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8 Air C

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8C H A P T E R

AI R CA R G O

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

Air-eligible goods can be charac-terized as being time-sensitive in aphysical or economic sense withhigh value-to-weight ratios.Although the most expensivemode, air transportation can alsobe the most effective in terms ofsecurity, damage control andspeed. Key North Americanimport and export commodity categories include capital equip-ment, intermediate materials,computers, apparel, telecommuni-cations equipment, consumerproducts, technology products,refrigerated foods, and transporta-tion equipment. Top goodsimport ed and exported at TorontoPearson – high tech, specializedmanufactures, perishables andpharmaceuticals – are in keepingwith North American trends.

Chapter 8 > AI R CA R G O

8.1

A I R C A R G O

Chapter 8

8 . 1 I N T R O D U C T I O N

Within an increasingly globalbusiness economy, the availabilityof an efficient and reliable airmode alternative for competitivesupply chain management hasnever been more important.Although air transportation repre-sents less than one per cent of allgoods moved by volume, italready accounts for more than22 per cent of Canadian importsand exports outside of the UnitedStates by value1.

Situated within the heart ofCanada’s logistics industry,Toronto Pearson InternationalAirport leads the nation in aircargo activity: in 2005, over40 per cent of total air cargo inCanada was processed at TorontoPearson. With more than 50scheduled and charter airlines pro-viding non-stop service to 37domestic and 83 US destinationsand same-plane service to 100inter national cities, TorontoPearson offers route connectionsat local, regional, and global levels.From both geographic and opera-tional standpoints, the Airport isstrongly positioned to facilitatemarket activity and contribute tothe economic growth of surround-ing businesses and industries. In

recognition of these strengths,major freight forwarders, truckingfirms and warehousing solutionsproviders have chosen to establishtheir operations within closeproxi mity of the Airport.

Unlike passenger operations wherethe total travel time and directnessof the route between end points isa measure of service, cargo opera-tions measure service primarily byadherence to the expected traveltime between end points. As ship-pers seek to minimize costs associ-ated with transportation andlogistics, the emphasis has shiftedfrom just-in-time delivery to time-definite delivery. This willingnessamong customers to acceptdeferred, but defined, deliverytimes has increased the viability ofalternative modes, especiallyground transport, and allowedshippers to incorporate modaltransfers into their network links.The potential for the GTA toexpand and further its competi-tiveness within the cargo andlogistics industry will dependon an airport operating envi-ronment that can respondefficiently to the demandsof 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)

all-cargo aircraft, have signifi-cantly increased.

Cargo carriers which operate atthe Airport include the following:Bellyhold: AF/KLM, Air Canada,Air India, Alitalia, American Air -lines, Austrian Airlines, BritishAirways, Cathay Pacific, Conti -nen tal Airlines, Delta Airlines,Korean Air, Lufthansa, NorthwestAirlines and WestJet.

All-Cargo: Air Canada Cargo,Cathay Pacific Cargo, CubanaCargo, Korean Air Cargo, DHL,FedEx, UPS and Volga Dnepr.

8.3.2 Freight Forwardersand Customs Brokers

Freight ForwardersFreight forwarders coordinate thetransportation of goods acrosssupply chains. Typically, freightforwarders are intermediaries thatlink shippers with freight carriers(airlines, trucking companies, railroads, ocean carriers) withoutowning the actual means of trans-port. Freight forwarders are a vitalcomponent of the air cargo indus-try because they can organizefreight trans portation more effi-ciently and cost-effectively than

forwarders and customs brokers,for customer interface. While thecarriers clearly provide the capacityin this sector of the cargo market,the freight forwarders and logisticsproviders control the actual move-ment and routing of the heavy andinternational freight activity.

Integrators provide a completeservice from door to door by usingtheir own trucks for pickup ordelivery to or from an airport andtheir own aircraft networks fromairport to airport.

Traditionally, air cargo at TorontoPearson has been predominantlycarried in aircraft belly compart-ments of passenger aircraft. In thepast five years, however, aircraftmovements by freighters, or

The top ten import and exportmarkets served by Toronto Pearsonare listed in Table 8.1.

While the United States remainsan important trading partner, theamount of cargo imported fromChina has increased over the pastfew years. Overall traffic from Asiato North America is forecast togrow at an average annual rate of8.4 per cent2. The top ten coun-tries identified represent over70 per cent of all import marketsand over 80 per cent of all exportmarkets by value.

8 . 3 E X I S T I N GS TA K E H O L D E R S

From door to door, goods are generally shipped following one ofthe two paths shown in Figure 8-1.

8.3.1 Air Carriers

Cargo airlines provide air freighttransportation from airport to air-port through the use of passenger,combination or freighter aircraft.Air freight carriers are dependenton intermediaries, such as freight


8.2

TO P TO R O N TO P E A R S O N A I R I M P O RT / E X P O RT M A R K E T S BY VA L U E ( 2 0 0 4 )

Rank Import Export1 United States United States2 China United Kingdom3 United Kingdom Belgium4 Germany France5 Japan Germany6 Ireland Japan7 South Korea China8 France Hong Kong9 Switzerland Switzerland

10 Sweden Netherlands

TA B L E 8 - 1

INTEGRATEDBusiness Model

NON-INTEGRATEDBusiness Model

Source: MergeGlobal Inc.

ORIGIN Origination Customer to Airport Airport to Completion DESTINATIONAirport to Airport Customer

Interface (Inter-City) Interface

SHIPPER

Integrator Integrator Integrator Integrator Integrator

Forwarder ForwarderAirline

Trucker

Forwarder

TruckerForwarder

CONSIGNEE

F I G U R E 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)


8.3

end-customers themselves, andthey take responsibility for organ-izing and monitoring door-to-doordelivery.

A critical component of an effec-tive cargo gateway is the ability forfreight forwarders to access bothfreighter and passenger aircraft.Traditionally, large passenger gate-ways are also the largest cargo gate-ways due to the access to low-costpassenger belly cargo capacity. Thefreight forwarding community isstrongly attracted to the cargocapacity in the belly space of wide-body passenger aircraft on interna-tional routes at airports that serveinternational gateway cities.

Many world class freight forward-ing companies have their Canadianheadquarters located in the PeelRegion. The locations of registeredfreight forwarders within the GTAare shown in Figure 8-2. Keyfreight forwarders using TorontoPearson as a gateway includeAgility, DHL Global Forwarding,Eagle Global Logistics, Expeditors,Kuehne & Nagel, Nippon Express,Panalpina, Schenker, SDV andUPS Supply Chain Solutions,among others.

Customs BrokersCustoms brokers manage ship-ments through the customs clear-ance process. The majority ofcustoms brokers within the GTAare located around the perimeterof the Airport.

8.3.3 Cargo Handlers andWarehouse Solution Providers

Warehouse space at TorontoPearson is needed by cargo carriersand cargo handling agents toaccommodate: storing, pick-and-pack, routing, pallet-buildup,repackaging, and other handlingactivities. Sufferance warehousesare used for international airfreight handling activities such as:storage, customs clearance, andforwarding of goods. In manycases, cargo handlers are the linkbetween the freight forwardersand the cargo carriers.

Cargo handling agents at TorontoPearson include Cargo Zone,Excel Cargo, Swissport, VCCCargo Services, and WorldwideFlight Services.

8 . 4 E X I S T I N G FA C I L I T I E S

Cargo operations at TorontoPearson are currently located atthree different locations (west, eastand 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 approximately30.4 ha opened as part of theinfield development between thetwo north-south runways. CargoWest, or the Infield Cargo area,includes three cargo buildings, acargo apron, vehicle parking, andtruck manoeuvering areas. CanadaInspection Services are availableon site 24 hours per day, sevendays per week. Figure 8-4 illus-trates the Infield cargo facilities.

Cargo Buildings 1, 2 and 3 weredesigned with an air-truck interfaceto allow the direct and efficienttransfer of goods from air craft totruck. The large common-useapron at Cargo West can simulta-neously handle nine B747 andone B767 aircraft and is equippedwith two in-ground fuelling sta-tions as well as a nose-tetheringdevice for B747 freighters. Truckmanoeuvering areas are generouslysized for tractor trailer turningmovements.

A 598 m, four-lane vehicle tunnelconstructed in 1998 provides a10-minute airside connectionbetween 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 ConvairDrive to Hwy 427 and Hwy 401via Dixie Road.

Cargo 1: Cargo 1 is leased andoperated 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 automatedand equipped with sophisticatedcargo handling systems.

Cargo 2: Cargo 2 is a multi- tenant facility with 22,400 m2

(241,000 ft2) of warehouse spacewith a clear height of 16.7 m(55 ft) and 4,500 m2 (48,700 ft2)of office space. The building has51 loading dock doors groundsideand seven on the airside. It is con-nected to Cargo 3 via a pedestrianbridge so that tenants within the


8.5

building can access CanadaCustoms services directly.

Key tenants in Cargo 2 includeBAX Global and Cargo Zone. TheGTAA also operates its logisticscentre from this facility.

Cargo 3: Cargo 3 is a multi- tenant facility built to meet therequirements of small- to mid-sizecargo handlers and freight forwarders. The building contains4,680 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 spacelocated on the mezzanine level ofthe warehouse area as well as athree-storey office tower on thewest 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 customsservices from this facility 24 hoursper day, seven days per week.

8.4.2 Cargo East – Vista

Vista Cargo Terminal is a privatelyowned and operated cargo com-plex located on 11.5 ha at the eastside of the Airport (see Figure 8-5).The adjacent apron area cansimul taneously accommodatefour narrow-body freighters(DC8F/B727F) or two wide-bodyfreighters (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- tenantedU-shaped facility is serviced by aring road that provides groundaccess to truck docks.

The varied mix of tenants at Vistaincludes airlines, couriers, cargo

handlers, freight forwarders andoff-line airlines. Air France, DHL,Excel, Handlex, Lufthansa,Swissport, UPS and VCC CargoServices are included among ten-ants at the Vista Cargo Terminal.

8.4.3 Cargo North – FedEx

Cargo North is occupied entirelyby FedEx which opened itsCanadian hub there in 2002. Asillustrated in Figure 8-6, FederalExpress 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 PA C I T Y

8.5.1 Demand

Forecast air cargo demand forToronto Pearson is based on thenational system of forecasts pre-pared by Transport Canada asshown in Figure 8-7. Historicaldemand is illustrated up to 2006and forecast demand is providedfrom 2010 to 2030. After 2010,Transport Canada medium-levelgrowth rates are applied to 2030.Starting in 2006, actual data

Cargo East – Vista


8.7

collected by the GTAA is shown,while historic data from 1993 to2005 is derived from StatisticsCanada. It is generally recognizedthat a potentially significant portion of enplaned/deplaned aircargo data is not capturedthrough required airline reportsfrom which Transport Canadacompiles data.

From 2006 to 2030, air cargodemand at Toronto Pearson isforecast to grow at an averageannual rate of 3.9 per cent. In2006, the Airport processedapproximately 516,000 tonnes ofcargo, 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 isexpected to be strongest in theinternational sector at 4.5 percent. Growth in the transborderand domestic sectors will be lower,at 3.9 per cent and 2.8 per centrespectively. Sector breakdowns areshown in Figure 8-8.

Over time, the share of interna-tional cargo is expected to increaseto approximately 40 per cent, off-set by a corresponding decline inthe domestic cargo share.

As airlines down-gauge passengeraircraft, an increasing proportionof cargo is shifting from passengerto freighter aircraft: long-rangefuel-efficient aircraft with signifi-cant cargo capacity. Overall, cargocapacity will increase in the inter-national sector, while capacities inother sectors will decrease becauseof the combined effect of smalleraircraft and increased restrictions


8.8

with respect to carry-on luggageand reduced bellyhold capacityfor cargo.

As manufacturers adapt their sup-ply chains to new transportationstrategies, an increasing proportionof cargo is shifting from aircraft totruck. As shown in Figure 8-9,approximately 10 per cent ofToronto Pearson cargo was truckedwhile 46 per cent was carried bybelly aircraft and 44 per centby freighters.

In terms of total incoming andoutgoing cargo between 2005 and2006, belly cargo volumesdeclined by one per cent whilefreighter volumes increased by12 per cent and trucked volumesincreased by 25 per cent.

8.5.2 Capacity

FacilitiesThe efficiency of cargo facilityoperations can be measured by cal-culating the ratio of annual cargovolumes to warehouse groundfloor area, or annual tonnes persquare metre [ATPSM]. The over-all maximum capacity at TorontoPearson is 1,200,000 metric tonesper year of throughput. In 2006,516,000 metric tonnes of totalcargo was processed through114,172 m2 of warehouse spacewhich equates to an average of4.5 tonnes per square metre.

Utilization within the variouscargo areas at Toronto Pearson differs because of the differenttenant operations. However, thereis sufficient throughput capacity atthe Airport to meet forecastdemand to approximately 2023.

8 . 6 F U T U R ED E V E LO P M E N T S

8.6.1 Industry Trends

Consolidation andReorganizationThe trend toward consolidationand reorganization of the air cargoindustry has become more preva-lent as airlines and freight for-warders look to strengthen theirmarket position in response togrowing shipping demands. Asintegrated carriers continue toexpand their service offerings,their facility planning is increas-ingly focused on identifying air-ports that are geographically wellpositioned with good access to themultiple transportation modesand that can accommodate long-term facility development.

Similar changes are occurringwithin the freight forwarding andlogistics communities. A few com-panies have become much largerthrough corporate consolidationand acquisitions. Increased marketshare and larger cargo volumestranslate into increased buyingpower with the all-cargo market.Many of these forwarders are nownegotiating block-space agree-ments for entire freighter aircraftat reduced rates as a result of theircorporate growth strategy. How -ever, not all mergers and acquisi-tions have proven successful, andconsolidation activity is expectedto be less intense in the near term.

Cargo Growth GapIncreased cargo security require-ments on passenger airlines are

203020252020201520102006200520042003200220012000199919981997199619951990

Domestic Transborder InternationalActual:

Domestic Transborder InternationalForecast:

Air Cargo Demand Forecast

F I G U R E 8 -700

0 ton

nes

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 R E 8 - 9

000 t

onne

s

Freighter Truck Belly

23% Domestic

35% International

42% Transborder

Toronto Pearson Cargo Sector (2006)

F I G U R E 8 - 8


8.9

contributing to shipper prefer-ences for dedicated freighter service. While lower-hold cargocapacity (after passenger baggage)will continue to supply well overhalf of the industry’s total require-ments, Boeing predicts that purefreighter traffic will increase tosupply almost 50 per cent of theneeded cargo capacity. At the sametime, passenger fleet lower-holdcapacity will grow more slowlythan overall cargo traffic, creatinga growing reliance on freighters.

This trend will lead to a “cargogrowth gap” because passenger air-lines will not increase frequencies(nor increase aircraft gauge) toaccommodate additional demandfor cargo space. Tradi tional majorcarriers are responding to thistrend through increased freighteroperations. In addition, customerdemands for improved servicescontinue to stimulate freighter usewith the emergence of new inde-pendent, large-size freighter operators providing full serviceaircraft, crew, maintenance andinsurance (ACMI) wet-leasefreighter capacity. Likewise, estab-lished operators continue to

innovate by tailoring freighterservice to specific market requirements.

Freighter AircraftThe global fleet of freighter air-craft stands at approximately1,800 units. The Air Cargo Man -age ment Group (ACMG) predictsthe fleet will reach 3,645 unitsthrough 2025. Airlines looking toadd freighters are faced with morechoices 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. Theindustry is seeing a period of rapidexpansion of the large-capacityfreighter fleet, with firm orders for250 new and converted widebodyfreighters on the books at Boeing,

Airbus and third-party conversionproviders. New large freighters areunder development, the 777F,747-8F and A380F, and freighterconverted 747-400Fs have begunto enter the market.*

Increasing Security Requirements In January 2007, the UnitedStates House of Representativespassed a bill designed to improvenational security, including anumber of provisions related tothe scanning of cargo. Specifically,the legislation requires theDepartment of HomelandSecurity to establish and imple-ment a system for inspecting100 percent of cargo carried onpassenger aircraft by 2009. TheU.S. Transportation SecurityAdministration has recently pro-vided the proposed cargo regula-tions to Congress for approval.The Washington-based Air -forwarders Association has statedthat they will continue to stand inopposition to mandates requiringall cargo to be inspected only viatechnology or personnel.

In Canada, the Canadian AirTrans port Security Adminis tra tion(CATSA) is responsible for

Cargo North – FedEx

*Source: ACMG December 2006.


8.10

screening checked baggage, whilethe airlines are responsible forcargo screening. The airlines cur-rently use the multi-layered risk-based approach that currentlyincludes canines, random inspec-tion, various non-intrusive tech-nologies and known shipperprograms.

In 2006, the Government ofCanada announced a $26 millioncommitment over two years for aircargo security in order to enhanceexisting security measures. Theseinitiatives include provisions toensure the integrity of air cargosecurity throughout the supplychain, as well as the evaluation ofscreening technologies.

Full screening of air cargo on pas-senger aircraft could create a bottle-neck for just-in-time cargobetween Canada and the UnitedStates. This could force some ship-pers to use surface transportationor full freighter operators for trans-border movements resulting inincreased demand for all-cargooperations at the Airport. Forinternational traffic, this couldrepresent an opportunity forToronto Pearson to increaseon-airport consolidations as it

would become more difficult toship from the traditional U. S. gate -ways on international passengerflights.

Many airports are currently con-ducting pilot programs thatattempt to screen all cargo ship-ments to be carried in the bellyspace of passenger aircraft.

Open Skies and BilateralAgreements In recent years, Canada has beennegotiating new air service agree-ments and building upon existingones to provide flexibility for aircarriers serving anticipateddemand in emerging and estab-lished markets.

In November 2005, Canada andthe United States announced the

successful negotiation of furtherliberalization to the 1995 “OpenSkies” air transport agreement totake effect in 2007. Under theagreement, the carriage of domes-tic traffic between points withinone country by airlines of theother country will continue to beprohibited; however, air carriers ofboth countries will be allowed topick up passenger and all-cargotraffic in the other country’s terri-tory, and carry this traffic to athird country as part of a serviceto or from their home territory.

The government of Canada alsonegotiated new and expanded airservice agreements in 2005 withboth India and China, as well asan “Open Skies”-style agreementwith the United Kingdom in2006. Further signalling a moreliberalized 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 policyannouncements, many current

Infield Cargo Building 2


8.11

bilateral agreements specificallydeny foreign carriers rights to flyinto Toronto Pearson. Theseremaining restrictions continue toimpede new service developmentat the Airport to established andemerging markets.

Cargo Gateway Structure As freight forwarders and otherplayers within the cargo industryconsolidate and increase theirindustry leverage, airport gatewaysare expected to evolve in response.While major international airportssuch as Los Angeles, ChicagoO’Hare, Miami and New YorkJFK may remain preferred aircargo gateways due to the long-established shipping lanes andassociated belly and freighter upliftcapacity, these cargo industry players may also seek alternative,non-traditional gateways wherecosts are lower; where airfield, air-space and groundside congestionare reduced; and where operationalefficiencies are increased. Inresponse to this potential adjust-ment in cargo gateway structure,many airports are actively investi-gating ways to accommodate agrowing logistics and consolida-tion activity base. Attracting and

allowing supporting sectors of theair cargo industry onto airportproperty is a growing trend forinternational gateways.

Multimodal Integration The integration of multiple modesof transportation into one locationis a key growth strategy for majorcargo companies. Although com-modities transported by modessuch as ocean vessels or rail are lesstime sensitive and are less likely toinvolve air transport, groundtransportation is a common inter-face. Some key cargo operators arerapidly diversifying their serviceofferings to the shipping commu-nity, and because these verticallyintegrated companies utilize theirfacilities and operational resourcesas effectively as possible regardlessof location, airports such asToronto Pearson could experiencea growing volume of truck trafficassociated with air cargo and mul-ti modal traffic.

8.6.2 Future FacilityRequirements

The air cargo industry requires awide range of transportation andservice compa nies to effectively

serve the shipping community.Airlines (both dedicated freightercarriers and passenger airlinesusing the bellyspace of their aircraft), trucking com panies,freight forwarders, logistics pro -viders, and handling companiesall interact to process daily aircargo shipments around the worldand require specific types offreight processing facilities. Someof these companies, especially theairlines and handling companies,cannot operate without sufficienton- airport cargo buildings withdirect access to the aircraft.Furthermore, efficient terminalaccess is important to this cargooperator group. The East andWest Cargo areas are well sited toaccommodate future cargo devel-opment and support facilities.

It is important to clarify the dis-tinction between the operationaland facility requirements of inte-grated carriers and belly hold car -riers. The integrated carriers donot require close proximity to theterminal; in fact, these companieswould prefer to be far away frompassenger terminal airside and

Infield Cargo Building 3


8.12

groundside congestion. The pri-mary planning concern is the ability to efficiently access thelocal highways.

Short- to Medium-Term FacilityRequirementsBased on the current cargo fore-casts and estimated growth rates,the existing cargo facility supply atToronto Pearson is expected toaccommodate overall demand inthe short and medium term.

However, an integrated couriercould require stand-alone space to accommodate future growth atthe north end of the Airport.

Large distribution centres, forhigh-value time sensitive prod-ucts, usually converge around air-ports that serve internationalgateway cities due to the cargocapacity they offer. Even thoughsome logistics centres do notrequire direct airside access tooperate, facilities with close proximity to airlift are an asset.Therefore, Toronto Pearson, dueto its location, in combinationwith its air cargo capacity, couldsee the development of multi-modal logistics and distributioncentres north of Derry Road.

Long-Term Facility RequirementsExisting warehouse capacity at theAirport is not expected to beexceeded 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.Addi tional warehouse space couldbe required along with the associa -ted land area required for rampspace, truck manoeuvering andparking.

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