The cargo carrier – with its Dragonair arm, 60 per cent share in Air Hong Kong and 40 per cent stake in Air China Cargo – is now the proud owner/operator of a very large (2.6 million tonnes annual capacity), very innovative and technologically advanced cargo terminal that has been phased, near flawlessly, into full operations from last October. With the intention of not only boosting the carrier’s value proposition, but attracting other carrier customers, the increasingly firm signs of a sustained recovery in the global air cargo markets will be a very welcome development for these ambitions.
Figures for Cathay and Dragonair showed the two airlines carried 155,352 tonnes of cargo and mail in March, a cheery increase of 13.8 per cent compared to the same month last year, helping offset continuing capacity expansion for a slight rise in load factor to 66.7 per cent.
The ‘build, operate and transfer’ (to Hong Kong Airport Authority in 20 years) Cathay Pacific Cargo Terminal (CPCT) is run by Cathay Pacific Services (CPS) Ltd, a 100 per cent wholly-owned division of the Cathay Pacific group, but operates independently, in part owing to the fact the terminal is tasked to operate more like a common user facility than simply a dedicated Cathay terminal.
Because of Hong Kong’s geographic location and the fact major production centres have diversified out of the Pearl River Delta to other parts of China and other countries in the region, alongside Cathay’s extensive passenger belly and freighter network, the new cargo facility was built specifically with an eye on fast transhipment, says Cathay Pacific’s cargo director, James Woodrow.
“Cathay has a fantastic intra-Asia network so one of positives is if there are airlines that want to work more closely with Cathay they can use the capabilities of the terminal to quickly transfer cargo from their incoming flights and distribute it on Cathay’s extensive network,” he says detailing one of its selling points.
Strategic planning
It may seem curious that in the world’s biggest cargo hub where efficiency is near legendary and two other highly respectable terminal operators exist – Hong Kong Air Cargo Terminals Ltd (Hactl) and Asia Airfreight Terminal (AAT) – that Cathay would want to bear the cost of striking out on its own. The raison d’être according to Woodrow was based largely on the desire to be more in control of the cargo carrier’s own business and to be able to customise and tailormake services for both itself and other customers.
“Hactl runs probably the best cargo terminal in the world,” acknowledges Woodrow, “but we want CCT to be better,” he adds. “The thing with Hactl is that it is a common user terminal and they have one set of standards – it’s a high standard, but that is a standard. Even though we were nearly half their business, they were not prepared to have different standards for us then for their other customers.” Fair enough, he says, adding: “We now have our own cargo terminal so if we want to tailor make cargo solutions for own needs, or for particular customers, we can,” he explains.
With full operations from October last year, the main focus from that point was in Woodrow’s words being “absolutely focused to make sure we made it through the peak, and then Jan, Feb was slow, so we were absolutely focused on how to get cost base down to match slow market. Now the market has picked up so we are trying to drive efficiency through it and now we need to focus on how we sell that.”
Part of this effort has involved bringing shippers – pharmaceutical, perishables, high-tech including Apple and Samsung through the terminal “to show them what we are capable of so they will go back and talk to their forwarders to put their cargo on Cathay. And as a cargo terminal we also want to attract third party business and hopefully it will be win-win for terminal and Cathay,” he says of what amounts to in broad terms as the basic game plan.
Cutting edge design
The uniquely designed terminal, with its seven-storey profile driven by Hong Kong’s notorious land scarcity, has the capacity to handle 2.6 million tonnes a year, increasing Hong Kong airport’s overall annual freight capacity by a full 50 per cent to 7.4 million tonnes. With only 70 per cent of its allotted land space utilised, CPS has the ability to further expand the terminal – although no plans or timeframe are in place as yet – to an annual capacity of four million tonnes.
Kelvin Ko, Cathay Pacific Service’s chief operating officer, said the terminal is tailor-made for transhipment and has set an ambitious goal of reducing the minimum cargo connection time through its “just-in-time” operating premise. “Our target is to reduce minimum connection time of cargo in Hong Kong to five hours, from the eight hour industry standard in Hong Kong which is already pretty impressive compared to rest of world. Eventually we want to improve it further to three hours under certain circumstances,” he says.
Efficiency is the name of the game and streamlined document procedures, highly automated cargo handling systems and state-of-the-art facilities are key to achieving these impressive targets.
To achieve this very high efficiency Ko says there were a few concepts they adhered to during the design stage. “First, just-in-time. A lot of cargo terminals involve waiting and because of that there’s a lot of truck parking, lots of documentation and time spent sorting out the documents, waiting for the cargo terminal operator to pick it up and wait a few hours before getting the cargo. But in this terminal we try to do everything just-in-time. We think waiting is not good for our customer and it’s not good for us because we don’t have lots of land for people to park trucks to wait.” The terminal also relies on RFID tags which alert the terminal’s IT system that specific cargo is to be sent down to the truck docks for pickup as soon as the truck enters the terminal.
Woodrow notes this concept may be extended further if the Hong Kong R&D Centre for Logistics and Supply Chain Management Enabling Technologies’ proposal to enhance cargo handling at HKIA is approved by the government. This will see RFID technology installed on the Tsing Ma Bridge leading to Lantau Island which will give even earlier advanced information to the terminals.
Proactive monitoring is also very important, Ko said, particularly with the highly automated nature of the terminal, with cargo being moved by an extensive material handling system representing the latest technology. “We have to understand where the cargo is going with informationdriven, proactive monitoring to track the cargo as we try to optimise resources and efficiency.” The entire system is woven together with a warehouse operating system and monitoring is carried out by staff in the Terminal Control Centre which also provides 100 per cent CCTV feeds of the entire facility.
Efficient transhipment was another priority in the terminal’s design, owing to the fact Hong Kong and indeed Cathay, deals in very large amounts of transhipment cargo. Ko notes traditional cargo terminals do import and export separately, with different procedures for each, but because Hong Kong is a Freeport there is room for these processes to be streamlined and in the case of CPCT, both are done together, thereby shortening the processing time. There is also a ‘fast transhipment’ area on the main floor adjacent to the airside area where very quick turnarounds can be undertaken.
Another key design feature of the terminal was to approach it not as a storage terminal, but as a processing terminal – “we emphasise our ability to move cargo arou
nd fast,” adds Ko. But despite this fact, the terminal still has ample storage positions for pallets and ULDS – 3,500 in total – that are accessed by the automated material handling system which employs a whole raft of cargo hoists, each with a backup in case of breakdowns.
The story of the terminal wouldn’t be complete without mentioning labour. With an unemployment rate of just 3.1 per cent in Hong Kong, finding people willing to work all the way out at the airport and in a cargo terminal some more, can be a very challenging task. CPS has taken novel approach in this regard, outsourcing the import breakdown and export build-up processes to two different sub-contractors. Each has nearly 600 staff assigned to the CPCT and unusual for a cargo terminal, a full 40 per cent are women.
Market outlook
Meanwhile, looking at the market going forward, Woodrow repeats what has become the depressingly familiar industry mantra – capacity been growing and demand has not resulting in poor yields. But after a quiet start to the year, made quieter by the early Chinese New Year this year, March has looked much healthier.
Speaking of the Cathay/Dragonair results which saw March volumes climb 13.8 per cent, Cathay Pacific GM cargo sales & marketing, Mark Sutch said: “After a poor start to the year in January and February, our cargo business benefited from a significant upsurge in traffic last month. There was a strong pick-up in demand out of both Hong Kong and Mainland China and we were able to operate close to a full freighter schedule for much of the month along with a number of extra sectors.
“There was strong demand to and from the US and we launched another destination, Columbus, Ohio, during the month. Our recently launched services to Guadalajara and Mexico City also saw healthy loads.”
It appears that the combination of economic improvement and capacity restraint by most carriers is having a positive impact, with Woodrow saying “we are starting to see more of a balanced market, partly driven by airlines parking capacity.” Cathay, like many carriers, parked five of its 26 freighters amounting to nearly 20 per cent of its maindeck capacity. He adds that at this point the group expected to be operating 30 freighters – something that could be considered a ‘close shave’ for the carrier given the weak market fundamentals.
Maindeck fleet
Currently Cathay’s maindeck fleet consists of 13 B747-8Fs with one more coming in 2016 as a result of somewhat convoluted triangular deal between itself, Air China Cargo and Boeing. That arrangement saw Cathay sell six of its B747-400 production freighters back to Boeing in exchange for the purchase of an additional B747-8F.
Because its joint venture Air China Cargo desperately needed refleeting – it was operating B747-400BCFs “and you cannot survive operating BCFs,” Woodrow highlights – Cathay shifted its order for eight B777Fs to the mainland carrier which with three B747-400 production freighters gives Air China Cargo a fleet of 11 freighters.
The first B747-400 to return to Boeing will go this year, another in 2015 and four in 2016. In total this will result in a fleet of 14 B747-8Fs, six B747-400ERFs and one B747-400BCF. This will change the current belly/freighter ratio from about 50-50 currently, to 60 per cent belly and 40 per cent freighter capacity by 2016.
As for the remaining six B747-400ERFs, Woodrow says there are no immediate plans to retire them. “If we could have magically got rid of all those ERFs and just had -8 and 777 that would have been a good result, but at the moment that would have given us too many planes,” he adds.
The original plan had been to operate the B747-8Fs mainly transpacific with some going to Europe, while the B777Fs would have been the back bone of Asia- Europe routes. For now at least the -8Fs will cover both transpacific and Asia- Europe while the ERFs will do most of the regional work.
