FedEx, UPS still rule the roost
Domestic and international shippers have learned to love true express services, but imitators need not apply.
By Staff -- Logistics Management, 7/1/1999
The term express is as old as the freight industry itself. Over the years, it has been applied to many different types of service, from small-parcel shipments to overnight envelopes to any kind of premium service.The marketplace is beginning to define the term more precisely. Today, express means a service that is based on predictable, published transit times; includes a service guarantee; and has tracking and tracing capability. Size or mode is no longer relevant: Express service can include guaranteed services offered by LTL carriers as well as overnight package services offered by integrated air carriers. It can mean international air transportation as well as domestic ground service.
That's one reason it is so difficult to compare FedEx and United Parcel Service (UPS). Although they both are considered to be express carriers, in reality, they have held very different market positions. FedEx, the largest division of FDX Corp., focuses on the overnight domestic air-express business, a niche that it dominates. UPS, by contrast, still depends on its domestic ground package business for more than 70 percent of its revenues. UPS controls 80 percent of that market.
Increasingly, customer demand for new services is leading these companies to compete with each other more directly. Both now offer a similar mix of true express services and clearly defined time-variable services. Since its purchase of Caliber's various divisions, especially the RPS ground parcel service, FDX has been able to offer an established brand that can compete directly with UPS's ground operations. RPS, whose business is still only one-tenth the size of UPS's ground business, experienced revenue growth of 27 percent in 1998. It also increased its shipment volumes by 24 percent--despite having implemented a 3.7-percent rate increase. RPS even is experimenting with the home-delivery business, which UPS controls.
UPS, by contrast, saw its ground-shipment volumes drop slightly while airfreight volumes increased by 10.5 percent--a change that some observers believe signals a strategic move to drive more business into higher-revenue express services. UPS also appears to be recasting its traditional ground-delivery business as an express product: The company last year added on-time delivery guarantees for those services.
The two carriers compete even more directly in the international arena, where FedEx earned $3.5 billion and UPS earned $3.2 billion in 1998. Those numbers represent increases in the 10- to 12-percent range for both carriers, which helped them recover from 1997 losses in this sector. Overall, both companies enjoyed revenue gains--16 percent for FDX and 10 percent for UPS--and both nearly doubled their operating income.
The U.S. Postal Service (USPS) also is becoming a serious player in the express market. Express Mail continues to be popular, and USPS is promoting it heavily as a low-cost alternative to international package shipments. Priority Mail, which is supported by air service provided by CNF Transportation, is gaining market share on all the integrated carriers, says Ed Wolfe, a transportation analyst in the New York office of the investment firm of BT Alex. Brown. Shippers increasingly view Priority Mail as express, he says, even though it currently lacks the service guarantees that other express products offer and doesn't provide tracking or tracing capabilities at this time. Delivery confirmation now is available, however, and a service guarantee is coming soon.
Express on the Growth Track
Boeing Commercial Airplane Group's World Air Cargo Forecast estimates that express shipments currently account for about 80 percent of total airfreight revenues and 60 percent of airfreight volume within the United States. Worldwide, those numbers are much lower: Express air freight represents only 10 percent of global airfreight revenues and 6 percent of volumes. By 2017, however, Boeing expects those figures to jump to 60 percent of worldwide revenues and 40 percent of volumes.
Express air freight, in fact, now is picking up momentum in international markets, especially in Europe and Asia. This growth pattern reflects the express industry's experience in the United States. Once shippers are exposed to express air freight, it seems, there is no turning back.
Rising interest in true express services is slowing the growth of lower-cost deferred airfreight services, according to Ted Scherck, president of the Colography Group, an Atlanta-based consulting firm that tracks the express and expedited freight industries. Reduced demand for domestic deferred freight is creating overcapacity in the domestic market, leading integrators to compete more vigorously for heavyweight shipments to fill their excess space, he observes. The result, Scherck says, is a continued increase in the average weight of a domestic shipment and further erosion of carriers' pricing power.
According to the Colography Group's latest market projections for 1999, overnight letters and envelopes will constitute 46.4 percent of all domestic air shipments, up 9.7 percent from 1998's levels. Overnight packages will account for less than 20 percent of the domestic air market but are expected to show strong year-over-year growth of 11.4 percent.
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