Carriers serve up new menu choices

Want it today? Tomorrow morning? Tomorrow afternoon? Later in the week? You got it.

By Peter Bradley -- Logistics Management, 11/1/1998

There was nothing ironic in the political battle a few years ago in which air-express giant Federal Express led the charge for the freedom to move intrastate shipments by truck. Instead, the change in federal law that erased many old boundaries between air and motor carriers was crucial in defining the nature of today's airfreight business.

In fact, the change in the law mirrored in large part the change in the way air carriers were, and are, doing business. What airlines, forwarders, and integrated carriers operating their own aircraft have done over the last several years is to expand their services in a way that blurs the distinction between modes. It is no longer uncommon for what are nominally airfreight shipments to move entirely by truck. Nor is it unusual for a motor carrier to offer expedited services that might just place the freight on an aircraft. Furthermore, all the competitors are adding information and other value-added services to buttress their basic services.

The carriers are responding to demands from their shipper customers--demands for services based on when the goods arrive rather than the vehicle that carried them. It's not how, nor even how fast, but when a shipment is delivered that matters most. Carriers also are responding to the need to provide more and better information on the goods in their charge.

Buying Time

The trend toward blurred modal lines was noted last year by the Colography Group, an Atlanta-based consulting firm specializing in expedited transportation. In a report examining 20 years of aircargo deregulation, the company said that shifting demands by shippers--particularly a growing emphasis on time-definite services--have forced even the most successful carriers to alter their strategies. On issuing the report, Colography Group President Ted Scherck said, "Today's customer is buying transit time, not a transportation service."

Nothing has happened in the year since to change that direction. If anything, it has accelerated. Says Robert Dahl, a project director for the Seattle-based consultants Air Cargo Management Group, "There's been a real blurring of the distinction between the variety of providers. The integrated companies that were traditionally in the overnight business are clearly extending their reach into the deferred business. They are making an increased use of surface means to move shipments. It's a lot cheaper to put things on a truck than on an airplane. At the same time, a lot of companies that traditionally have been in the trucking business are realizing that their customers want time-definite service and they are developing services to provide it. They are moving into the same sphere as the integrated providers."

Further evidence of the shift toward time-definite services comes from a study commissioned by United Parcel Service. In that survey, 76 percent of the carrier's potential customers said reliability was the most important criterion in choosing an international delivery carrier.

The shift by shippers to time-definite services has a number of implications for aircargo carriers, not the least of which is the potential effect on a carrier's volumes and margins. Earlier this year, the Colography Group, in its Global Cargo Market Projections report, projected that the growth in global aircargo activity, measured by the value of goods shipped, would slow substantially over the next five years. "The slowing in the rate of aircargo growth will be driven by the natural ebb and flow of the global business cycle, a shift in the mix of aircargo traffic to lower-margined goods, and a move by value-conscious shippers to less-expensive surface modes that offer time-definite, but not necessarily next-day, delivery services," Scherck said on releasing the report.

Aircargo growth during the first half of this year was slower than it was last year, particularly on the domestic side, according to numbers reported by the Air Transport Association, a Washington-based trade association. International growth was still relatively strong, although well below the 1997 rate. (See Figure 1.)

Much of the slowdown in growth is a result of a slowing economy, especially on the international side. Another factor, suggests Dahl, is the growing use of e-mail, which supplants part of the overnight document business. (The carriers have not conceded that business, however. This spring, United Parcel Service introduced a group of services under the name Document Exchange, which provide, among other things, encrypted transmission of sensitive documents.)

Dahl also points to the success the U.S. Postal Service has had recently in attracting shipments away from express giants like United Parcel Service and Federal Express. That success is partly a result of last year's strike against UPS by the Teamsters union. Dahl says, "A lot of shippers were forced to use the Postal Service. They found that the pricing was very reasonable and the service was better than most people thought."

New Services Abound

But some of the slowdown is a result of shippers' efforts to match the level of service they buy more closely to their actual needs. Judging by the recent spate of new-service announcements, carriers feel that offering a breadth of time-specific and other valued-added services has become a competitive necessity.

For instance, United Parcel Service recently announced a money-back guarantee on all ground deliveries in Canada. The company says that this move completes its series of time-definite international delivery guarantees made over the last several months. The process began in February when UPS said it would guarantee all of its international air services to and from the United States.

Similarly, Emery Worldwide, a heavyweight aircargo carrier, expanded its next-day guaranteed service to include shipments to Mexico. The Express Gold Priority service is available for shipments to Mexico City, Guadalajara, Monterrey, and Chihuahua. The service provides airport-to-airport service. Customs clearance is available on request. Once again, reliability weighs more heavily than absolute speed.

Customer service is another area of competition. In the last few months, Airborne Express has opened its third and fourth regional customer-service centers, following up on its implementation of a computer-based telephone system for customer service. The new customer-service centers, located in Boise, Idaho, and Syracuse, N.Y., are part of Airborne's effort to regionalize its customer-service network. The process should be completed next year.

And then there's value-added services. For instance, BAX Global has expanded its high-security shipment service, Constant Surveillance Service, to non-government shippers. The service is designed for high-tech and high-value shipments, sensitive military parts, and confidential materials.

The additional services aren't limited to freight. More and more carriers are promoting new information-based options. Federal Express, for example, recently introduced three Internet-based tools to enable its customers to connect their applications with FedEx's information systems. These Application Programming Interfaces, as they are called, are still in the beta stage. They include FedEx ShipAPI, which allows integration of FedEx shipping and tracking functions into a customer's Internet services, and FedEx TrackAPI, which allows instant shipment tracking. Both services use public-key encryption technology. The third service, FedEx intraNetShip, is an html software package that links with company intranets to allow shipping arrangements to be made directly from desktop computers.

Emery has established a service with SkyTel Communications that enables shipment tracking through SkyTel's SkyWriter messaging service. Up to 30 shipments at a time can be tracked using the shipment number, shipper's reference number, or consignee's reference number.

UPS, for its part, has taken steps to meet the growing demand for information in international shipping. The carrier announced recently that customers now could track international shipments on its Internet site in 16 languages.

Friendlier Skies

Airfreight forwarders and the airlines have responded to shippers' demands as well. Over the last 20 years, the forwarders have watched market share dwindle as the integrated carriers' business took off. The competition became even tougher in recent years when airlines shifted to narrow-body aircraft on many domestic routes, reducing available cargo space. But a number of domestic specialists have thrived by offering specialized services.

For example, many forwarders have developed agreements with airlines to ensure access to cargo space. Pilot Air Freight recently allied itself with Delta Airlines, becoming the only forwarder to participate in the carrier's "Elite Partnership" program. The partnership gives Pilot priority over other forwarders for boarding and provides the forwarder with preferred status for booking, allocations, and blocked-space agreements. In addition, Delta has based a cargo supervisor in Pilot's Atlanta facility to assist with tracing and tracking operations.

Pilot also joined forces with ITM Corp. of Seattle to implement that company's ITMShip system. That system is a communications tool that allows shippers to link with Pilot via the Internet. Shippers can book and track shipments and print forms from the Web site.

Another partnership program links Lufthansa Cargo with international forwarders. The airline and four forwarders, Gebr. Hellmann GmbH & Co., Jet Speed Air Cargo Forwarders Ltd., Expeditors International, and Air Express International, began testing what they call the Business Partnership Program in January. Additional forwarders that have since joined the alliance include Kuhne & Nagel, Schenker International, Panalpina, and Danzas. The program aims to integrate the services of the airline and forwarders, according to Lufthansa.

Other airlines also are taking steps to offer services similar to what the integrators provide. Southwest Airlines, for instance, has introduced its Cargo Accounting Tracking & Tracing System, which allows its service centers to provide customers with flight and shipment information.

Lufthansa Cargo Service last spring introduced its version of time-definite services. The airline offers a specific time of availability of shipments at destination. All shipments are bar coded to allow continuous tracking. The airline offers three levels of service, the top two of which are guaranteed. The service is available at more than 100 Lufthansa Cargo stations worldwide.

The range of service offerings is likely to grow as other carriers respond to competitors and to shipper demands. That means more juggling for carriers, perhaps, but more choices for shippers.Slower Growth

Freight revenue ton miles Annual % change

(millions)

Domestic operations

Jan.-Jun. 1997 4,394.9 6.2

Jan.-Jun. 1998 4,560.9 3.8

International operations

Jan.-Jun. 1997 4,132.4 17.0

Jan.-Jun. 1998 4,580.9 10.0

Carriers surveyed include Alaska, America West, American, Continental, Delta, Federal Express, Northwest, Southwest, Trans World, United, UPS, US Airways, Aloha, Continental Micronesia, Hawaiian, and Midwest Express.

Source: Air Transport Association