STAT TimesMay 2014 Issue
[caption id="attachment_419" align="aligncenter" width="300"] May 2014[/caption] Michael Mangeot, public relations manager at Atlanta, Georgia-headquartered UPS, believes that the three forces that shape business are customer demand, innovation and globalisation. Customers always want more, better and faster, he observed, and this leads to new ideas, such as e-commerce. "A novelty just a few years ago, global e-commerce and m-commerce will grow to $500 billion by 2020,” Mangeot stated. "Of course, our customers’ supply chains span the globe and they need rapid, customised transportation solutions to meet their needs. And when you talk about global customer demands, you have to take into account that a billion consumers from developing economies in places like Brazil, India and China are entering the global market for goods and services. Global trade flows are predicted to triple in the next 15-20 years. All of these factors drive the need for dedicated, expert cargo carriers,” he feels. Within this context, the express integrators sit in their own very clearly defined niche. John Pearson, CEO, Europe and global head of commercial at DHL Express (a division of Germany’s Deutsche Post DHL), considers that integrators never really ‘took over’ express freight from airlines. Rather: "The nature of our business – international, time-definite, door-to-door delivery on integrated networks – means that we are not generally competing with airlines. We operate our own dedicated air networks, but at the same time, we also use commercial airlines for the uplift of express shipments on specific routes. Airlines play an important role in our supply chain. Some airlines may offer door-to-door delivery services on specific routes. However, these are not always time-definite services, and no airline has the global door-to-door coverage offered by the integrators. Our core service offering is therefore significantly different.” Outsourcing Pearson explained that although running operations in-house as far as possible is key to ensuring a quality service that lives up to expectations, it is sometimes necessary to bring in third parties. "While the majority of our operations take place on our own, integrated networks, and this is an important factor in ensuring secure, reliable delivery services that run to a pre-determined schedule, we also outsource some operations where this is more efficient (ie utilising third-party capacity where volumes are thinner), more competitive from a service perspective (ie using a commercial airline which operates multiple daily rotations to a particular destination), or a regulatory requirement (ie in the case of air routes where designated carriers are operating). In the case of DHL, our own, integrated network also includes third-party airline services (ie charter operations) that operate on a dedicated basis, to a schedule dictated by DHL.”Mangeot defines outsourcing slightly differently. He said: "If you’re speaking of outsourcing from a carrier perspective, we never have at UPS Airlines. The term ‘outsourcing’ implies that you’ve given away something you once did yourself. We’ve never given away any routes or jobs to other carriers. Beyond the 237 jets we operate on a daily basis, we have supplemented our global network with approximately 300 vendor aircraft to reach places where we don’t have operating rights, where it doesn’t make sense to fly one of our heavy jets, or to meet a customer’s unique need.”It is certainly true that in some areas of aviation, such as ground handling or cargo handling, airlines are tending more and more to outsource to third parties in order to reduce their overheads and operate on a leaner model. For instance, according to the International Air Transport Association, "Airlines outsource more than 50 percent of ground handling and this trend is increasing.”Outsourcing non-core aspects of the business may be inspired by integrators like DHL – but it is perhaps more likely to be simply a function of today’s economic environment, where the customer’s demand for low cost and high quality forces any business to re-evaluate its modus operandi. As Mangeot points out, looking at outsourcing from the other end of the telescope, "Customers turning over portions of their business to UPS has been a win-win for many organisations. It allows customers to focus on their core competencies. For most companies, this includes manufacturing, marketing, and research and development. Logistics and transportation is not their reason for being. Well, it is ours. "The economic law of absolute advantage states that you should stick to your specialty and find someone else to do the things you’re not good at. This is where our supply chain solutions business comes in. Beyond transportation, we manage warehousing, fulfilment, distribution, return and repairs, Customs brokerage and even financial services for customers in healthcare, technology and retail businesses all over the planet,” he summed up. Technology UPS is continuing to refine its services in response to customer demands – and increasingly, technological advancements are playing an important role in keeping up with changing needs. For example, UPS My Choice, a web-based consumer delivery solution, gives customers more options about when, where and how they receive their shipments. UPS also uses technology to improve throughput in its hubs and to reduce aircraft fuel consumption, which – besides helping to reduce service costs –has environmental benefits, too. Memphis, Tennessee-headquartered FedEx, meanwhile, describes itself as having "invented express distribution” and has continued to innovate to this day. Toby Hay, global sales manager, FedEx HealthCare Solutions at FedEx Express Europe, Middle East, Indian Subcontinent & Africa, outlines: "FedEx created a new and distinct market 30 years ago when it began providing customers access to next-day just-in-time delivery service. The FedEx history of innovation is built on a series of ‘firsts’, including: installing computers in delivery vehicles, providing sophisticated automation for corporate mailing services and developing tracing capabilities and software. FedEx also pioneered the use of wireless technology for shipping more than 25 years ago with the introduction of the Digital Assisted Dispatch System (DADS). FedEx information technology is at the forefront of connecting customers around the world to economic markets and communities,” he was keen to point out. Hay went on: "SenseAware is one such breakthrough innovation from the company that has been revolutionising logistics since it first introduced overnight delivery and automated tracking. SenseAware first deployed to the life sciences and healthcare industries, and the service is now available to a broad selection of customer segments that ship high-value and/or highly critical packages. It provides near real-time access to a package’s vital statistics within the in-transit supply chain, or stationary inventory monitoring.” Innovations like SenseAware have crossed over to other segments of the logistics industry: track and trace technology is widespread; the use of wireless devices is increasing with iPads being introduced in warehouses, for instance; and ever more sophisticated containers that monitor the status of time and temperature-sensitive goods like pharmaceuticals are being developed. Nevertheless, not all of these developments can be wholly attributed to the express integrators, nor have they necessarily enabled standard carriers to gain market share in the express sector. Competition Pearson considered: "We do not see any specific carrier competing directly with us currently through offering international, time-definite, door-to-door delivery worldwide. While our view is that any business we would be gaining from general carriers is due to a shift in customers’ service requirements (ie a switch from air freight services to time-definite delivery services), there are examples of some airlines expanding to other areas of the value chain (for example, to include last-mile delivery) and partnering with other providers to offer door-to-door delivery services that are time-definite on specific routes.” One example is US-based carrier Amerijet, which offers door-to-door or door-to-airport shipping in the US and Canada – but not on the same scale as the integrators, nor with the same guarantees of speed and time of delivery. IAG Cargo offers a time-definite service called Prioritise that focuses on speed and reliability but does not include the door-to-door element. Air France-KLM’s Equation product is an example of a carrier’s express product that does appear to cover all bases, however. On the whole, it seems the key to ensuring continued success for the integrators lies not in worrying about whether airlines are competing with the demand seeking to prevent them gaining market share, but in focusing on their own core competence and continuing to innovate. Airlines have enough to do with regard to transporting passengers and general freight – indeed they are outsourcing non-core activities like handling – so they are not in a position to threaten the integrators, and nor, it seems, are they seriously attempting to do so.