After three years, the massive effort to consolidate cargo facilities at Los Angeles International Airport was reopened.
Los Angeles World Airports, an agency responsible for running LAX, put out a request to developers of private cargo facilities last month. They wanted to reimagine cargo operations and replace more than a dozen older facilities that had difficulty handling increased cargo volumes due 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.”
In 2018, the airport authority set out to renovate LAX’s cargo buildings. It even sought proposals from the private sector. After four companies or teams submitted their proposals, the airport authorities decided to delay the effort due to concerns that it could interfere with billions of dollars worth of modernization projects including terminal improvements and automated people mover.
The need to overhaul the cargo facility became more urgent during the hiatus. Air cargo reached record volumes during the pandemic. LAX handled almost 3 million metric tonnes of cargo last year, an increase of 21% over 2020 and 28% over pre-pandemic 2019.
In part, the increase was due to emergency shipments medical protective gear and vaccines in response to the pandemic. Port congestion and supply chain disruptions also contributed to the increase in demand for urgent products, forcing shippers and customers to shift to air cargo.
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.
LAX’s 27 cargo facilities currently exist on three acres. Some were built during the 1950s as the airport began its transformation from a regional airport to an international hub.
Hindes claimed that the oldest cargo facilities don’t have enough doors to allow for faster cargo movement. This can lead to bottlenecks. The buildings’ spread-out design makes it difficult to take trucks out of the airport complex and transport the cargo, as well as detours around a major 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 noted that LAX isn’t the only one facing this problem. 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.
Flexible approach
Although the LAX cargo facilities renovation is progressing, the approach has changed. Four years ago, the first request for proposals was issued. It asked for the design of a single, 450,000 square-foot, multi-story building. This was to be the first in a series of similar buildings. That first building cost between $325 million to $450 million.
But the RFP that was just released has no such requirements. Instead, the call for proposals remains 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 stated that the airport authority had also sought insights through the RFP in order to develop a more holistic approach for 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.
This was the right decision according to a cargo logistics expert outside of the country.
“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 indicated that bidders should not be discouraged by the possibility of sharing revenue for the first-time with LAWA.
“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
This RFP is just the first step of a long journey to improve cargo operations at LAX. Respondents have until January to submit their proposals. Mestas will review the proposals and then her LAWA team will settle on a design framework to modernize the cargo. Once the framework is approved, the environmental review process, which can take at most one year, will start. A second RFP can then be issued for actual construction work.
Mestas stated that she couldn’t give a timeline for 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 stated that this lack of a timetable is 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.”
