Weekly Wrap: Airfreight’s ties to the USPS and FedEx’s cross-border moves in China

In this episode of the Air Cargo World Weekly Wrap, Editor Caryn Livingston and columnist Cathy Roberson discuss airfreight trends for the week of Aug. 24, 2020. The United States Postal Service (USPS) has been a point of contention in politics of late, and in last week’s column , Roberson covered some of the carriers that could be affected by cost-cutting at the agency. In the Weekly Wrap, the team discusses more about what that could mean for FedEx, which holds the largest logistics contract for domestic delivery with the USPS. The conversation around airfreight’s role in providing postal service continued on Air Cargo World this week, with a look at how a USPS subsidy Postmaster General Louis DeJoy has suggested could be cut enables cargo operations in remote communities in Alaska . In more news from FedEx, this week’s column from Roberson looks at how the integrator has been first to adjust to customs changes in China enabling smoother cross-border e-commerce operations. That could give FedEx a huge boost in the race to secure market share in the booming e-commerce market from China. Hear the discussion of all this and more in the most recent edition of the Weekly Wrap. https://vimeo.com/452702951 A transcript is available below. This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Caryn Livingston Hi everyone and welcome to on air with air cargo world the podcasts of air cargo world since 1941, the leading magazine for the air freight industry. I'm Caryn Livingston, Air Cargo World's editor, and I'm joined today by our regular columnist and cargo facts consulting senior consultant, Cathy Roberson. Cathy, thanks for joining today. Cathy Roberson Hi, good to be here. Thank you. Yeah, we're glad to have you. Caryn Livingston This is the weekly recap of what's happening in air cargo for the week of August 24, 2020. Today is Friday, August 28, 2020. Before we begin, I'd like to thank our sponsors: Alaska Airlines Cargo, American Airlines Cargo, Apex Logistics International, San Bernardino Int. Airport, EVA Air, Hawaiian Air Cargo, Incheon Airport, Southwest Airlines Cargo, and Swiss World Cargo. Thanks for your support of Air Cargo World. So, Cathy, the first thing I was hoping to talk about today is a developing story of major interest to a lot of Americans right now, which is the current cost-cutting measures at the US Postal Service. Right, so a week ago in your column, you covered what some of those cuts might mean to FedEx, which has a large contract with the USPS. So what were some of the major points you took away from your research for the column? Cathy Roberson Really interesting. FedEx is the post office's largest supplier, the biggest supplier and vice versa post offices FedEx is the largest customer. And with which I find it really interesting because take it away. I mean, that could be It can mean financial, some financial issues for felons. What I found interesting as well as looking at the top 10 suppliers for the post office, seven out of the 10 were transportation providers. And I got to thinking was probably going to happen and this is just me. But again, the largest logistics person or one that does have that background will probably want to review every contract that the post office has. And with seven out of the 10 already being transportation providers, and when you start looking further back, there's even a lot more. There are opportunities for consolidation, there are opportunities to rewrite these contracts, and there's going to be a fallout and I've told several folks that I'm, We all know the post office needs some changes, you know, changes need to be made, they need to be upgraded, and so on and so forth. And like them or not, the joy does come with a logistics background. He was former CEO of Newbridge logistics, which SBI logistics bought a few years ago. And from that the joy headed up experience supply chain division, so he does have that background. However, as you know, we've all heard there's been a lot of political noise. So what's back and what's not, it's been kind of difficult to pull apart. Caryn Livingston Yeah, yeah. Yeah. Right. Yeah. And politics aside, as you mentioned this, this could potentially cause some headaches for FedEx since especially since they've cut their relationship with Amazon which I know some of their competitors, you know, have that benefit. Cathy Roberson But uh, yeah, exactly. So I mean, if you think about it, you know, this contract could be divvied up the FedEx contract is really is a domestic, primarily domestic male and it could be divvied up between a number of other air providers ups has always wanted a piece of it. They did get some of it in the last contract, but not near as much as the ups. FedEx. FedEx has had this contract. This current contract, I think, was an extension of 2013. But they've had a relationship going back to the early 2000s. But if you think about it, I mean, some of the passenger airlines, they do carry some mail and parcels on behalf of the post office. Also, I think united is probably the largest of the passenger airlines that do that. It could be, you know, the contract could be redrawn and divided up among all passenger airlines. I mean, who knows. But I do expect to see a revision of that. I believe it comes up for renewal in another couple of years. Caryn Livingston Yeah, you bring up an interesting point regarding some of the other companies that have existing relationships with the post office but maybe not as large a piece of the pie as FedEx. Do you think there's any way for some of these other airlines or logistics companies to position themselves to kind of deliver more competitive service or where might some of these efficiencies come from? Cathy Roberson What I think one of the greatest strengths that FedEx has going forward is its network. It's got one of the best air networks, hands down. So if these other airlines could offer a similar or position themselves for even a regional at a good price offer a good competitive rate that they could be brought make a profit, but it's still reasonable for the post office. I think they could stand a chance with no problem. Right? Yeah. Yeah. Yeah. I mean, it is crazy. I'm just scrolling through. Yeah, I mean, we've got a number. just scrolling through my article here. Forgive me. It was written last week. But I mean, FedEx is listed as the top supplier $2 billion and then the next Next one down is Eagle Express long lines, which is a trucking division. It's a lot of trucking truck providers that handle a lot of the mail on behalf of the post office. Right. Yeah, I think you'll see a lot more of that concern. I would imagine you'll see a lot more consolidation within the trucking part. Because I think the next air related is Kalitta. And united. I think those three, including FedEx are at the top. Yeah. Caryn Livingston Got it. Yeah. Yeah. I also kind of shifting to regional operations. I got the chance to look into the USPS relationship with air freight this week as it relates to Alaska's bypass mail program, which is something that you hear about, you know, a regional Alaska service, but a lot of Americans may not know you know, What it takes to service, the freight needs of Alaska. And the common narrative I heard from Northern air cargo and Alaska Airlines, who both have freight operations in the state was that despite the cost of the bypass mail subsidy, the program was still the most efficient and cost-effective way to deliver, you know, an important service in Alaska. And then, kind of it got me thinking that aviation, in general, is being pretty heavily subsidized right now by governments around the world, including in the US, which kind of tells me that most countries recognize the importance of aviation in today's economy, and our global society. So I wonder what your thoughts are on how we should think about USPS his relationship with air freight in that context. Cathy Roberson I totally agree with you. I mean, aviation is extremely important. It's good that governments around the world they know that. And I think the relationship between the post office and the air should be, should be a very close one, particularly, as they've turned their focus more and more into parcels. A lot of the policies are e-commerce related. And we both know with e-commerce, you know, Time Time is, you know, is very important. So, I think they need to stick with the relationships, probably expand them if they can, with the fedexes, the United States and so on, to build out a network that is friendly towards e-commerce providers. I think they can almost get a nice competitive advantage that way against even the ups and the FedEx. If they can get down that road. I mean, eBay is a big customer of theirs and, and they would definitely benefit as well as some of the small to medium-sized e-commerce providers. Caryn Livingston Yeah, you make a good point that even if you know traditional mail may be on the decline, obviously especially during the pandemic. e-commerce volumes are just skyrocketing as people are not you know, going to the mall, they're not going out. Everything's ordered from home. Cathy Roberson It's been crazy this year has been absolutely crazy with the UPS FedEx and the post office, trying to keep up with all the volumes, the ground volumes, but also from the air as well. I know both FedEx and UPS have implemented surcharges on their international lanes, particularly between Asia and the US and that's a lot of not only the people stuff coming in. But it's also e-commerce and inventory replenishment because as we're coming up to the holiday season, we're also supposedly coming up to Amazon's Prime Day, which they said, it's going to occur sometime in fourth quarter. So there's a lot of push a lot of movement going on there, as well. Caryn Livingston Yeah, I'll be very interested to see how the balance shifts between, you know, normal Black Friday and Prime Day what is that going to look like this year? Cathy Roberson Oh, gosh, yes, definitely. In fact, you know, the rumor is that uh, that Amazon's Prime Day is going to be in mid-October, which means it's going to be kind of an extended peak season or holiday season. And I think it was Salesforce. That projects at 10% of the revenue that's usually cyber week that Cyber Monday. is going to shift away from there to Amazon's Prime Day. So the whole dynamics, I think of this holiday season is going to be pretty crazy. Because the SSC where their stores, Target, Walmart as well, it's not going to be open on Thanksgiving Day. So, so you know what everybody's going to be doing on Thanksgiving. You know, they're going to be looking for those Thanksgiving Day sales online. Because you know, there'll be there. Caryn Livingston Right. Yeah. I mean, that does seem like a good strategy this year, kind of starting in October, so that you have time to kind of balance out the capacity shortages that are going to arise this year. Cathy Roberson Oh, yeah. Yeah, there's quite a few folks are saying, there's not gonna be enough capacity from this. But I mean, it's gonna depend on the consumer. You know, how much and how well The economy. Yeah. is doing there is enough money, you know, if they're willing to part with a lot of money, Caryn Livingston right? Yeah. And on the e-commerce topic your column for this week is another look at FedEx in some ways, this time in China, which is kind of instituted some customs changes to facilitate cross border e-commerce shipments and so I'm I'm curious as you've looked closer at FedEx is operations there. What do you see as their position in serving cross border e-commerce demand from China? Cathy Roberson I think they're doing that main her main hubs in China they have been working really hard and really going after that whole e-commerce, the whole cross border, but I think a lot of it's been more on the Asia to Europe, plane, and also into the southeast, Southeast Asia markets as well. And They have they were actually the first international Express company to take advantage of these new changes and China's customs laws, which is making it a lot easier for that flow to occur. China is the largest cross border country, ecommerce country. And you know, they're the focal point. And so so yeah, there's me starting last year. FedEx has been working on improving the customs, they can do real time customs. The data is being pushed back to the China's customs agency, and they're allowed so it's just a quicker, smoother process, whether it's going to a foreign warehouse, or if it's going straight to a business or such for final delivery. Caryn Livingston It seems like good timing on their part as well, especially as they're kind of stepping back their relationship with Amazon in the US and then ramping up in in China. And you also mentioned their European operations in your column. So it does seem they're trying to diversify geographically a bid? Cathy Roberson I think so. I think so. I think they're, they're, they're doing fine. And they're gonna prove to everybody, you don't have to have Amazon as a customer. I mean, they've got Walmart, you know, the other big e commerce player. So they've got a number of other retailers and and they do a lot in the commerce space. And thanks to their acquisition of TNT, they're able to take advantage of the TNT operations in Europe and just build out that whole cross border between countries. I mean, that's 20 plus countries right there. There's a lot of cross border movement. So they're taking their air, the traditional TNT, trucking, the road network, and they're putting them together and they're coming up with a very nice offering to go up against DHL ups and NDS V for that matter. And a lot of other players. It's a very competitive market. It's a much more than, than here in the US for that matter. Caryn Livingston Right. And aside from, you know, Black Friday and prime week and in the US, they have 1111, which is their big, big online shopping extravaganza, so that'll be interesting as well to see how the pandemic is affecting that this year. Cathy Roberson That's right, that's right. That's gonna be huge. See, Ali Baba has supply chain subsidiary, logistics supply chain And forgive me because I can't pronounce it very well. But they've been expanding their air freight reticence, their cross border presence. And they've introduced a couple of, of new lines just as this month between China in Europe. And then there was one between China and Singapore. And I know when I was writing the article that's this morning, I came across a great article that Charles wrote, and cargo facts and it all stems back from from their overall strategy to reduce that time in transit. So again, it's all about speed. So instead of 10 days, I think it's like three to five day delivery cross border. Caryn Livingston Right. Yeah. It is. I mean, it's impressive, isn't it, isn't it? Yeah, and I expect we'll be covering Singles Day in the lead up to that and the US peak season and the weeks Head on air cargo world. Cathy Roberson Definitely. Caryn Livingston Well, that's all that we have time for for this edition of the weekly wrap. So thank you to all of our listeners. And thanks again for joining us this week Cathy. It was great having you. Cathy Roberson Thank you.

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