transportation strategy scmn 4780 air freight / parcel industry

Transportation Strategy Transportation Strategy SCMN 4780SCMN 4780

Air Freight / Parcel Industry Air Freight / Parcel Industry


Air Traffic Air Traffic

Air / ParcelAir / Parcel


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

RailTruck

Air / Parcel Share of US Transportation MarketAir / Parcel Share of US Transportation Market

Pipeline

Inter- modal

Inland Water


Air carriers are airlines dedicated to the to the transport of freight via plane; many airfreight airlines are divisions of larger passenger airlines

Air Freight?


Transportation Sector RevenueTransportation Sector Revenue


Of the United States transportation mode industry revenue in 2010, air / parcel freight totaled ~35%


Trends in Air Freight Trends in Air Freight



International Transportation – Water / Air International Transportation – Water / Air



Air Freight Domestic Transportation Air Freight Domestic Transportation


Transportation Strategy Transportation Strategy SCMN 4780SCMN 47808Air / ParcelAir / Parcel

Rank* Cargo Airline 20101 FedEx Express 15,7432 UPS Airlines 10,1943 Cathay Pacific 9,5874 Korean Air 9,5425 Emirates 7,9136 Lufthansa 7,4237 Singapore Airlines 7,0018 China Airlines 6,4109 Cargolux 5,16610 EVA Air 4,901

Largest Global Air Cargo Carriers Largest Global Air Cargo Carriers

* Ranked by Ton Mile


• 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

Federal Express HistoryFederal Express History


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.


FedEx Company Overview 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


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 Service1922 – UPS introduces innovative "common carrier" service in Los Angeles1924 – UPS builds the first conveyor belt system for handling packages1930 – UPS expands to east coast beginning delivery operations in NY and NJ1953 – 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 Chicago1975 – UPS becomes first package delivery company to serve 48 contiguous states

History of UPSHistory 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


1982 – UPS purchases first aircraft for use in air delivery service1983 – began operations from Louisville air hub1985 – began international air service between U.S. and six European countries1990 – serving 175 countries, UPS schedules first flights to Asia on its own aircraft1993 – 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 time2001 – UPS launches direct flights to China with China Express2002 – UPS begins operations at new intra-Asia hub located in Philippines

History of UPS (continued)History of UPS (continued)


UPS Worldport Air Hub @ Louisville International Airport


UPS Company Overview 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


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

Parcel Transportation Industry Parcel Transportation Industry



Amazon.com Distribution CenterAmazon.com Distribution Center



Parcel Industry Market Share 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.


2121stst Century US Parcel Industry Century US Parcel Industry


UPS – FedEx – Airborne Express – USPS ( 2000 )

UPS – FedEx – DHL Express – USPS

( 2009 )

UPS – FedEx – USPS ( Today )


Deutsche Post (DHL) – January 2009Deutsche 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.”


Today’s Parcel Industry Comparison Today’s Parcel Industry Comparison

UPS (union) ~ 65% of total operating costs are labor FedEx (non-union) ~ 45% of total operating costs are laborUSPS (union) ~ 80% labor


Shipper Connectivity to Carrier Shipper Connectivity to Carrier



“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

UPS to Buy TNT Express for $6.8B UPS to Buy TNT Express for $6.8B


Future Projection – Air Freight Future Projection – Air Freight


transportation strategy scmn 4780 air freight / parcel industry

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