A pallet of unprotected cargo on an airport tarmac with an outside temperature of 21°C can quickly reach temperatures above 55° C. At that point, an egg can fry in about 20 minutes. Now just image if that pallet contained temperature-sensitive pharmaceutical goods, or some other high-value perishable. Costs incurred by the top ten pharmaceutical companies due to temperature excursions are in the billions, according to pharma logistics firm CargoSense. It’s easy to see that a delay of even a few minutes can quickly spell disaster and strike a severe blow to a shipper’s bottom line.
Because of the increasingly important role they play in the transfer of high-value cargo, ground handlers are no longer considered the bottom-feeders of the air transport sector. The Center for Aviation reported that, at the end of 2014, the global airport ground handling business is valued at US$80 to $100 billion per year. This business, however, is being run by fewer companies each year.
Several years ago, most cargo carriers ran their own ground handling facilities, built and broke down pallets, and loaded and unloaded their own planes. But after the recession following 9/11, when many airlines were seeking ways to cut costs, they outsourced much of this work to outside agents and contractors, which served multiple carriers in one facility. There are still a number of small, long-established independent family firms that have secured their reputations at one airport or a small number of airports worldwide, but the trend of mergers and acquisitions continues unabated today.
For instance, in the past year, Worldwide Flight Services (WFS), said to be perhaps the largest ground handler in the world, was acquired by Los Angeles-based Platinum Equity in the spring of 2015. Then, in November 2015, Fraport sold 51 percent of Fraport Cargo Services at Frankfurt Airport to WFS, which was then renamed Frankfurt Cargo Services. Today, WFS is in the process of acquiring Consolidated Aviation Services (CAS), which is the largest cargo handler in the United States, serving more than 250 carriers. It’s clear to see that WFS is moving toward ground handling domination.
Other top cargo ground handling firms include Swissport – now in 48 countries, handling roughly 4 million tonnes of cargo each year – and Dubai-based dnata, which now handles all the cargo at Amsterdam-Schiphol Airport, and about 103 other hubs worldwide.
For today’s large ground handlers, these deals and partnerships are necessary to increase economies of scale for ground handling operations and increase the industry’s slim profit margins. But according to some forwarders, the rash of mega-mergers in the industry is beginning to affect performance.
Darren Walton, the branch manager for forwarder EMO Trans at Chicago O’Hare Airport, said consolidation is generally not good for the industry. Forwarders, he said, need to know that their shipments are being handled by competent hands and that tendered cargo will not be damaged or contaminated along the journey. In this climate, that’s not so easy.
“Competition is good, it keeps people on their toes and drives a free market,” Walton said. But the small ground handlers “need to speak up” to make sure their voices are heard. “If these companies are being bought by private equity firms, the focus is on the shareholder not the customer.
Consolidations are a fact of life in the ground handling industry, but the jury is still out on whether they have helped or hindered business for the forwarding community. Are these mergers adding value to cargo operations or sacrificing service for profits?