After a three-year delay, a massive effort to consolidate and modernize air cargo facilities at Los Angeles International Airport has resumed.
Last month, executives with Los Angeles World Airports, the city agency that runs LAX, sent out a request for proposals from private cargo facility developers to reimagine cargo operations at the airport, ultimately replacing more than two dozen aging facilities that have increasing difficulty handling higher air cargo volumes brought about by the pandemic.
“This is a project that’s long overdue,” said Terri Mestas, chief development officer with LAWA. “There’s a tremendous need to upgrade our aging cargo facilities.”
While there’s no definitive price tag on this modernization effort, Mestas said the cost will go into the hundreds of millions of dollars, “at the very least.”
The airport authority initially set out to redevelop LAX cargo buildings in 2018 and even solicited proposals from the private sector. But just after four companies or teams of companies had sent in their proposals, airport officials decided to postpone the effort out of concern it might interfere with the billions of dollars in modernization projects, including terminal improvements and the automated people mover.
But during the hiatus, the need for a cargo facility overhaul became more urgent as air cargo hit record volumes during the pandemic. Last year, LAX handled nearly 3 million metric tons of cargo, up 21% from 2020 and 28% from pre-pandemic 2019.
The increase was driven in part by emergency shipments of medical protective gear and vaccines related to the pandemic. Also contributing were supply chain disruptions and port congestion that forced shippers and their customers to shift to air cargo for the most urgently needed products.
All of this additional cargo further strained an already stretched system, according to Kent Hindes, a managing director overseeing supply chain professional logistics and industrial services in the Ontario office of Chicago-based Cushman & Wakefield.
The 27 existing cargo facilities are spread out over three acres at LAX; some were built in the 1950s, as the airport was beginning its transformation from a regional airfield to an international travel hub.
Hindes said these oldest cargo facilities lack multiple doors to speed the movement of cargo into and out of the buildings, which leads to frequent bottlenecks. In addition, the spread-out nature of the buildings makes for longer truck trips to carry the cargo out of the airport complex, including detouring around a major airport runway.
“The way cargo facilities are deployed now leads to frequent delays,” Hindes said. “There’s no question the need to modernize is urgent, and, as I talk to some people responsible for moving cargo, super-critical.”
What’s more, Hindes said, the older buildings do not have the ability to accommodate the increased automation and data management that has taken place over the last couple of decades.
“Today’s modern cargo buildings have larger, perfectly flat pathways with grooves and sensors to speed the movement of robotic cargo devices,” he said. “You just can’t put this technology into 60- and 70-year-old buildings; you have to build new facilities from the ground up.”
Hindes said LAX is hardly alone facing this predicament. He noted cargo modernization projects are planned or under way at several of the country’s major airports, including Atlanta’s Hartsfield-Jackson International Airport, New York’s John F. Kennedy International Airport and Miami International Airport. Some new cargo terminals have already opened at Chicago’s O’Hare International Airport.
But with LAX’s cargo overhaul on hold, some cargo movement operators had to innovate on their own.
At Mercury Air Cargo – once the largest independent cargo-handling company at LAX and now poised to become a unit of Singapore-based SATS Ltd. – efforts were made in late 2019 and throughout 2020 to reconfigure space and install some features to accommodate automation in its cargo buildings, according to a blog post at the time from Mercury President John Peery.
More flexible approach
While the LAX cargo facilities overhaul is moving forward again, the approach has changed. When the first request for proposals went out four years ago, the call was for the design of a single 450,000-square-foot multi-story building, meant to be the first of several similar buildings. The price tag for that first building was estimated between $325 million and $450 million.
But in the latest RFP to hit the street, there are no such prescriptive requirements; the call for proposals is relatively open-ended.
“We aim to give cargo development firms more leeway to innovate, so that we can come up with a plan that’s flexible in approach and forward-looking,” LAWA’s Mestas said.
She added the airport authority was also seeking insights through the RFP into a more holistic approach to the cargo modernization. “Ultimately, the 27 existing buildings will be reduced in number, but we’re leaving it up to the industry to suggest how many buildings are needed and how large those buildings should be,” she said.
There’s one other key change this time around: Mestas said LAWA is now considering a public-private partnership model in which it receives some future revenue from cargo flow in addition to the standard ground-lease revenue. What that revenue cut will be – and even if there will ultimately be one – has yet to be determined, she said.
One outside cargo logistics expert said this was a necessary change.
“Under this public-private partnership, both parties – the airport authority and the cargo facility operators – would have skin in the game,” said Nick Vyas, founding executive director of the Kendrick Global Supply Chain Management Institute at the USC Marshall School of Business.
“It will incentivize them to find solutions and create a more profitable business model,” Vyas continued. “LAWA has to be a true stakeholder, and a revenue stake allows for this.”
Vyas said the prospect of having to share revenue for the first time with LAWA should not dissuade bidders.
“Look, this modernization effort will allow for significantly more throughput of cargo, making the whole pie bigger,” he said. “That should more than offset any revenue that the operator has to share with LAWA.”
Long road ahead
Putting out this RFP is only the first step in a years-long journey to overhaul cargo operations at LAX. Responders have until January to submit their bids. Then Mestas and her team at LAWA will evaluate the proposals and settle on an overall design framework for the cargo modernization. Once that framework is agreed upon, the environmental review process begins, which will take at least a year. Then another RFP for the actual first-phase construction work can be released.
Mestas said she could not put a timeframe on this process.
“I can say that unlike some of the other projects at LAX, we’re not targeting the 2028 Summer Olympic Games as a completion date for this,” she said.
Vyas said this lack of a specific timetable is somewhat of a concern.
“Airports in Singapore and the rest of Asia already have state-of-the-art infrastructure and data support for cargo movement,” he said. “Right now, LAX, with its old infrastructure and outdated business practices that don’t allow for a high level of automation, cannot move cargo efficiently.”