Express market stabilizes and targets growth

  • March 26, 2014

By John W. McCurry and Adina Solomon

The express airfreight business is showing new life as of late as companies position themselves to take advantage of expanding markets while reducing costs. The early results in 2014 seem to show an upward trend. Air Cargo World recently spoke with several express carriers and forwarders to take the pulse of the sector.

FedEx declined an interview because it was the company’s quiet period, which is mandated by the U.S. Securities and Exchange Commission.

DHL Express is in the midst of network expansion program, particularly in the Americas, as it moves to more fuel-efficient planes to serve growing Latin American markets. The latest move is the addition of five Boeing 737-400 aircraft. Three will be based in the U.S. and two in Venezuela.

Red Alexander, DHL’s vice president, aviation for the Americas, says all five planes will be operational by Aug. 1. He says the addition is a continuation of an expansion that started around the middle of 2013 when DHL Express began its third around-the-world operation, a Hong Kong to Los Angeles to Leipzig to Hong Kong route on a Boeing 777 freighter operated by Southern Air.

DHL and Southern Air also announced an extension of their agreement to operate four 777 freighters.

“We decided to right size the fleet with what’s right for the market,” Alexander explains. “These are more fuel efficient, and they fit into DHL’s overall carbon emission reduction program.”

Alexander describes business conditions in the express market as stable with pockets of growth.

“You see some growth in some areas around the world,” he says. “Obviously, Asia continues to be a growing market. Each market is different.”

In the Americas, traffic between the U.S. and Mexico and to other Latin American countries continues to be promising. Express is also seeing some growth in areas of Europe, he says.

Alexander believes some of the growth is being driven by e-commerce.

“You are seeing more and more B-to-C type traffic, whether it’s Amazon or Google or wherever, it continues to expand,” he says.

DHL has also invested US$160 million (115 million euros) to expand its overall express business in Mexico.

“That is also a part of our CO2 program, by doing an overall fleet rework, air and ground,” Alexander says.

Panama is another major Latin America hub for DHL, which has expanded its facility there from 3,000 square meters (32,291 square feet) to 12,000 square meters (129,166 square feet).

UPS says it’s getting good results from its UPS Worldwide Express Freight service, which was launched in early 2013. It targets time-sensitive and high-value international heavyweight shipments.

“We started this as a pilot with our key customers out of China to cut our teeth on it,” says John Miltenis, UPS’s vice president of international marketing. “It’s exceeded our expectations. Our air network and ground operations groups have done stellar work.”

One user of UPS’ service is Mophie, a fast-growing Michigan-based company that sells battery packs for smartphones. The short product life cycles of its products require them to move materials quickly. Miltenis says UPS was able to coordinate Mophie’s multiple suppliers in China, consolidate products and then ship by pallet from China to the U.S. in one day. UPS consolidated 10,000 individual packages into 10 pallets.

The process gave retailers the ability to have Mophie products on shelves a full day earlier than with the previous shipping method.

Miltenis says the service is showing strength out of Asia and also for customers moving products within Europe. High-tech electronics and “mission-critical” automotive parts are among products shipped this way.

TNT Express says the air cargo express market is steady – and possibly improving.

“It’s fairly stable at the moment – has been for the last couple of years,” Martin Sodergard, managing director network operations at TNT Express, says. “We’re seeing some positive signs starting already in the fourth quarter last year and going into January. We’re of course hoping that that’s telling us that there’s a turn in the longer-term demand, but I think we’re kind of holding our breath until the end of the first quarter, and then we’ll call it a trend or not.”

Sodergard says international air express was growing even in the downturn periods for the Netherlands-based company, with the exception of late 2008 to early 2009.

“The shippers continue to take more interest in express services, whether it’s air express or road express or a mixture of the two,” he explains.

BDP International is a freight forwarder in Philadelphia that deals in project logistics, oil and dangerous goods. Gary Phelps, director airfreight Americas at BDP International, says the company is seeing a small uptick in the air express market.

“The numbers are bearing out to show increase in year over year,” Phelps says.

Graf Air Freight, Inc., a freight forwarder based in Chicago, is also seeing air cargo express business pick up after the recession.

“I think everyone in the industry kind of buckled up and did what they had to,” Michael Fitzgerald, president of Graf Air Freight, says. “But now, there’s a definite up-kick in the marketplace across the board. Seems like in all the industries that we deal with anyway, they all seem to be not only hiring people but they’re busier.”

Sodergard of TNT says a trend going on in the air express market is an increase in near-shoring – “manufacturing, assembly and distribution at shorter distances rather than the long supply chains that have developed in the previous decade,” he explains – though he concedes that it’s a little early to tell whether this is a continuing trend.

“Where you may have seen manufacturing completely in Asia, in China or one of the other manufacturing economies, then coming back to Europe or North America to Mexico,” Sodergard says. “So closer-to-market manufacturing that’s driven by more automation in manufacturing, so less dependency on the labor costs and also I think shorter times to market.”

This is happening across the air express industry partly because product cycle times are becoming shorter.

“Our customers then want to be able to react fast to the market, and that’s difficult when you have very extended supply chains,” he says.

Fitzgerald of Graf Air Freight says as the economy improves and companies grow busier, air cargo express benefits.

“When they get busy and they get backed up, they have to ship their materials by air,” he explains. “It’s starting to go again where everything has to go. Everything has to be there yesterday.”

A few years ago, that wasn’t the case.

“There weren’t very many people who were busy, and they had all the time in the world to get the material to point A to point B, but now when they’re busy, production lines are getting busy. Everyone’s working all the time,” Fitzgerald says. “Just as soon as it comes off, they’ve got to get it there.”

Phelps of BDP International says time is of the essence when it comes to delivering express airfreight.

“People don’t look at it as, ‘Well, you almost got it there,’” he says. “It’s either you got it there or you didn’t get it there.”

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