Integration between Port and Airport Terminals

Integration between Port and Airport Terminals

Conventionally, ports and airports are not considered to be integrated since they serve different supply chains, namely high-value goods for air transport and bulk commodities for maritime transport. Maritime and air cargo were typically incompatible, implying that port and airport operations were planned separately. Their location only coincided because they both service large metropolitan markets and need to be well connected to road transport systems. While this assertion is still valid, several changes have taken place in recent years with the emergence of a level of integration between port and airport terminals and their transport chains.

Globalization involved the offshoring of activities over a wide economic landscape, including high-value goods. Containerization substantially improved the time performance, frequency, and flexibility of maritime transportation, enabling it to support global supply chains. This implies that maritime transport can compete more effectively with air transport, but also that both transport systems can reach a level of integration. The integration of port and airport terminals takes place over two dimensions; substitution, where either a maritime or an air transport segment is substituted for the other, and complementarity, where they jointly support new forms of distribution:

  • Substitution. Can take place either when maritime transport is used for the first transport segment and air transport for the second segment, or vice versa. It involves a change in the rhythm of the supply chain from days (or weeks) in maritime shipping to hours for air cargo operations (or vice-versa). Air cargo operations is an exact science since each cargo unit is weighted because of its direct relationship with air freight rates. For container transportation, weighting and quantities transported can be inaccurate, leaving air cargo freight forwarders with the challenge of accommodating different volumes than expected. Using maritime transport for the first transport segment can occur if air cargo costs are high because of capacity issues and if the cargo is generated close to port facilities. Shippers could also be benefiting from low maritime cargo rates because of an abundant capacity and in light of growing competition inciting them to look at more cost-effective shipping options. Since maritime services are often organized as a sequence of port calls, they offer opportunities to collect cargo from a large number of markets that be brought to an air cargo hub. Containers bound for an air transport leg are often top-loaded so that they can be unloaded quickly. The use of air transport for the final segment gives the possibility to cover an extensive market base (a region or a continent) quickly, by breaking single container shipments into several loads; each could be bound to a different market. The transloading of cargo is required between maritime and air cargo containers, including a road transport leg to a stuffing facility. Using air transportation for any segment could imply that the cargo is coming or bound to an inland location that is difficult to reach otherwise (e.g. too many delays to the port). Military and humanitarian cargo can be forwarded by air transport after being brought to a hub by maritime transport. The only relevant example of sea / air substitution for passenger transportation concerns cruises. The turn ports of cruise itineraries are dominantly major airports because the first transport segment of a cruise typically involves air travel.
  • Complementarity. Can take place when maritime and air cargo operations are jointly used in supply chain management. For instance, a retail distributor could use a location well serviced by maritime and air cargo to be able to import a range of goods according to the most effective forms of transportation. While the affordability of containerized maritime transport is usually preferred, a distributor has the alternative to use air services for specific cargoes (e.g. high value) or specific circumstances (e.g. urgency, disruptions in maritime transport). This could also lead to new forms of manufacturing where low-value components are imported by maritime transportation, and high-value components are imported by air transportation. The same rationale applies if a firm is exporting a range of components (or parts) of different levels of added value and transportability. Thus, the complementarity between ports and airports confers options (arbitrage), flexibility, and also redundancy in supply chain management and helps reconcile different global distribution systems. However, limited evidence is yet available about how such logistical interactions occur.

The usage of substitution and complementarity in maritime and air transport could lead to new forms of coordination between ports and airports, including the planning of corridors of circulation and joint logistics zones. Locations at the convergence of maritime shipping networks and acting as air transport hubs, such as Hong Kong, Singapore, Dubai, and Panama, are thus well placed to benefit from this form of integration. High levels of maritime and air connectivity are very important to support the emergence of sea / air logistics as well as the coordination of customs procedures related to such movements.

Because of its intermediary location, Dubai has emerged in recent years as the world’s leading hub for sea / air cargo logistics. Of the 3 million tons of cargo that Dubai’s airports (Dubai International Airport and Al Maktoum International, which opened in 2010) handled in 2015, 10% was related to sea / air logistics. Since Dubai is the world’s 3rd busiest airport in terms of passengers (70.1 million handled in 2014), it is highly connected to the global air transport network, particularly in European and American markets that represent a large share of air cargo demand. The emergence of Emirate Airlines as a major cargo carrier (3rd largest in the world), particularly through its fleet of wide-body long-range aircraft, is illustrative of the setting of Dubai as a major air cargo logistics platform.

On an Asia/Europe trade route, the average transit time is about one week if air cargo is used and four weeks if the cargo is carried on regular container shipping services. This transit time reflects the delays resulting from bringing and consolidating the cargo at an airport and booking available bellyhold carrying capacity. Sea/air services using Dubai can connect Asia to Europe in about two weeks, representing a value proposition for time-sensitive, intermediate value goods such as fashion products, electronics, and car parts. Heavy cargo, such as those related to the oil industry, can also be airlifted to difficult-to-reach places in the Middle East and Africa. Within Dubai, the sea-to-air transit can be done in about 8 hours, but the goal is to reduce this time to 4 hours by improving customs procedures. In particular, the transfer between a shipping manifest and an air cargo manifest can be problematic since both industries rely extensively on paper documentation. Although there is efficient sea-to-air connectivity, this connectivity is not yet seamless.

An important challenge to sea/air logistics concerns the transit of cargo between bounded areas at port and airport terminals using local roads and highways; cargo has to clear customs for entry and exit. Dubai came up with an original strategy to deal with this issue. In 2015, a virtual freight and logistics corridor was established to link the port and airport terminals as well as the adjacent free zones (e.g. Dubai World Central). This corridor enables simplified customs procedures for the bounded cargo transiting between customs entities (ports and airports), which helps support the logistics requirement of sea / air movements.

Still, the setting of sea / air logistics is not without competitive challenges. Cargo owners and carriers could prefer to solely use air transportation or maritime shipping depending on the cost structure. Further, the Eurasian land bridge is starting to be a competitor with sea / air logistics since it offers a similar transit time of about two weeks between China and Europe. Sea / air logistics certainly offer opportunities by combining the respective benefits of air and maritime shipping, but it remains to be seen which supply chains are the most suitable to offer a stable demand for its use. The case of Dubai underlines that such a service is possible under very specific circumstances and how replicable the connectivity of sea / air logistics is for other hubs is uncertain.