consolidationand reorganization of the air cargo

industry has become more preva-

lent as airlines and freight for-

warders look to strengthen their

market position in response to

growing shipping demands. As

integrated carriers continue to

expand their service offerings,

their facility planning is increas-

ingly focused on identifying air-ports that are geographically well

positioned with good access to the

multiple transportation modes

and that can accommodate long-

term facility development.

Similar changes are occurring

within the freight forwarding and

logistics communities. A few com-

panies have become much larger

through corporate consolidationand acquisitions. Increased market

share and larger cargo volumes

translate into increased buying

power with the all-cargo market.

Many of these forwarders are now

negotiating block-space agree-

ments for entire freighter aircraft

at reduced rates as a result of their

corporate growth strategy. How-

ever, not all mergers and acquisi-tions have proven successful, and

consolidation activity is expected

to be less intense in the near term.

Cargo Growth Gap

Increased cargo security require-

ments on passenger airlines are

203020252020201520102006200520042003200220012000199919981997199619951990

Domesti c T ra nsbo rder I nterna ti on alActual:

Domesti c T ra nsbo rder I nterna ti on alForecast:

Air Cargo Demand Forecast

F I G U RE 8 - 7

0 0 0

t o n n e s

1,400

1,200

1,000

800

600

400

200

0

0

100

200

300

400

500

20062005

Toronto Pearson Cargo Type

F I G U RE 8 - 9

0 0 0

t o n n e s

F re ig ht er T ruc kBelly

23% Domestic

35% International

42% Transborder

Toronto Pearson Cargo Sector (2006)

F I G U RE 8 - 8



contributing to shipper prefer-

ences for dedicated freighter

service. While lower-hold cargo

capacity (after passenger baggage)

will continue to supply well over

half of the industry’s total require-

ments, Boeing predicts that pure

freighter traffic will increase to

supply almost 50 per cent of the

needed cargo capacity. At the same

time, passenger fleet lower-hold

capacity will grow more slowly

than overall cargo traffic, creating

a growing reliance on freighters.

This trend will lead to a “cargogrowth gap” because passenger air-

lines will not increase frequencies

(nor increase aircraft gauge) to

accommodate additional demand

for cargo space. Traditional major

carriers are responding to this

trend through increased freighter

operations. In addition, customer

demands for improved services

continue to stimulate freighter use

with the emergence of new inde-

pendent, large-size freighter

operators providing full service

aircraft, crew, maintenance and

insurance (ACMI) wet-lease

freighter capacity. Likewise, estab-

lished operators continue to

innovate by tailoring freighter

service to specific market

requirements.

Freighter Aircraft

The global fleet of freighter air-craft stands at approximately

1,800 units. The Air Cargo Man-

agement Group (ACMG) predicts

the fleet will reach 3,645 units

through 2025. Airlines looking to

add freighters are faced with more

choices than ever, including con-

version programs for modern air-

craft types such as 737-300s,

757-300s, 767-200s, 747-400s, A300-600s and A310-300s. The

industry is seeing a period of rapid

expansion of the large-capacity

freighter fleet, with firm orders for

250 new and converted widebody

freighters on the books at Boeing,

Airbus and third-party conversion

providers. New large freighters are

under development, the 777F,

747-8F and A380F, and freighter

converted 747-400Fs have begun

to enter the market.*

Increasing Security Requirements

In January 2007, the United

States House of Representatives

passed a bill designed to improve

national security, including a

number of provisions related to

the scanning of cargo. Specifically,

the legislation requires the

Department of Homeland

Security to establish and imple-

ment a system for inspecting 100 percent of cargo carried on

passenger aircraft by 2009. The

U.S. Transportation Security

Administration has recently pro-

vided the proposed cargo regula-

tions to Congress for approval.

The Washington-based Air-

forwarders Association has stated

that they will continue to stand in

opposition to mandates requiring all cargo to be inspected only via

technology or personnel.

In Canada, the Canadian Air

Transport Security Administration

(CATSA) is responsible for

Cargo North – FedEx

*Source: ACMG December 2006.



8.10

screening checked baggage, while

the airlines are responsible for

cargo screening. The airlines cur-

rently use the multi-layered risk-

based approach that currently

includes canines, random inspec-tion, various non-intrusive tech-

nologies and known shipper

programs.

In 2006, the Government of

Canada announced a $26 million

commitment over two years for air

cargo security in order to enhance

existing security measures. These

initiatives include provisions to

ensure the integrity of air cargosecurity throughout the supply

chain, as well as the evaluation of

screening technologies.

Full screening of air cargo on pas-

senger aircraft could create a bottle-

neck for just-in-time cargo

between Canada and the United

States. This could force some ship-

pers to use surface transportation

or full freighter operators for trans-

border movements resulting in

increased demand for all-cargo

operations at the Airport. For

international traffic, this could

represent an opportunity for

Toronto Pearson to increase

on-airport consolidations as it

would become more difficult to

ship from the traditional U. S. gate-

ways on international passenger

flights.

Many airports are currently con-

ducting pilot programs that

attempt to screen all cargo ship-

ments to be carried in the belly

space of passenger aircraft.

Open Skies and Bilateral

Agreements

In recent years, Canada has been

negotiating new air service agree-

ments and building upon existing

ones to provide flexibility for air

carriers serving anticipated

demand in emerging and estab-

lished markets.

In November 2005, Canada and

the United States announced the

successful negotiation of further

liberalization to the 1995 “Open

Skies” air transport agreement to

take effect in 2007. Under the

agreement, the carriage of domes-

tic traffic between points within

one country by airlines of theother country will continue to be

prohibited; however, air carriers of

both countries will be allowed to

pick up passenger and all-cargo

traffic in the other country’s terri-

tory, and carry this traffic to a

third country as part of a service

to or from their home territory.

The government of Canada also

negotiated new and expanded airservice agreements in 2005 with

both India and China, as well as

an “Open Skies”-style agreement

with the United Kingdom in

2006. Further signalling a more

liberalized approach to interna-

tional air policy, the federal gov-

ernment announced its “Blue Sky”

policy on November 26, 2006,

which will provide additionalopportunity for passenger and all-

cargo services to be added accord-

ing to market forces.

Despite these recent policy

announcements, many current

Infield Cargo Building 2



bilateral agreements specifically

deny foreign carriers rights to fly

into Toronto Pearson. These

remaining restrictions continue to

impede new service development

at the Airport to established and

emerging markets.

Cargo Gateway Structure

As freight forwarders and other

players within the cargo industry

consolidate and increase their

industry leverage, airport gateways

are expected to evolve in response.

While major international airports

such as Los Angeles, ChicagoO’Hare, Miami and New York

JFK may remain preferred air

cargo gateways due to the long-

established shipping lanes and

associated belly and freighter uplift

capacity, these cargo industry

players may also seek alternative,

non-traditional gateways where

costs are lower; where airfield, air-

space and groundside congestion

are reduced; and where operational

efficiencies are increased. In

response to this potential adjust-

ment in cargo gateway structure,

many airports are actively investi-

gating ways to accommodate a

growing logistics and consolida-

tion activity base. Attracting and

allowing supporting sectors of the

air cargo industry onto airport

property is a growing trend for

international gateways.

Multimodal IntegrationThe integration of multiple modes

of transportation into one location

is a key growth strategy for major

cargo companies. Although com-

modities transported by modes

such as ocean vessels or rail are less

time sensitive and are less likely to

involve air transport, ground

transportation is a common inter-

face. Some key cargo operators arerapidly diversifying their service

offerings to the shipping commu-

nity, and because these vertically

integrated companies utilize their

facilities and operational resources

as effectively as possible regardless

of location, airports such as

Toronto Pearson could experience

a growing volume of truck traffic

associated with air cargo and mul-

timodal traffic.

8.6.2 Future FacilityRequirements

The air cargo industry requires a

wide range of transportation and

service companies to effectively

serve the shipping community.

Airlines (both dedicated freighter

carriers and passenger airlines

using the bellyspace of their

aircraft), trucking companies,

freight forwarders, logistics pro-

viders, and handling companiesall interact to process daily air

cargo shipments around the world

and require specific types of

freight processing facilities. Some

of these companies, especially the

airlines and handling companies,

cannot operate without sufficient

on-airport cargo buildings with

direct access to the aircraft.

Furthermore, efficient terminal

access is important to this cargo

operator group. The East and

West Cargo areas are well sited to

accommodate future cargo devel-

opment and support facilities.

It is important to clarify the dis-

tinction between the operational

and facility requirements of inte-

grated carriers and bellyhold car-

riers. The integrated carriers donot require close proximity to the

terminal; in fact, these companies

would prefer to be far away from

passenger terminal airside and

Infield Cargo Building 3


13/13

8.12

groundside congestion. The pri-

mary planning concern is the

ability to efficiently access the

local highways.

Short- to Medium-Term Facility Requirements

Based on the current cargo fore-

casts and estimated growth rates,

the existing cargo facility supply at

Toronto Pearson is expected to

accommodate overall demand in

the short and medium term.

However, an integrated courier

could require stand-alone space to

accommodate future growth at

the north end of the Airport.

Large distribution centres, for

high-value time sensitive prod-

ucts, usually converge around air-

ports that serve international

gateway cities due to the cargo

capacity they offer. Even though

some logistics centres do not

require direct airside access to

operate, facilities with close

proximity to airlift are an asset.

Therefore, Toronto Pearson, due

to its location, in combination

with its air cargo capacity, couldsee the development of multi-

modal logistics and distribution

centres north of Derry Road.

Long-Term Facility Requirements

Existing warehouse capacity at the

Airport is not expected to be

exceeded before 2023. The expec-

tation is that cargo will be freighter

or integrator related and the loca-

tional and space requirements areto be determined accordingly.

Additional warehouse space could

be required along with the associa-

ted land area required for ramp

space, truck manoeuvering and

parking.

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