Transcript Air Freight / Parcel Industry Transportation Strategy SCMN 4780

Air Freight / Parcel Industry
Transportation Strategy
SCMN 4780
Air Traffic
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Air / Parcel Share of US Transportation Market
Air Freight?
2010 US
Shipments
(TONS)
Truck
12,490 68%
Rail
1,776
10%
Pipeline
1,494
8%
Intermodal
1,380
8%
Inland Water
860
5%
Air
12
0%
Other
302
2%
Total
18,313
Intermodal
Inland
Water
Pipeline
Rail
Truck
Air carriers are airlines dedicated to the to the transport of freight via
plane; many airfreight airlines are divisions of larger passenger airlines
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Transportation Sector Revenue
Of the United States
transportation mode
industry revenue in
2010, air / parcel
freight totaled ~35%
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Trends in Air Freight
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International Transportation – Water / Air
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Air Freight Domestic Transportation
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Largest Global Air Cargo Carriers
Rank*
1
2
3
4
5
6
7
8
9
10
Cargo Airline
FedEx Express
UPS Airlines
Cathay Pacific
Korean Air
Emirates
Lufthansa
Singapore Airlines
China Airlines
Cargolux
EVA Air
2010
15,743
10,194
9,587
9,542
7,913
7,423
7,001
6,410
5,166
4,901
* Ranked by Ton Mile
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Federal Express History
• FedEx was founded as Federal Express Corp. in 1971 by 28-year-old Memphis
native Frederick W. Smith. As originally outlined in a term paper he wrote for a Yale
University economics class, his idea was an overnight delivery service.
• FedEx was launched when Smith supplemented a $4 million inheritance with $91
million in venture capital to get the company off the ground. The business model is
to ship all packages through a single hub with an owned private fleet of aircraft.
• Deregulation of the airline industry in 1977 gave the still-struggling company an
important boost through lessening federal aircraft and airline regulations
• US significant economic growth in the 1980s coupled with UPS inability to deal with
the significant opportunity provided business opportunities. It purchased Gelco and
Tiger International (aircraft and landing rights) to meet global business demand
FedEx revolutionized the was package delivery was thought of in business
world by replacing the model of using passenger aircraft by developing an
economically feasible methods of guaranteeing overnight package delivery.
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FedEx Company Overview
• FedEx Express – overnight courier services providing next day air
service within the US and time-definite international service
• FedEx Ground – guaranteed day-definite delivery within Canada
and USA at a cost savings vs. time-definite FedEx Express
• FedEx Freight – LTL and other freight services (formerly American
Freightways, Viking Freight, and Watkins Motor Lines
• FedEx Custom Critical – delivers urgent, valuable, or hazardous
items using trucks and chartered aircraft
• FedEx Supply Chain Services – provides 3rd party logistics
services (formerly Roadway Logistics Systems)
• FedEx Office – retail arm offering copying and digital printing,
professional finishing, document creation, Internet access, computer
rentals, signs and graphics, direct mail, and FedEx shipping
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History of UPS
Over the past 100 years, UPS has become an expert in transformation, growing from a
small messenger company to leading provider of air, ocean, ground, electronic services
1907 – Jim Casey borrows $100 from a friend to start the American Messenger
Company in Seattle, WA
1913 – company acquires first delivery car, a Model T Ford; changes technique to
consolidated delivery; Casey chooses name of Merchants Parcel Delivery
1919 – expands from Seattle to Oakland and changes name to United Parcel Service
1922 – UPS introduces innovative "common carrier" service in Los Angeles
1924 – UPS builds the first conveyor belt system for handling packages
1930 – UPS expands to east coast beginning delivery operations in NY and NJ
1953 – UPS resumes air operations; Blue Label Air provides two-day service to
Chicago, Detroit, and several major cities on the east and west coasts
1957 – first interstate expansion of common courier service. UPS serves areas of five
states within 150-mile radius of Chicago
1975 – UPS becomes first package delivery company to serve 48 contiguous states
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History of UPS (continued)
UPS Worldport Air Hub @ Louisville International Airport
1982 – UPS purchases first aircraft for use in air delivery service
1983 – began operations from Louisville air hub
1985 – began international air service between U.S. and six European countries
1990 – serving 175 countries, UPS schedules first flights to Asia on its own aircraft
1993 – UPS Logistics Group established to provide global supply chain solutions
1996 – UPS online tracking software provides a real-time image of receiver's signature
and allows a customer to track up to 100 packages at a time
2001 – UPS launches direct flights to China with China Express
2002 – UPS begins operations at new intra-Asia hub located in Philippines
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UPS Company Overview
• US Package Delivery – time definite letters, documents
and packages delivered to domestic locations
• International Package Delivery – letters, documents and
packages delivered to 220 countries world-wide
• Supply Chain Freight Services – 3rd party logistics freight
forwarding and operations
• UPS Ground Freight – Truckload and LTL business from
acquisition of American Freight, Overnight Transportation,
Viking Freight
• UPS Store – franchised stores offering retail shipping,
postal, printing and other business service centers
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Parcel Transportation Industry
There is no single definition which encompasses the express /
parcel industry. On a global basis, there are several firms that
operate in the market providing services domestically and
internationally. As a general rule, the industry is described by:
• Time Sensitivity – express / parcel service is characterized by the
time sensitivity involved in delivery; express carriers usually
undertake to deliver consignments by a specified day (often next
day) and by a specified time
• Package Size – maximum weight of parcel is 70lbs; this weight
describes the maximum that can be handled by one man; the weight
limit is important to ensure that standardized procedures, which are
essential to the profitable running of a network, are maintained
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Amazon.com Distribution Center
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Parcel Industry Market Share
USPS leads the world in
processing letter mail but UPS
and FedEx have significant
higher market share for parcels.
Letter volumes are decreasing
and parcel volumes are
increasing. Parcels represent
approximately 2% of mail volume.
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21st Century US Parcel Industry
UPS – FedEx – Airborne Express – USPS
( 2000 )
UPS – FedEx – DHL Express – USPS
( 2009 )
UPS – FedEx – USPS
( Today )
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Deutsche Post (DHL) – January 2009
“Today, DHL sets the benchmark for the bottom thresholds of pricing. There are deals out there that
FedEx and UPS just would not handle at the price DHL offers,” Jerry Hempstead said. “From a
competitive marketplace point of view, I know that when DHL is in the game and the other carriers
are aware of it, the pricing is significantly better from the competition.”
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Today’s Parcel Industry Comparison
UPS (union) ~ 65% of total
operating costs are labor
FedEx (non-union) ~ 45%
of total operating costs are
labor
USPS (union) ~ 80% labor
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Shipper Connectivity to Carrier
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UPS to Buy TNT Express for $6.8B
“UPS reached agreement to acquire TNT Express, a Dutch air carrier, for
$6.8 billion. The deal will greatly increase the company’s market share in
Europe and open inroads in China. The newly combined company will
earn 36% of its combined revenues outside the US, compared with 26% of
UPS’s current revenues, according to a statement from both companies.”
Mergers & Acquisitions March 17, 2012
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Future Projection – Air Freight
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