GSE procurement: Outsourcing works

posted on 27th June 2018

One of the world’s biggest airlines took the decision more than a decade ago to outsource much of its cargo handling work. And it has, the carrier reports, had no reason to regret that decision

There has been a clear trend among the world’s airlines to move away from self-handling, in order to concentrate on their core competency of flying passengers and, to a lesser degree, cargo. The onset of the global economic slump in late 2007 has only accentuated that process amongst carriers, but it was a theme readily identifiable prior to that.

United, one of the world’s biggest airlines, began outsourcing all its terminal cargo handling as far back as 2003.  A distinction was made between cargo handling in the warehouse – which was outsourced – and cargo handling on the ramp, which remained an in-house task. Moreover, when United and Continental merged in 2010, a similar process of terminal cargo handling outsourcing followed to divest the joint concern of its Continental warehouse handling equipment.

Mark Albrecht, director cargo logistics and international operations at United, was a key player in both processes. He says that the decision to outsource all cargo operations within the warehouse was taken for two reasons: to allow the carrier to concentrate on what it is good at, namely, flight operations, thus enabling it to concentrate its financial and human resources in that area; and to put the airline’s warehouse cargo handling into the hands of the experts, third-party service providers who are what he calls “time-tested” at terminal cargo handling.

Moreover, the third-party handlers with whom United has contracted its cargo handling business can benefit from the economies of scale that they gain by handling numerous carriers at any one station, while many of them also gain from the global nature of their business, handling as they do across large numbers of stations right around the world. They run on slim margins and they have become experts in warehouse handling at minimal cost, Albrecht points out.

Thus, United’s warehouse cargo handling now lies in the hands of the giants of the handling world such as Swissport, Worldwide Flight Services (WFS), Menzies and Celebi. More regionally based handlers are also employed at certain stations where there is less (or no) choice amongst the third-party service providers.

“There has been no service degradation” caused by the move to external handlers, Albrecht insists. Service level agreements (SLAs) are written into the contracts with the handlers, and a system of carrot and stick is used to incentivise and penalise performance according to the conditions of the SLA put in place. The emphasis is very much on the former, he considers, and it is a system that has worked well. There looks to be no sign of United returning to the days of self-handling in its cargo facilities.