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E-commerce boom

E-commerce is driving growth and investment in the express segment, as Ian Putzger finds out

Freighter orders have been a faithful reflection of the dynamics of different parts of the industry. Overcapacity and downward yield pressure in the general freight market have dampened operators' appetite for large widebody freighters and conversions, but anything from a Boeing 767 down has been in high demand thanks to blistering growth in the express parcel segment. FedEx recently underscored this with an order for six more 767-300 cargo aircraft. The planes are due to join the integrator's fleet in fiscal years 2019 and 2020.


FedEx has been going strong. The quarter ending 31 May produced an operating profit of $757 million for the company, up 135% on the previous year. The logistics firm saw improvements in its express business both in the quarter and the full fiscal year, which management attributed to a profit improvement programme launched a year ago, strong growth in its e-commerce business and to the positive impact of lower fuel costs on its balance sheet.


Results for UPS have also been up. Its earnings per share reached a new record in the first quarter of this year on the strength of a 15% rise in international operating profit. The integrator's results were up across all regions, including the domestic US arena. In its express business, rival DHL enjoyed a year-on-year increase in EBIT of 7.5% to €357 million in the first quarter.


Air France-KLM-Martinair is not adding freighters to its lineup, but it is moving to boost its express handling capabilities at Amsterdam Airport Schiphol. The expansion of the airport's passenger terminal forces the carrier to relocate its express facility and management is using the opportunity to install a new express sorting system, which is due to come on stream in the middle of next year.


Harry de Groot, Director of Express Solutions, says that the investment marks the convergence of several factors, namely strong growth in express and e-commerce business and the carrier's intensified focus on bellyhold cargo.


 "With less maindeck capacity it would be odd to invest in horses," he comments. "Express and e-commerce has been strong around the world. If we combine express and postal, it is already quite a strong part of our business," he continues, adding that there is ample room for further growth in this arena.


The integrators are also ramping up their capacity. DHL is spending $108 million on the expansion of its North American hub in Cincinnati, boosting its parcel processing capacity and increasing ramp space for freighters. Elsewhere the integrator has spent $200 million to double the size of its European hub in Leipzig and $85 million on its hub in Singapore over the past two years.


In North America the next step for DHL will be the development of a gateway in Chicago to complement the company's existing hub structure, says Greg Hewitt, Chief Executive Officer of DHL Express USA.


The e-commerce market in China is a major target for DHL. In June its e-commerce division opened a new distribution centre in Shenzhen with a capacity to handle up to 18 million shipments a year. The facility is designated to function as a consolidation point for international outbound shipments from southern China. Next the integrator plans to expand its e-commerce consolidation centres in Shanghai and Hong Kong to process 48 million and 71 million shipments every year respectively.


E-commerce has been a huge driver for growth in the express sector. "E-commerce now plays a much bigger role than five years ago," says Hewitt. Since its launch last July, DHL's Shanghai distribution centre has seen an increase of 700% in outbound e-commerce shipments from China, according to the company. >>

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