Given the big improvement in the US economy over the last twelve months, we at Air Cargo Management Group were expecting FedEx to report a jump in US domestic package volumes in this week’s quarterly report. When we saw that volumes were up just half a percent — that is, hardly up at all — we were at first surprised. True, FedEx reported substantially improved financial results, but this was driven by a strong increase in its International Priority volume (up 23%) and its Ground volume (up 7%). However, after giving these results some thought, the lack of growth for domestic air seems much less surprising. The recovering economy has spurred an increase in domestic US shipments, but most are not moving by air. There are three factors driving this change:
Better value proposition for Ground: Over the last decade, shipping by ground has become much more effective and reliable. Transit times have improved, reliability has gone up, track & trace has become available, and guarantees have been introduced. This has given shippers a choice they did not have in the past, and a modal shift from air to ground in the US domestic market actually started some time ago. But the recession accelerated it. Faced with a need to cut costs, businesses and individuals not only cut back on the volume of shipments they made, but traded speed for price on some of the shipments they did make. They might have preferred the speed offered by air, but in the end decided the money saved by switching to ground was more important than the one- or two-day increase in delivery time.
Lag time: History teaches us that when the good times are really rolling again, shippers will forgo the discipline they learned during the recession, and become willing to spend more for faster delivery even when the need for faster delivery is not 100% compelling. But that shift will take time, and even though the economy is well into recovery, shippers are still exercising the restraint that was forced upon them during the downturn.
Digital documentation: while shipments that were shifted from air to ground for economic reasons may well shift back to air in the future, shipments that shifted from paper to digital will never come back. As the law changes, and digital verification becomes more and more acceptable, physical shipment of documents for legal reasons will steadily decline.
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