Steve - I agree with you. The article below appears to support this.
BURRELLE'S/VMS NewsAlert Service
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SOURCE: CNN Interactive
SUPPLIER: World Wide Web
DATE: 03-30-99
TIME: 08:01 EST
HEADLINE: Fedex Sees Large Freight As New Frontier Aims To Ride Surging Wave Of Just-in-time Production
Overnight letters, documents and international small package shipments have traditionally brought in far more revenue per pound than bulky freight, and FedEx has expanded for 26 years by attracting more and more small parcels.
This month, however, FedEx is expanding its presence in heavy freight - and company planners hope to propel the Memphis transportation firm into a leader in that fast-growing market segment. At the same time, they intend to revolutionize the way manufacturers distribute products in the United States and abroad.
International air freight shipments currently account for about $32 billion annually, and industry officials say that amount is growing about 6 percent a year. Domestic less-than-truckload freight shipments account for about $20 billion and are growing about 3 percent a year.
"This is a giant leap forward for the freight industry - not a tiny step," said Ken May, senior vice president in charge of FedEx's Air, Ground and Freight Services division. "It's going to be a major initiative for FedEx. We've spent years building our network, and now our distribution system has matured to the point that we can aggressively go after these kinds of new opportunities."
FedEx's move parallels trends toward "just-in-time" manufacturing and direct sales via the Internet. By moving goods from the assembly line directly to consumers, manufacturers can avoid warehousing costs and bring new products to market quicker.
FedEx entered the international air freight industry in 1989 when it acquired Flying Tigers. Since then, however, the company has consistently sought to increase international small package shipments and cut its percentage of heavy freight.
The air cargo industry has been suffering for about a decade - particularly in the Pacific where a surge in new airline capacity has depressed prices for freight shipments.
Large, airport-to-airport deliveries typically bring about 30 cents a pound, virtually unchanged in the last five years.
But FedEx says its new freight offering is different, and its customers are willing to pay for premium service. Instead of picking up a piece of heavy machinery at one airport and simply dropping it off at another, FedEx intends to pick up machinery at a manufacturing center, transport those items around the world, clear them through customs and deliver them to their final destinations.
"We'll handle freight deliveries from end to end, just as we do with small packages," May said. "We'll get each shipment to its destination a day or two quicker, and we'll provide much more information and accountability en route."
FedEx intends to charge about $2 a pound for such deliveries, company officials say.
Art Hatfield, transportation analyst at Morgan Keegan & Co. , said high-value, heavy freight plays to the strengths FedEx has developed in its small package business.
"As more manufacturers have moved to just-in-time production methods, the demand for fast, heavy shipments has grown," he said. "FedEx can accommodate these kinds of shipments without much added expense. I'd expect their freight service to be profitable almost from the outset."
FedEx has installed additional equipment in its package sorting hubs designed to accommodate shipments ranging from 150 pounds to 1 ton. The goods will travel via airplanes, trucks or both.
CompUSA, a national network of computer stores, is currently the largest single FedEx freight customer. Every week, executives at CompUSA hire FedEx to get palate-sized shipments of electronic goods to individual stores the day before they are featured in newspaper and television ads.
Pharmaceutical giant Pfizer transports about 30 palates a day via FedEx from its distribution facility in Memphis, company officials said.
"We use FedEx for pharmaceutical shipments to wholesalers," said Don Witherspoon, Pfizer's director of logistics. "It's important to us to be able to track each shipment and get guaranteed delivery times."
FedEx dominates next-morning deliveries with about 45 percent of the U.S. market. Until now, FedEx has been a minor player in the heavy freight business and seemed to regard bulky cargo as a way to fill empty space on some aircraft.
"FedEx has always treated freight as filler," said David Hoppin, transportation analyst at MergeGlobal, an air cargo consulting firm. "Their first priority was envelopes, then small packages and finally freight. Now, they've decided they're willing to dedicate more resources to freight."
FedEx's ability to transport heavy freight has grown due to last year's purchase of the Caliber companies and the continuing expansion of FedEx's airline fleet. FedEx inherited less-than-truckload carrier Viking Freight with the Caliber purchase as well as Roberts Express, which transports urgent truckload shipments.
And FedEx's fleet of wide-body jets is poised to expand rapidly in the next three years. FedEx flies 26 long-range MD11s and has 33 more on order. It operates 74 DC10s with 21 on order and 69 Airbuses with six on order.
Many of the DC10s will be converted to MD10s, a process that includes an airframe overhaul for each plane and new avionics that will allow them to fly with two pilots instead of three.
FDX Corp. shares on the New York Stock Exchange closed Friday at $94.68 3/4, down 25 cents in composite trading.
To reach reporter Dave Hirschman, call 529-5874 or E-mail DHirsch@ix.netcom.com
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