FedEx to buy capacity operated by other carriers

Faced with a shift in demand by shippers to lower-yield, deferred services, FedEx will turn to outsourced capacity in the bellies and on the main decks of passenger and freighter aircraft operated by other carriers.

The disclosure was made by David Cunningham, the President of FedEx’s Asia Pacific Division, during his keynote address at the just-concluded Cargo Facts Asia event in Hong Kong.

FedEx has said previously that it is changing its network in response to the shift of demand from high-yield to lower-yield services. The company has also said that those changes would include cutting capacity and moving lower-yield shipments to lower-cost modes. But FedEx has not specified exactly which “lower-cost modes” it would utilize – until this week’s Cargo Facts Asia.

The reliance on outsourced capacity will be a substantial change for FedEx Express, which has traditionally relied almost exclusively on owned capacity.

Cunningham’s announcement comes as FedEx celebrates its fortieth anniversary this week. Federal Express, which pioneered the air express concept, is now the world’s largest air cargo carrier (reporting 15.97 billion RTKs in 2011) and operator of the world’s largest jet freighter fleet (currently 347 units).

Cunningham broke down the total international air and ocean freight revenue pie taken by the three main groups that compete for it, over the course of the 17 years from 1994 to 2011. At the beginning of the period, 69% of the freight by revenue was carried on container ships, 26% moved as international air freight, and the remaining 6% was air express. Seventeen years later, the express traffic share had almost doubled, accounting for 11% of the total, and ocean freight’s share had also increased by five percentage points to 74%, while revenue from international air freight carriage sank by 10 points to just 15%. This is interesting because it shows how, even with overall demand rising, the combination carriers and non-express all-cargo carriers are being squeezed from both above and below.

FedEx, Cunningham said, was adjusting to these changes in traffic.

As to the Cargo Facts Asia event itself, we were joined this year by a capacity crowd at the Langham Hotel in Hong Kong, including senior executives from companies in all facets of the air freight and express industry and from all parts of the world. We will post more about the event here over the next week, but I think the best way to sum it up is to say that everyone I spoke to is planning to return in 2014 — as am I.

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One Comment

  1. michaelcanon says:

    Point of order. I guess it depends upon your definition of “pioneered” and “express.” Five years prior to Fred Smith’s launch of a hub and spoke domestic business, Larry Hilbloom launched DHL’s air express business. It was not “hub and spoke.” It was get the customers’s stuff to its destination anywhere in the world as fast as possible. Two different models. Two different paths to success. FedEx has lumbered along in serving the world. It still does not have operations of its own in many important markets, like Russia. It is big in the US thanks to excellent operations and good lobbying. But internationally, it started late and has never caught up.

    Who was the pioneer in the express business?  DHL gets my vote.

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