News / 'A market ripe for disruption' says FedEx, as it targets air cargo traffic

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FedEx is aiming to take a bigger bite out of the traditional air cargo market.

Four decades after the integrated express carriers wrested express – the most profitable business – from the airline-forwarder axis, the US company wants to increasingly fill its freighters with premium traffic.

Waving goodbye to the US air mail business, which went to UPS last autumn, FedEx has had spare capacity, even though it embarked on a significant fleet reduction spree, which included disposal of nine MD11Fs and 22 B767 freighters. Meanwhile, ecommerce growth has slowed, with increasing volumes moving on the ground and question marks over looming regulatory moves which could seriously impact this segment.

According to FedEx chief customer officer Brie Carere, the airfreight market is a logical target to look for volume. In the earnings call following the integrator’s latest results, she noted that FedEx only had a low single-digit share of the global market. Moreover, she sees promising opportunities in the sector’s slow evolution.

“The airfreight market is fragmented and the shipping processes are antiquated. It’s a market ripe for disruption,” she declared.

FedEx has taken decisive steps to tackle this market. It has been building up a dedicated sales organisation and is looking to leverage its technology to gain business.

The other key ingredient is the ‘tricolor’ strategy the company has developed for its air network. This sees the ‘purple’ part of proprietary freighters moving premium parcel traffic overnight to its hubs for next-day delivery; the ‘orange’ segment targeting high-yield freight, with daytime flights serving major regional sorting centres; and ‘white’ using belly capacity on passenger aircraft for deferred traffic.

FedEx and UPS are no strangers to carrying airfreight, which they have traditionally used to fill vacant space on their aircraft. However, users have always faced the risk of the space they booked disappearing as parcel traffic surged. Ram Menen, the former head of cargo at Emirates, noted that the airline sometimes used integrated carriers, but found “their performance was not up to the mark”.

He added: “FedEx treats express packages just like a passenger airline treats passengers. Express takes top priority and traditional freight is treated on a subject-to-load basis. The board needs to deal with the mindset of managing a less-profitable operation and start thinking kilos instead of packages.”

There is also the question of where FedEx will turn for airfreight business. Can its own sales organisation generate enough business from shippers to fill the fleet?

“FedEx is comparatively small and does not have the kind of volumes to fill the freighters consistently on its own. For the 3PL operators, they are a competitor and carry the perceived threat of stealing their proprietary customers. If they really want to attract the 3PLs, they will need to take serious pricing action to compete, and attract business which would dilute their yields, resulting in lower revenue/profitability for their operation. Pressure would be immense,” Mr Menen reflected.

He reckons the best way for FedEx to remain profitable would be to shrink the fleet further by retiring old planes and leasing-out others on an ACMI basis.

Stan Wraight, president and CEO of SASI Worldwide, agreed with Ms Carere that the traditional air cargo market will face massive change, as large ecommerce firms are looking to deal directly with carriers to move their traffic, cutting out the middlemen. Other large shippers will follow, he predicted.

However, he has doubts that the integrated express carriers are the best choice, as their hub-and-spoke model is slower than the direct flights airlines offer – and it comes at a higher cost (paying for multiple flights to and from hubs and the sorting infrastructure in the middle); just like the integrators are losing the final mile to nimble operators that can move at a fraction of the cost.

Meanwhile, Amazon Air Cargo last year also said it was trying to attract traditional airfreight business.