It's been tough going for most segments of the airfreight industry lately. Soaring fuel prices, lawsuits between competitors, less-than-successful mergers, falling shipment volumes, and contract disputes characterized the past year. Given the slump in the U.S. economy, it's unlikely that next year will be much better. Here's a look at some of the major events of the past year that will shape the airfreight and express industry in the near future.

• Airlines. The airline industry worldwide was affected by sharply rising fuel prices in 2000, according to the International Civil Aviation Organization (ICAO) . Worldwide operating profits averaged 3.3 percent, down from 4.0 percent in 1999. Operating revenues rose 7.6 percent, but operating expenses rose by 8.4 percent over year-ago levels, creating a significant gap between income and expenses.

Nevertheless, a few airlines did very well. One was Lufthansa Cargo , which struggled for a few years after being spun off as a stand-alone company. That strategy—now being pursued by several other airlines—has finally paid off. In 2000, the cargo and logistics unit reported a 23.0-percent increase in revenues, and operating profits rose 31.0 percent compared with 1999 figures.

Prospects for Asian carriers, which depend heavily on trade with North America, are not as bright. As the U.S. and Japanese economies struggle, several airlines are reported to be slashing trans-Pacific rates to gain market share and fill excess capacity.

Consolidation in the U.S. market continues. The U.S. Department of Transportation (DOT) approved the transfer of operating authorities from Trans Word Airlines (TWA) to American Airlines. By contrast, the proposed merger of United Airlines and USAirways has yet to be approved by the U.S. Justice Department because of concerns that it could provoke mergers among the remaining U.S. airlines.

Both United and American are leading players in a surprising new airfreight alliance that was announced in late May. That alliance, Integres Global Logistics, also includes national LTL carrier Roadway Express, freight forwarder UTi Worldwide, and logistics technology providers Unisys and G-Log . The group will offer small and medium-sized shippers time-definite multimodal transportation and logistics services through an integrated, Web-based information system. Integres, led by former United Airlines Cargo vice president Jim Hartigan, plans to compete for door-to-door business with its combination of asset-based, non–asset-based, and information technology partners. Small and medium-sized freight forwarders are up in arms, charging that Integres will take business away from them, not from integrated carriers, as they say they were told.

• Integrated carriers. As go FedEx and United Parcel Service (UPS ), so goes the integrated carrier segment of the air and express market. And both carriers are reporting lower shipment volumes, revenues, and profits for the first quarter of this year. Although revenues for UPS were up 4.0 percent compared with figures from the first quarter of 2000, the company saw an 11.5-percent drop in operating profits. Acquisitions allowed FedEx to post slightly higher revenues and net income for the fiscal year ending May 31, but the company is warning shareholders not to expect too much.

FedEx and UPS are far from alone: Heavyweight carriers BAX Global and Emery Worldwide, along with parcel carrier Airborne Express , all have announced cutbacks. BAX Global cut staffing, disposed of some aircraft, and closed some stations earlier this year. Emery cut more than 900 jobs at its airline subsidiary and will reduce its aircraft fleet by about one-third, shifting its focus more to non–asset-based business. And despite the launch of a ground-delivery service and better-than-expected volumes in its Airborne@home service, Airborne Express saw a first-quarter net loss of $17 million. The company recently announced that it would lay off 640 employees.

Falling domestic freight volumes are largely to blame, but the majority of cargo flights moving in and out of the United States are at less than maximum utilization, says Hugh Cutler, vice president of international transportation for Emery Worldwide. Speaking at a Council of Logistics Management meeting, Cutler said shippers were reacting strongly to changing economic conditions. "As the economy slows, infrastructure will be better able to keep up, so more shipments are moving to deferred freight," he said. "Premium overnight volumes are decreasing."

Foreign investment also was a hot topic this past year. TNT Worldwide, the Netherlands-based express and logistics company that is partially owned by the Dutch post office, launched a domestic courier service between major U.S. business centers. And the relationship between DHL and Deutsche Post , the partially privatized German postal service, came under attack by both UPS and FedEx. The two giants had petitioned the U.S. DOT to prevent DHL from operating a ground network and serving as an airfreight forwarder in the United States, alleging that DHL was actually controlled by Deutsche Post. DOT ruled against UPS and FedEx, leaving DHL free to restructure its U.S. business and pursue new opportunities, such as an agreement with Northwest Airlines to carry DHL's cargo to major destinations in Asia.

• Freight forwarders. Several freight-forwarding companies—including Kuehne & Nagel, Danzas Group, and Expeditors International —reported strong growth in revenues and profits this year. But some major acquisitions deeply shook this industry segment.

International freight forwarder and customs broker Circle International was acquired by EGL Global Logistics , which specialized in domestic air freight. The integration of the two companies has been costly, leading executives to lay off 13 percent of EGL's workforce, consolidate EGL's and Circle's operations, and outsource aircraft operations in a bid to return to profitability.

Other big mergers involved freight forwarders and logistics companies that want to offer global supply chain management services. In June, Switzerland's Kuehne & Nagel acquired USCO Logistics , a non–asset-based logistics management company that focuses on warehousing and distribution-based logistics services in the United States and Canada. The acquisition, said Executive Chairman Klaus-Michael Kuehne, will allow his company to offer single-source, integrated logistics solutions in Europe, Asia, and North America.

In a similar bid to expand the scope of its service offerings, United Parcel Service acquired international forwarding and logistics supplier Fritz Cos . and seven customs brokers along the U.S. borders with Canada and Mexico. UPS will integrate these companies with its Unistar subsidiary into a single customs brokerage and forwarding organization.

Germany's Schenker AG has taken a different approach, redesigning its U.S. operations as part of a plan to double its U.S. market share in the next three years. The company, which will be the primary supplier of freight-forwarding and customs brokerage services for the 2002 Winter Olympics in Salt Lake City, will add several offices and customer-service centers this year. Schenker also opened an "Integrated Service Center" in Miami last month. The facility, like its counterparts in Rotterdam and Singapore, will handle a wide range of warehousing, distribution, order-fulfillment, and assembly operations for multinational clients.