Just a few years ago, pundits predicted integrated carriers would kill them off. Today, domestic airfreight service providers are experiencing a rebirth.
A few years ago, many industry observers predicted that domestic airfreight forwarders would be gone by the end of the decade, killed off by integrated carriers providing door-to-door service with their own aircraft and delivery vehicles. The convenient pricing, time-definite delivery, single-source control, and technology that the integrators offered would prove so attractive, they said, that shippers would no longer need traditional domestic airfreight services.
They were wrong. Rather than roll over and play dead, the U.S. domestic airfreight forwarding sector today is expanding its business, and even gaining converts. In the last two years, international freight forwarders like Circle International and BDP International and motor carriers like Dart Transit, Averitt Express, and Yellow Freight have entered the domestic airfreight market, often through expedited service offerings. Established forwarders like EGL Inc. (formerly EagleUSA Airfreight), Team Air Express, and Pilot Airfreight that are well-established in domestic markets say they also are seeing growth in their domestic business.
This renewed interest in domestic air freight, say observers, is due to today's boom economy, changes in general business practices, and growing demand by shippers for integrated services.
International Boosts Volumes
A rising tide lifts all boats, and that is one reason for the domestic airfreight business's growth. Surging industrial output, increasing export volumes, and heavy demand for imported goods all are contributing to that upswing in business. Many domestic shipments actually are extensions of international moves, notes David Wirsing, executive director of the Air Forwarders Association, which represents domestic and international airfreight forwarders. "From our standpoint," he says, "we see parallel growth between domestic and international air freight."
LaWanda Ray, vice president of freight forwarder Team Air Express in Winnsboro, Texas, says her experience bears out this observation. "Our domestic sales are continuing to thrive, and one reason is that international business is so well connected to the domestic side," she says. "We are finding that the more international freight we are bringing in, the more domestic freight we are seeing."
The growing dependence by American businesses on Just-In-Time (JIT) manufacturing practices has created more demand for time-definite transportation services, including domestic air service, says Phil Pierce, executive vice president, sales and marketing, for Averitt Express in Cookeville, Tenn. Averitt's primary business has been less-than-truckload transportation, but the company now offers a wide range of logistics services.
"In today's business environment with its lower inventories, carriers are facing demands by their customers to get the product there when they need it," he says. Accordingly, shippers are less concerned with the mode of transportation than they are with the end result, compelling providers like Averitt to develop multimodal offerings. That's why the company last month rolled out a new expedited service that includes airfreight forwarding and charters. Even as they demand faster service, shippers also need to reduce costs, Pierce says. Averitt's new service, therefore, is not restricted to air freight, and the pricing reflects that fact. "We charge based on how we actually move the freight, not just on the delivery time needed."
At the same time that businesses have been reducing inventories, the value per pound of their products has been rising. "The quality and value of goods imported into the United States continues to escalate. ... [so] the cost of air freight no longer seems so high compared with the cost of the product in the pipeline," observes Frank Perri, senior vice president, sales and marketing, for Pilot Air Freight of Lima, Pa. "When you ship a six-pound package overnight and it costs $30, you're paying $5 a pound. Move a 1,000-pound shipment for $1,000 and it's just $1 per pound." That's a pittance compared with the cost of not having critical items available when needed in a JIT environment, he says.
End-to-End Control
Perhaps the most important reason why so many companies have launched domestic airfreight services is that they are responding to a business need experienced by all industries worldwide: the need for visibility into the entire supply chain. Customers want single-source, end-to-end control of their shipments because they need to know where their shipments are at all times. "Customers are realizing the value of working in a single-source environment ... and recognizing the cost efficiencies of one-stop shipping,'" says Arnold Bornstein, director of marketing and communications for Philadelphia-based international forwarder BDP International. BDP early last year launched a domestic airfreight forwarding service.
In November, San Francisco-based Circle International launched its "CircleConnect" domestic airfreight service for much the same reason. "We increasingly hear from our customers that they want one-stop single solutions for their global supply chain requirements," says David I. Beatson, Circle's chairman, president, and CEO. Shippers want to streamline their logistics operations, so domestic air freight is a necessary extension of the services Circle and similar companies have come to offer, he believes. "Today, we are a supply chain management company and our business is logistics and information," he says. "To be in that market, we have to be providing domestic airfreight forwarding service as well," he explains. Eventually, he suggests, accelerating demand for forwarders to offer both international and domestic service may lead to the extinction of the purely domestic or purely international freight forwarder.
Adding domestic forwarding to their portfolio provides companies with a competitive weapon while opening up new opportunities for growth. Says Beatson: "If we don't do it, a domestic forwarder that does a little bit of international but has direct contact with the consignee will be in there asking Why do you need Circle?'... That will eat into our core business." Domestic air freight also lets an international forwarder increase profits while incurring little additional expense. "That provides value to the customer and at the same time gives additional value to the shareholder," he notes.
For motor carriers, domestic air freight also represents a profitable, high-growth extension of their core business at a time when trucking revenues are flat and operating costs are soaring. "People are seeing how successful some airfreight companies are. Eagle, for one, has been growing at a rate of 28 or 29 percent annually even in its mature domestic business," observes Edward M. Wolfe, an airfreight and logistics analyst with the investment firm Bear, Stearns. The barriers to entry as a non-asset-based forwarder also are few compared with those for asset-based businesses, he adds.
Wolfe says pricing developments are attracting new players to domestic air freight while helping established suppliers gain market share. "Integrators like BAX Global and Emery Worldwide, which own assets but compete with non-asset-based providers, have been raising rates steadily over the last four to five quarters. That makes it easier for other carriers to get into the business," he says. Those higher prices, he notes, also have helped domestic airfreight heavyweights Eagle and USF Worldwide (formerly Seko Worldwide) gain market share at the integrators'expense.
Forwarders Gaining Ground
The future continues to look bright for domestic airfreight forwarders. Interest in entering that market segment remains high, says Wirsing of the Air Forwarders Association. "In the last 12 to 18 months ... our organization has grown," he says, "and we've seen a lot more inquiries at our office about how to become an airfreight forwarder, some of them from surface transportation providers."
Domestic airfreight forwarders will continue to gain ground against the integrated carriers, says Ted Scherck, president of Atlanta, Ga.-based Colography Group, a market-research firm that specializes in air freight. "There's a recognition by shippers that no one carrier is capable of satisfying all of their logistics needs," he says. "They are saying, The integrators do a tremendous job at what they do, but they don't do everything I need. What I need is an expert to manage it for me and get me first-class service in every area.'" Freight forwarders are in the best position to do that because unlike the asset-based providers, they have no economic interest in the carriers they select, Scherck says.
New developments in technology also are encouraging shippers to shift some freight from integrated carriers to forwarders, Scherck believes. For example, a major competitive advantage that integrators held for the last decade was their lock on information technology, he notes. That's no longer the case today, as Internet-based technologies, costing a fraction of the price that integrated carriers paid for systems in the 1980s, let forwarders provide shippers with similar information about the movement of their goods.
These trends will continue, Scherck predicts. "The long-term trend in which integrated carriers were getting virtually every new shipment that was added to the market and the forwarding segment was flat ... has pretty much stopped," he observes. "The integrators are getting their own fair share of market growth, but they're not getting the forwarders'share anymore. We fully expect that to continue."
Ultimately, what will prevent domestic forwarders from going the way of the dinosaur is their customized, entrepreneurial approach to service, says BDP's Bornstein. "The integrators are structured to serve markets. We are structured to serve customers," he says, "to provide an intimate, flexible service that meets specialized needs." That's exactly why domestic forwarders won't be leaving the scene anytime soon, says Perri of Pilot Air Freight. "People have said domestic forwarders would be a thing of the past. ... Well, prognosticators don't ship packages, and the customers are voting with their dollars."
