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Parcel promise

Mail has switched from letters to parcels as e-commerce growth has soared. With both postal services and the integrators looking for capacity, airlines have been profiting from the changes, as Ian Putzger discovers

Not long ago, the mail came up with the rations for many airlines, bringing juicy yields with few strings attached, while the integrators were stealing the express parcel business. Since then, postal services have turned into demanding customers whose fare increasingly consists of parcels, while the integrators are now looking to the airlines to help haul a chunk of their parcel business.


“Our integrator traffic went up over the past year. We have some fairly regular arrangements,” reports Mike Morey, director of operational strategy at Air Canada Cargo.


“Underbellies will be increasingly attractive for the smaller shipments. We often use the underbellies of partner carriers that provide FedEx door-to-door deliveries one or two days later for more price-sensitive Economy Express shipments,” declared FedEx founder and chief executive officer Fred Smith at the World Cargo Symposium in March.


FedEx has been showing a growing appetite for linehaul capacity on commercial airlines. According to one airline executive, the volume that the integrator is handing over to commercial carriers is likely to triple before the end of 2017.


Farming out some linehaul is part of FedEx’s plan, launched in late 2012, to grow profit by $1.7 billion over three years. Yields have been under pressure with shippers shifting as much of their parcel traffic as possible from premium to deferred service offerings. Yields in the premium segment, although down, are still high enough to justify flying FedEx freighters around the globe. Yields from economy services however, do not, remarks Shawn McWhorter, president for the Americas at Nippon Cargo Airlines. The Japanese freighter operator performs some linehaul for FedEx.


Horst Manner-Romberg, principal of MRU, a research and consulting firm that focuses on the express parcel and mail sectors, cites two factors behind the rise of deferred services versus premium offerings.


“The first is economic development; the second is the fact that standard networks are getting more efficient,” he remarks. If the difference between delivery times is lessened to a few hours, customers are inclined to see if they can adjust their processes to save costs.


Like much of the freight that has migrated from air to ocean transportation, many parcel streams that have shifted from express to deferred service are unlikely to revert back to the faster lane when the economic recovery sets in, Manner-Romberg warns.


FedEx top brass are not holding their breath. According to Smith, the premium segment is “just not going to be a significant growth business”.


Farming out linehaul has not just been confined to shorter, less prominent sectors, it has also affected trunk routes – for example, FedEx cut two of its 10 weekly transpacific runs. However, Smith has indicated that the intercontinental trunk routes are not going to stray much from their current levels of eight transpacific and seven transatlantic frequencies per week.


While all-cargo carriers like NCA do enter the equation, FedEx is looking first and foremost to passenger airlines like Hawaiian Air, which has been carrying some of its deferred transpacific traffic over its hub in Honolulu. >>

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