Air express industry on the fast track

Proliferation of e-commerce, access to markets and changing purchasing habits are opening up global markets like never before offering huge opportunities for the air express industry. The industry, including the traditional posts, is reinventing their model to maximize returns. Reji John…

The biggest breaking news in the express industry came in early last month when the US parcel delivery giant FedEx announced that it has agreed to buy Dutch rival TNT Express for $4.8 billion. The multibillion dollar deal would give FedEx access to TNT’s European road network and create a substantial competitor to other global giants like DHL and UPS. While FedEx already has a large air-express delivery operation in Europe, it is behind others when it comes to last mile delivery. Acquiring TNT would give it an established door-to-door road network in Europe that connects more than 40 countries, saving the US-based company the time and money required to build a new one.
“This transaction allows us to quickly broaden our portfolio of international transportation solutions to take advantage of market trends – especially the continuing growth of global e-commerce – and positions FedEx for greater long-term profitable growth,” said Frederick Smith, CEO, FedEx, in a statement.
When the merger is formally completed, FedEx, according to data from DHL, would have an estimated 22 percent share of Europe’s international express-delivery market. This will make FedEx the region’s third-largest package carrier in that category. DHL leads way ahead with 41 percent while UPS with 25 percent share comes in at the second place.
The latest industry forecast from Boeing estimates that the international air freight will drive overall world air cargo growth through 2033. Over the next 20 years, world air cargo traffic will grow 4.7 percent per year. Air freight, including express traffic, will average 4.8 percent annual growth, measured in revenue tonne-kilometers (RTK). Airmail traffic will grow much more slowly, averaging 1.0 percent annual growth through 2033. Overall, world air cargo traffic will increase from 207.8 billion RTKs in 2013 to 521.8 billion in 2033.
More than 40 percent of all freighter deliveries during the 20-year forecast period will be to carriers in the Asia Pacific region. Asia Pacific-based carriers will continue to receive a high proportion of large production freighters to serve their long-haul, intercontinental routes. North America will receive 30 percent of freighter deliveries over the next 20 years. Most of those deliveries will be to express carriers. Historically, up to three-quarters of medium widebodies, production and conversion, have supported express operations, in which relatively low airplane utilization makes converted freighters economically attractive. Standard-bodies will continue to support the needs of emerging regions, niche segments, and express operations.
International express traffic continued to grow faster than the average world air cargo growth rate, expanding 8.9 percent in 2012 and 5.8 percent in 2013. The distinction between express and general air cargo continues to blur. Traditional providers are expanding their time-definite offerings, and express carriers, freight airlines, and postal authorities are consolidating. Ultimately, the air cargo customer benefits from increased service options and lower prices as market pressure brings competing products into the market. International express traffic grew at nearly triple the rate of total worldwide air cargo traffic, averaging more than 22 percent annually from 1992 to 2000, as measured in RTKs. However, growth slowed considerably, to about 6.8 percent, between 2000 and 2008.
This pattern of rapid growth followed by more modest growth parallels the double-digit growth of the domestic US express industry during the 1970s and 1980s, which was followed by slower growth. However, international express traffic growth was interrupted in 2009, falling 12.6 percent as a result of the global economic downturn. The recovery was robust, with express traffic increasing 24.8 percent in 2010 and 11.6 percent in 2011. The upward trend continued in 2012 and 2013 with 8.9 percent and 5.8 percent growth, respectively. Higher-than-average annual growth boosted the express share of international air cargo traffic from 4.1 percent in 1992 to 13.4 percent in 2008. The international express share remained at about 13 percent of total international traffic during the global economic downturn from 2008 through 2010. In 2011, the international express market share increased to 14.7 percent and then, continuing to outpace the growth of international freight and mail, increased its share to 16.2 percent in 2012 and 17.0 percent in 2013. The average international express shipment size has also continued to grow. “Average shipment weight is estimated to have increased from 2.7 kilograms in 1992 to 6.6 kilograms in 2013, which indicates continuing inroads of express services into the traditional province of general air cargo. As businesses continue to expand beyond domestic and nearby regional markets, the international express sector will continue to grow, albeit at more sustainable, long-term rates,” said a Boeing analysis.
Changes in the behavior of shippers have also affected the air cargo market. E-mail and the electronic
transmission of documents have reduced the need to ship many types of small parcels and documents that are the life blood of express and courier companies. Better information and improved supply chain visibility allow shippers to plan and manage their supply chains with a higher degree of confidence, encroaching on one of the primary advantages of air cargo. Air cargo has traditionally offered shippers a unique means to recover from unforeseen events and emergencies. Anecdotal evidence suggests that improved supply chain visibility has reduced the occurrence of situations that demand the speed and reliability of air transport.
The more connected the world becomes the more opportunities for the logistics industry. The boom in online shopping across the world particularly in Asia, the Middle East and North Africa region will drive business in the postal and logistics segments.
“The more connected we are the more opportunities present themselves; so the online shopping trend will continue to impact both our international and domestic business segments. Over 25-30 per cent of our sales business is in the online segment. The strong growth in the online shopping and shipping arena will continue to be one of major focuses for 2015. We expect a 30 per cent growth in this segment in the next few years,” said ,” Ken Allen, chief executive officer of DHL Express during a recent press conference.
Speaking on the company’s performance in 2014, Allen said: “Last year we grew by four per cent and recorded €57 billion in revenues, with €3 billion in profits. 2014 was a very successful year for DHL and the Express division in particular grew very well. We recorded growth across all regions, with the Mena region enjoying the best performance in terms of growth.”
Talking about DHL Express’ plans for 2015, Allen said: “We are looking to increase our market share in the global express business. For now, the focus is on international trade. We have the best returns on our international business and we will continue to focus on that in the years to come.”
World airmail is forecast to grow at a consistent one percent per year. Risks that could affect future airmail growth include inroads by express operators into package mail, increasing reliance on Internet communication, entry of traditional postal services into express air freight operations, and more stringent security requirements. The baseline forecast for total world air cargo predicts that traffic will more than double between 2013 and 2033.
India Post, incidentally the world’s largest postal network, is demanding dedicated freighters from national carrier Air India to meet the rising demand for packet deliveries from India’s proliferating e-commerce sector. The demand was made by M S Ramanujan, Chief Postmaster General (CPMG) of Karnataka (a state in India) to the country’s Minister for Communications and Information Technology Ravi Shankar Prasad (the department of posts comes under this ministry). Ramanujam said the department’s e-commerce business in the last financial year had touched Rs 100 crore and it is slated to reach Rs 200 crore in 2015-2016. “With the booming air cargo business, we need dedicated aircraft for the transfer of air mail cargo. The department has been facing hurdles in using private airlines and Air India for the purpose,” he said.
In fact three freight aircraft had been taken on lease from Air India for a four-year period, which expired in 2010. Since then, consignments booked through the department have been facing delays as private airlines and Air India gave priority to more high yield products.
India Post recently launched a same-day delivery scheme for e-commerce giant Amazon in Bengaluru. This will be extended to other e-commerce giants like Flipkart, Snapdeal, etc in the future.
Recently, Swiss Post, Swiss WorldCargo and Matternet, have jointly launched a project to test the deployment of drones. The three companies are currently researching the practical uses that drone technology could offer, and the business case to support such a development. The possibilities range from internal logistics to the delivery of consignments over the last mile. The first tests involving drones are scheduled to take place in summer 2015 in Switzerland. “We are simply not ready as an industry to deal with the regulators and confront public acceptance.” Dieter Bambauer, Head of PostLogistics, Swiss Post, “With drone technology, we are testing a possible means of transportation of the future already today. Swiss Post aims to always be in tune with customer needs.”