Developing Air Freight Logistics in Latin America: The case of Tocumen Airport, Panama

By Jean-Paul Rodrigue. 

A bright prospect: Air Cargo in Latin America

Panama has historically been a small player in the Latin American airline industry. The national economy did not generate a large amount of air traffic and because of the small size of the country there is almost no domestic market to develop on, unlike countries such as Mexico, Brazil and Colombia whose airline industry relies upon significant and fast growing domestic markets. With a traffic of 6.92 million passengers and 116,332 tons of air cargo handled in 2012 Tocumen ranked first airport in Central America, but only ranked the 20th largest Latin American airport. Still, airports such as Mexico City, Bogotá (a major hub), and Lima are respectively handling a traffic 2 to 4 times as much as Panama City, in large part because of their substantial local populations. A similar situation applies to air cargo where many Latin American airports have established connections with North American and European cities for cargo such as fresh flowers and produce for exports, but also an active and growing import markets for cargo such as electronics and medical equipment. Due to the great circle distance, direct connections with Asia are much less common.

Two factors account for the role an airport plays in air cargo operations. The first relates to the metropolitan area as a generator or attractor of freight, which is linked to consumer market demand, high added value manufacturing activities and cold chain logistics (perishables, pharmaceuticals). The second factor is the decision by freight forwarders to use a location as an intermediary within their network, which are often spanning continents. Airports such as Anchorage, Memphis, Louisville, Liege and Leipzig have almost the totality of the cargo they handle attributed to their connecting role within national and international air cargo networks of major consolidators such as UPS, FedEx and DHL. The growth of passenger and air cargo operations in Panama is indicative of the larger role it plays in Latin America by connecting the circum-Caribbean, North and South American air transport systems.

Building on Latitudinal Intermediacy

COPA airlines is a medium-sized Panamanian company operating from its Panama City hub (Tocumen International Airport). Panama City is strategically located as the intermediate location of the Americas; the main reason why the airline labels its hub as "Hub of the Americas ". This hub services two ranges; the circum-Caribbean, through a standard hub-and-spoke network structure and a latitudinal intermediacy connecting medium and long distance destinations in the northern and southern hemispheres. Because of its central location, Panama covers well the Caribbean and offers a competitive alternative for Miami, particularly for passengers from Central and South America (see Figure 1). Its fleet is composed of Boeing 737-700/800s and Embraer E190s, which are medium ranged aircrafts with a capacity between 100 and 160 passengers and therefore well suited to the service network configuration. The range of the 737-800 is around 5,500 km, placing services such as Panama-Montevideo (5,400 km) at the extreme range. From Tocumen COPA airlines is thus able to reach almost all the major destinations in North and South America with the exception of the Pacific Northwest and the tip of South America (southern Chile and Argentina).

Figure 1: The Network of COPA airlines.

copa_airlines.pdf

Hubs and Corporate Strategy

There is an intricate relationship between air hubs and corporate management in multinational corporations. Corporate headquarters tend to be located in metropolitan areas that are well-integrated into air transport networks. Inversely, airlines tend to select their hubs based on the level of corporate activity since business travelers are an important source of revenue. Among the many advantages of a well-connected airport city is the availability of direct flights to a large number of locations which supports managerial efficiency. Although Panama has a relatively low level of cargo activity, particularly in comparison to major hubs within the region (e.g. Bogotá, Lima, São Paulo, Quito), its high air connectivity level represents a potential to latch freight distribution activities. However, these developments may require changes in how air cargo logistics takes place in Panama, particularly the planning and setting of airport centric logistics zones.

Aerotropo-what?

With passengers and air cargo traffic more than doubling over the last eight years, the expectations for Panama to become a major air hub will require additional supporting infrastructure, both within the airport but also in its vicinity. In 2012 the terminal added 12 new gates through the "Muelle Norte" expansion project enabling the airport to accommodate more and larger planes (including the A380). On another front, Tocumen is moving forward with the "aerotropolis" development model where the airport terminal becomes the hub of a cluster of airport-related activities (offices, hotels, residential areas, distribution centers), all of which closely integrated in a transport system composed of highways and transit corridors linking the airport with the central urban district. For instance, the Panamanian government and the airport plan to develop adjacent to the airport a 330 acres logistics zone as the first development phase of an aerotropolis. A number of private projects in the airport-centric logistics sector are also under way in the vicinity such as the Global Business Terminal (GBT), "Panatropolis", and Industrial Park of the Americas. The nature and extent of the logistical links that will emerge between the airport and various logistics zones remains to be assessed as each supply chain has its own requirements and operational strategies.

The Air Cargo Challenge

The expansion of the Panama Canal is therefore not the only significant challenge facing the development of logistics in the region. Panama is well placed to see the emergence of a dual hub opportunity with the integration of maritime and air supply chains. The convergence of maritime and air cargo logistics may lead to the formation of new supply chains combining air and sea legs using Panama as a hub. Throughout Latin America the development of air transportation is crucial and will see in the coming years the multiplication of passengers and cargo services and the pressures to provide new infrastructure. Many airports and supply chains will be facing pressures to accommodate a growing intensity of flows. This will not just imply more airplanes in the air, but more cargo activity nearby airports. In good part because of the high added value activities involved, careful consideration must be placed in making sure that airport development is coordinated with the development of a supporting base of freight and logistics activities.

Additional Readings

Global Business Terminal: http://www.gbtpanama.com/

Kasarda, J.D. (2011) "Big plans for Panama Panama’s Airport City and Aerotropolis Ambitions", Airport World, Volume 16, Issue 3.

Panatropolis: http://panatropolis.com/

Jean-Paul Rodrigue. With a Ph.D. in Transport Geography from the Université de Montréal, he has been a professor at Hofstra University (New York) since 1999. Rodrigue's research interests cover the fields of transportation and economics as they relate to logistics and global freight distribution. He is a member of the PortEconomics.eu initiative and of the World Economic Forum’s Global Agenda Council on Advanced Manufacturing (2011-13). He was commissioned by UN-Habitat to write a chapter about urban freight distribution for the 2013 Global Report on Human Settlements.