Back in the Dark Ages of commerce, delivery of anything across the country, let alone across an ocean, took weeks. Who among us could have foreseen today’s consumer expectation of instant gratification? The e-commerce world as we know it is shrinking as consumers continue to purchase goods from outside the US at a rapidly increasing rate. This shift ultimately will drive a change in the air freight industry. Where can air freight hubs expand? How does this impact industrial real estate and the supply chain?
Cross Border eCommerce Today
By 2020, according to Accenture, over two billion consumers worldwide will be regularly shopping online, completing approximately 13.5% of total retail consumption online – a share approximately equal to US domestic spending today. At over $3.4 trillion of gross merchandise value (GMV), global online sales are expected to grow at 14% per year over the next few years with no signs of slowing.
The share of global online consumption conducted cross-border is growing even faster. By 2020, US retailers will sell nearly $485B in goods to the world, and will buy $140B in goods directly from overseas sellers, according to Tompkins International. For context, these totals equal approximately 96% and 27% of projected 2018 total online retail spending in the US, respectively. Historically, eCommerce orders have overwhelmingly flowed from Asia into the US and other western nations. The boom in cross-border eCommerce is defining a rebalancing of flows whereby more goods are flowing into Asia originating in the west.
With the increase of globalized eCommerce and consumer expectations of fast delivery, a two+ week delivery proposition for maritime transit into the US just isn’t competitive when many online retailers continue to expand next day and same day offerings. To satisfy this demand for faster delivery, a growing share of global direct to consumer shipping is shifting to air freight. With that will come burdens for shippers and their customers, but opportunities for real estate investors, developers, and regional airports.
Air Freight – Current State
Global air freight volumes increased 9.1% in 2017, equal to 2-3 times the historical average according to the International Air Transport Association (IATA). IATA attributes much of that increase to booming parcel deliveries. While the rate of increase in 2018 will likely come in somewhat lower, it is still expected to be above historical trend, and well above increase in global GDP.
Another indication of the coming surge in global air freight volumes is Boeing’s External Linkrecent projection that growth in e-commerce trade, driven especially by international online retail sales should drive demand for 2,480 new freighter aircraft over the next 20 years. Airbus projects comparable growth in demand in its Global Market Forecast calling for global freighter fleet increase of 65% over the next 20 years. What better proof of the boom in air freight volumes in the years ahead is there than projected demand for additional aircraft capacity. The industry must have the capacity to move all those orders.
More planes equal a need for more pilots, but we are already facing an impending pilot shortage. To meet this increasing demand, Boeing predicts a need for 790,000 additional pilots by 2037. Airbus External Linkpresents a similar prediction, but with a slightly lower number of 450,000 pilots needed by 2035.
Current Air Cargo Terminal Situation
While demand for both inbound and outbound air cargo movements in the US has never been higher, availability of warehouse and handling capacity at or near major legacy air cargo hubs has never been more scarce. Or more expensive. Cargo congestion at JFK is a key example while it typically takes 12-14 days for a container to cross the Pacific Ocean by ship takes 14-18 hours for an airplane shipping container of goods to move from landing at JFK to a truck hitting the Long Island Expressway or the Van Wyck.
Availabilities in existing logistics buildings at mature cargo hubs such as JFK, LAX, Miami, SFO, O’Hare, Newark, Houston, and even DFW and ATL are at historic lows. Congestion at these airports is extremely costly and disruptive. We think it’s sometimes risky that we’ll miss a passenger flight due to traffic and congestion. The same kind of threat applies to cargo movements, but chances are there is not a next flight an hour later for that cargo. Delays at one place in the freight flow usually means cascading delays, added costs, and missed delivery promises.
Freighters don’t load and unload themselves – adequate handling facilities are critical to keeping deliveries moving accurately and on schedule. In addition to the scarcity of available buildings, these legacy airports lack developable sites close enough to runway aprons. The failure of the historical leading US air cargo hubs to expand capacity to serve booming demand creates opportunities for other airports to step up and for real estate opportunities at those alternative locations.
Opportunity Ahead for Alternative Airports
In the face of terminal (excuse the pun), unresolvable congestion at legacy leading air cargo airports and permanent surging inbound and outbound flow, carriers and their customers will have to establish operations at alternative airports. Centers not thought of as leading air cargo facilities today that choose to invest strategically in building capacity inside and outside airport boundaries can create tremendous opportunities to attract surging demand in the future.
Among characteristics that can attract this business are:
- Runway lengths suitable for 747s and 767s
- Extensive on-apron handling facilities with room to expand
- Extensive availability of developable land for large logistics facilities within minutes of the airport
- Sufficiently low passenger volumes to insure truck corridors can remain generally uncongested
- Short and predictable drayage distances
- Proximity to major freeway infrastructure
- Adequate and sustainable labor supply, including during peak seasons
- Generally moderate weather conditions, especially around peak periods to insure low probability of weather disruptions to operations
Many of the prime (pun apology) candidates to become these new air cargo hubs of the future are among those where Amazon has established Amazon Air hubs. Similarly, UPS and FedEx have also invested in building capacity near a number of these potential major multi-service hubs. We project the following are among those well-suited to capitalize on this global cargo boom, provided authorities take proper action today to invest in required infrastructure:
- Columbus CMH
- Chicago – Rockford RFD
- Indianapolis IND
- Pittsburgh PIT
- Huntsville HSV
- Cincinnati CVG
- Salt Lake City SLC
- Mesa AZA
- Norton Air Force Base, San Bernardino SBD
- March Air Reserve Base, Riverside RIV
- Kansas City MCI
- Greenville/Spartanburg GSP
The Real Estate Play
It is difficult to predict the amount of new logistics space that will be required to support the boom in cross border air cargo. Thompkins International projects the surge in cross border air cargo tied significantly to global eCommerce may top 160 facilities averaging 800,000 square feet, plus smaller sortation and delivery space totaling 100 facilities ranging from 75,000-100,000 square feet. Quick math reveals that could be over 135 million square feet of new industrial space. That much supply can’t possibly fit in legacy cargo and distribution markets alone. Much will land near the air cargo hubs of the future.
The coming boom in air cargo-related real estate demand is a seriously under-told story in our industry today. This is a long-term secular shift that we can expect to see building over the next 5-10 years. There is a long and profitable runway ahead in many of these markets. Industrial investors and developers should prepare for take-off.
This article was recently featured on Supply Chain Dive. External Link
Ben Conwell is a Managing Director and Leader of Cushman & Wakefield’s e-commerce Advisory Group. He is an expert in newCommerce, a Cushman & Wakefield initiative that provides seamless, full-service solutions for today’s ever-evolving retail landscape.