WASHINGTON, D.C.: As airline and forwarder members of The International Air Cargo Association convene in Istanbul April 24/25, FedEx chairman and CEO Fred Smith warns the growth of air express and ocean freight services are "gnawing at the traditional air cargo market in the middle."
Speaking in Washington, D.C., Smith said ocean freight and air express had a CAGR of six percent between 2004 and 2012 compared to just one percent for the traditional air cargo sector.
In 1994 the split between express, air cargo and ocean as measured in US dollars was six percent, 39 percent and 55 percent respectively. By 2012 a modal shift had already occurred as the ratios changed to 12 percent, 25 percent and 63 percent. "Yields on such [air cargo] traffic have declined in real terms for 20 years, and it's clear that more legacy freighter capacity reductions will occur because of these trends," he noted.
With a fleet of 649 aircraft, FedEx remains the world's No.1 airfreight carrier flying an annual 16+ billion freight tonne-kilometres (FTKs). Its nearest cargo rival is the yet-to-be profitable AF-KL-MP group with 10.5 billion FTKs followed by UPS at 10.4 billion, Lufthansa Cargo with 10.2 billion and Emirates at 9.3 billion.
Noting the continued hazards of protectionism Smith commented: "A number of carriers here and abroad face competition from government-owned and subsidized carriers, particularly those in the Middle East and China. Regulatory mechanisms exist in the U.S. that can be used to address the issues these situations present. That being said, for years FedEx Express has been competing with government-owned or subsidized entities, including both carriers and postal organizations. Based on our experience, we have found nimble, innovative, and flexible approaches to meeting the needs of the market to be the best antidote in these situations."
FedEx continues to lobby Washington to encourage competition which, Smith said, has saved consumers enormous amounts of money and made the U.S. economy much more efficient: "Did you know that logistics costs as a percent of GDP have dropped from more than 15 percent in the early 70s to less than nine percent today? It is one of the great success stories of American government and business, allowing new business models like Walmart, Amazon, and Home Depot. All of this was due to the aviation and trucking deregulation that occurred in the U.S. between 1977 and 1994," he explained.
Smith concluded by saying the continued growth of international trade will require air express and those traditional cargo-centric operators that remain viable to adopt innovative systems to make the world supply chain more efficient for high-tech and high-value products.