06/19/2020

Business Courier / Chris Wetterich / June 19, 2020

While much of the region’s white-collar workers have hunkered down at their kitchen tables, couches and home offices for work since mid-March, an invisible beam zaps the foreheads of nearly 4,500 employees at DHL Express’ North American superhub at Cincinnati/Northern Kentucky International Airport before they start to work.

Anyone with a temperature of more than 100.4 degrees is taken to a secondary screening and likely sent home if a fever is confirmed.

DHL Express — one of two major cargo tenants at CVG, with the other being Amazon.com Inc. — started booming in April. In May, 438 flights departed, up 138 or 15% from the same month in 2019, as economies across the world started to reopen. Revenues in its Americas division, which includes DHL’s CVG superhub, were up 11.1% in the first quarter of the year. Officials with Amazon, which is building a $1.5 billion air services hub on airport property and already operates from there, ignored repeated requests to comment for this story, but CVG officials said it continues to average 30-35 flights per day, a number that has stayed consistent throughout the pandemic.

The growth of cargo along with the pandemic’s drastic reduction of the passenger airline industry has led to it being the main business happening at CVG, with cargo landed weight far surpassing that of passengers, a key metric. By late April, DHL Express moved cargo volume at December-like peak volumes, said Mike Parra, DHL Express’ CEO for the Americas. In April, CVG set a new, all-time record for landed cargo weight.

“It’s been like a rocket ship in May and thus far in June, with inbound shipment volume booming, particularly from Asia and Europe,” Parra said. “It’s a good sign of what’s to come. Get ready because we are going to see peak volumes through the end of the year. If anything we’ll see greater than that. It’s a great problem to have.”

Some analysts believe the pandemic-induced shift in consumer behavior toward e-commerce could be permanent, with companies like DHL and Amazon among the beneficiaries, along with regional logistics hubs such as Greater Cincinnati and CVG.

Combined with companies potentially shifting their global supply chains toward the domestic market, that could mean that two of the region’s strengths — its logistics and aviation industries — allow it to persevere and excel in the post-coronavirus economy.

“We’re perfectly positioned in that conversation,” said CVG CEO Candace McGraw. “CVG is the epicenter of e-commerce. That’s how I’m going to start talking about our airport.”

‘Huge potential growth area’

DHL, the No. 1 package carrier in the world, returned to CVG in 2009 from Wilmington and has done three expansions since, opening its North American super-hub in 2013, one of only three globally. When people in the U.S. ship, they’re more likely to use UPS and Federal Express. But DHL is No. 1 in the rest of the world. To attain that ranking, it needs a robust presence here. By using CVG, DHL can meet optimal flight time targets to North America, Asia, Africa, Europe and the Middle East. The airport has four runways that cross each other, so even during a time of heavy winds from one direction, planes still can take off, avoiding delays.

McGraw started at CVG as chief administrative officer at the end of 2009 and when she took over as CEO in 2011, she and the board decided to try to boost the airport’s cargo operations, while at the same time leveraging hundreds of acres of available land it had.

“It became very clear to me when I took over that that was a huge potential growth area for us,” she said.

The airport also had plenty of land that could be used by cargo companies and related businesses. DHL, which refers to itself as a “big yellow machine,” has 50 more acres of airport land it can expand upon.

“DHL wanted to grow, and we did everything we could to help that growth. We said, ‘all right, we want your business to be successful and the airport to be successful, how can we use our land assets to bring customers close to you?’” McGraw said. “It’s such a competitive advantage for customers to be able to deliver their goods to DHL at 10 p.m. and be on the other side of the world the next day. We left a wide open space for them for future growth. It holds true with DHL. It holds true with Amazon.”

The strategy culminated in the region’s biggest economic win during this century when CVG and Northern Kentucky landed Amazon’s air services hub. Under construction now, it will occupy 700 acres of airport land, including 250 it bought from a private developer and deeded to CVG. It can expand on 450 more prime acres located between two CVG runways.

Amazon’s day sort is done by DHL in its CVG facilities, and DHL itself continues to hire employees, Parra said.

“It’s at full tilt,” Parra said of DHL’s work for Amazon. “We consider them a friend. They are exploding domestically and good for them. We are running at full capacity. I’m sure they are looking forward to the day that they open their building. It is a good working relationship professionally. They are a customer and we are a customer of theirs at times. We’re blessed to be in Cincinnati and Northern Kentucky.”

The airport intentionally has not sold any of its land to companies, instead leasing it and retaining long-term revenue. Airports must lease land at fair market value, per federal regulations.

Those lease payments are going to be needed, with CVG having lost 53 of its 88 airline routes temporarily at the pandemic’s peak.

The airport receives a fee each time a plane lands, so those flight suspensions hurt the bottom line, with CVG having had to slash its budget by 18% so far. More cargo could move to companies like DHL because of the flight reduction in passenger airlines, which carried nearly half of airfreight nationwide.

“Cargo has been immensely important to us in our bottom line throughout this pandemic situation,” McGraw said. “It is literally helping us keep our lights on.”

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