So in the last fifteen years with the leading economies moving from a manufacturing to a services base, we have seen airfreight change from a position where there was some form of equilibrium of trade between most sophisticated countries to one where it has become virtually one way. In the good old days where export and import volumes were 50-50 this allowed many indigenous forwarders to obtain great market share in their home countries. As the pendulum started turning the other way and exports started shrinking and imports growing, multi-national forwarders quickly started swallowing up the market share leaving local forwarders fight for the scraps. Nowhere better to illustrate this change than to look at what has taken place in Australia over the past twenty-five years. In the early eighties publicly listed transportation companies Mayne Nickless, Brambles, TNT and several privately-owned forwarders Fliway, CH Cargo Handling, VIP, and Simpac more than held their own against the might of the multinationals. Today these companies no longer exist. TNT lives on as a Dutch company in name only. As air imports grew all were acquired by their foreign competitors. Today few of the larger trading countries exist where a local forwarder commands any market share. This has set the stage for the new era where the top five forwarders control over 80% of the global airfreight market.

During the course of 2009, 227 freighters have been taken out of service and we are not talking vintage aircraft like the DC 8, DC 10 and 727. Most are 747’s and MD 11’s, with many of the 747’s being the latest 400 series. What trade were most of these aircraft assigned to? Yes, you’re right China. There is such a glut of capacity that even with the parking up of so many aircraft yields are still continuing to decline. Air France/KLM have just announced they are getting back to their roots and handing their freighter fleet of 21 747’s and MD 11’s over to their subsidiary Martinair and now will only offer belly space. The combined airline since merging has been losing over $1 million per day from its freighter operations. The stage has been set for a far smaller market for airfreight to emerge from this global recession.

Why will this be so? Two things; the days of rampant consumerism as it has culminated into two years ago is over never to return and as trade starts to grow once again, ocean freight will play even a bigger role. Example; Polo Ralph Lauren pre-2009 relied upon airfreight to handle the bulk of their needs. Boss, Ralph Lauren, when hit by a shrinking market, studied areas of further cost-cutting and discovered by changing modes that he could cut his transportation costs to a fraction of what they were. Even though Polo is a premium brand, most of their goods are procured from China. Earlier this year Ralph Lauren issued the instruction all imports were to now move by sea and air was only to be used in an emergency. His decision has so far produced savings in the $millions. Others will, or already have followed suit.

Presently most of the large multinational forwarders, especially DHL, are fighting for their lives and are restructuring for the changing times. The industry has been turned on its ear. The fairy tale of exponential growth in air cargo over the next twenty-five years that Boeing forecasters continued to predict even as late as last year have turned them into laughing stocks. For airfreight forwarders to be relevant in the new era that is dawning upon the industry they will have to ramp up their ocean freight departments. The golden age of airfreight is now consigned to history.

That prognosis is basically how one of the bell weather companies FedEx, sees it too. Fred Smith, the eternal optimist, conceded the weak economy will continue to hurt FedEx’s results for some time to come. He did try to suggest there were glimmers of hope though. Inventories, he claimed were getting low. That is not how I view where FedEx is heading. When things do start to pick up, just as has been happening over the past five years 2nd day delivery and road will continue to bite into the highly profitable overnight business. Just like the email/scanner has replaced the fax, only if the package/envelope is a “must deliver by 10.00AM the following day”, second day and time definite trucking service will become the FedEx’s mainstay of domestic business. I believe USPS with their one price up 70lbs “New Priority Mail Box” is a winner and will further erode FedEx’s and UPS’ market share of the domestic express business.

FedEx has already become the best trucking company in America and with Yellow on the brink of bankruptcy they can step in and over the next two years swallow up the lion’s share of both the LTL and FTL business. Fred can start parking up all those gas guzzling DC 10′s and cancel his Boeing orders and put investment into thousands more Freightliner trucks and tens of thousands of 53 foot trailers. If I were him, I would strike a deal with DHL to get out of the international business altogether. As for UPS, they probably need another five years of management meetings to decide what engineering needs to take place to meet the changed business environment. That is why FedEx will pass them by.

With regards to the international operations, Fred Smith will rue the day someone sold him the bill of goods on China. International heavyweight express is history. Excess capacity has seen to that. Every airline in the world, especially the combination carriers are now offering overnight at their standard deferred rates tariffs. Who in the heck is going to listen to a FedEx/UPS/DHL salesman telling the customer he must continue to pay a premium to move his high priority goods? Of course the question is if he has any in the newly evolving economy! Fred, your best bet is to become closer with USPS, cut a deal with them for home delivery and continue to be their line haul operator. Your future is domestic and with many large American corporations bringing their factories back to America, Fred your company has a huge future.

Apart from these low cost airlines that compete with the Greyhound buses, there is not one carrier operating in the black. Never in aviation history have so many modern generation aircraft been parked up, most with little chance of flying another passenger or kilogram of freight ever again. Air N.Z. sent its first 747-400 to the Arizona desert to be broken up for parts! Less than five years ago a 400 series Boeing was considered as high tech as the day the world witnessed its maiden flight in the late eighties. British Airways is down to asking its staff to turn up for work with no pay! Others are moving to four day working weeks. Freight volume to many major destinations is down 40% and rates have never been lower. Some carriers are even dealing on the fuel surcharge in an effort to persuade a forwarder to tender the shipment to them. The airline industry is downsizing because all indications are present passenger travel and airfreight levels may remain with us for years to come, not months.