Tuning Up for Better Times

May 1, 2008
Though business for express and expedited carriers has not been robust, they are making adjustments to benefit shipping customers now and for when business improves.

At a recent investor conference in which he provided earning guidance for the first quarter of the year, UPS chief financial officer, Kurt Kuehn’s comments had application to the entire market segment. “The US economy has continued to weaken,” he explained, “causing a reduction in domestic package volume and a shift away from premium products. Significantly increased fuel costs in the quarter also contributed to the lower-than-expected results.”

Though the global express and package delivery giant experienced lower than expected volumes, it has not stopped the carrier from enhancing service offerings. A case in point is the creation of a new senior management team to oversee its freight forwarding, global brokerage and non-asset network management services.

Previously the portfolio had operations that sometimes overlapped one another across the enterprise and were not as clear to the UPS customer base as the company would have liked. The launch of this new initiative in January took five different service levels and consolidated them down to three key offerings.

This restructuring is aimed at more closely aligning them within the UPS forwarding business, according to Eric W. Kircher, named as president of Freight Forwarding, part of the company’s Supply Chain Solutions.

“If you consider the entire UPS enterprise,” he explains, “this was a way to position businesses and activities within the forwarding group in a more aligned way. This facilitates our ability to reach out to other parts of UPS. It allows a seamless look to our customers.”

The business model Kirchner oversees combines forwarding and integrator functions. It can access capacity within the commercial marketplace from its partners, and it also can utilize the UPS fleet where appropriate for express services.

UPS has truckload (TL) and less than truckload (LTL) commercial partners as well as UPS Freight with similar services. ”We have the capability to reach a vast array of assets,” explains Kirchner. ”The combination of an asset based carrier group—if you look at the UPS Airline or UPS Freight on the LTL side group—and the partnerships we have with commercial providers gives us a fairly compelling array of solutions for customers based on what shipper needs are; whether it be speed, an economical movement, or for assistance in developing the right supply chain composition to effectively get their goods to market.”

For air freight requirements, Freight Forwarding purchases more than 1 billion kilos of space a year from commercial carriers. “We have partnerships with virtually every freight and commercial passenger airline to serve the needs of individual markets and customers,” notes Kirchner. “In the ocean space, we operate as a forwarder, an NVOCC (non-vessel operating common carrier) and also provide less than containerload services across our network.”

UPS brokerage operations have been consolidated across its package and trade business. The company claims it is the largest employer of licensed custom brokers in the US. ”With our entire company on one global system, it allows us to provide better intelligence to our front line people,” concludes Kirchner. “The phrase that best describes it is ‘engineered flexibility.’ We take those engineering capabilities developed over time and allow our front line people to have access to the best possible information to solve our customer’s challenges.”

Consistent with observations of market conditions by other providers, in discussing third quarter earnings which were down 6% year over year, FedEx Corp. chairman, president and CEO, Frederick W. Smith, pointed to “persistently high oil prices, sluggish US growth and continued concerns in the credit markets” as creating a challenging economic environment. “We are managing our costs while positioning our portfolio of global transportation solutions to increase our profitability and returns once conditions improve,” he continued.

One bright spot for the provider was international priority package revenues that climbed due to increases in volumes originating in Latin America, the US and Asia. FedEx answers delivery needs by offering a wide range of services. Reaching across the enterprise FedEx Global Supply Chain works to bring together customer requirements that include such diverse operations as fulfillment services, transportation management, freight forwarding, shipper brokerage and cross dock operations, among others. FedEx Trade Networks provides full customs brokerage, global ocean and air cargo distribution as well as other value-added services.

Over the past nine months FedEx has made moves to upgrade its domestic network and to provide enhanced services to North American Free Trade Agreement (NAFTA) shippers. With a growing demand for shipping to Canada, FedEx will open a new distribution hub in Perrysburg, OH, to serve as one of two gateways for shipments bound for Canada.

DHL’s new biodegradable courier bag.

Going Green, DHL Style Deutsche Post World Net (DPWN) has begun a global climate protection program, GoGreen, that aims to achieve a 30% improvement in its CO2 efficiency by 2020. “As the leading logistics provider and one of the world’s largest employers,” says chairman and CEO Frank Appel, “we acknowledge our broader responsibility in the battle against climate change, caused by industries and humans.”

DPWN will modernize its air and ground fleets. The energy efficiency of sorting centers and warehouses will be improved through utilization of the most modern environmental technologies. A goal is to replace 90% of the current air fleet with more fuel efficient planes. For trucks, hybrid engines and route planning will be put to use.

Among other initiatives is a switch to biodegradable bags by DHL. The new bags will replace those of regular plastic. They are reusable and recyclable and can degrade in just two years—compared to as much as 1,000 years for plastic—leaving just water, carbon dioxide and biomass.

Perrysburg is a suburb of Toledo. Its operations will replace those in place in Toledo. Counting costs for land, construction and material handling equipment, the total expense is expected to be $87 million. The 400,000 sq ft facility will contain the most modern automated material handling technology. When opened in 2009, it is expected that 22,500 packages per hour will move through the facility. That is predicted to climb to 45,000 packages per hour when the hub reaches its full capacity after a projected expansion.

Part of the project is creation of a 44-acre truck staging area adjacent to the interchange of the Ohio Turnpike and Interstate 75. While the Ohio Turnpike permits triple-trailer longer than conventional vehicles, they are not permitted on other highways and roads in Ohio. The staging area will permit the unhooking of one trailer before the rig moves on to the new hub, located one mile away.

In commenting on the project, Michael P. Mannion, senior vice president of Operations for FedEx Ground, says, “Enhancing our distribution capability in the Midwest is an important step in our ongoing efforts to increase the size, speed and efficiency of our network.”

Along the southern border, FedEx has expanded its Transborder Distribution services, part of which includes opening two new border facilities: one in Ciudad Juarez, Mexico and the other in El Paso, TX. One aim of the expanded solutions is to move freight from point of origin to Mexican maquilas, then from the maquilas to US distribution centers or end users. FedEx will manage the entire process, including necessary Mexican export documentation.

“With this expanded cross-border solution, FedEx looks to simplify the supply chain process by managing the transportation, brokerage and distribution of shipments that cross the Mexico-US border on a regular basis,” says Ed Clark, chief executive officer and president of FedEx Trade Networks. “The vision is to create a single point of contact to facilitate the efficiency of the entire process.”

With FedEx Transborder Distribution and its expanded services, a cargo shipment from a maquila or other duty-deferral programs in Mexico can arrive in the US in as little as one to five days, depending on the origin and final destination.

While Deutsche Post World Net (DPWN), the German global express, logistics and mail company had profits of €3.7 billion last year, financial performance was held back by a €600 million write off on its American subsidiary DHL Express. Since the announcement of its 2007 financials, DPWN has been subject to a number of rumors regarding DHL, ranging from shutting down US operations to supposed purchase by other expedited/ express companies to the selling off of some US assets.

Lone Star Looks to Expand
Headquartered in Austin, TX, regional expedited package carrier, Lone Star Overnight (LSO) is aggressively expanding its market coverage with 500 more cities to be added to its service territory by the end of the year.

LSO currently serves Texas, Oklahoma, Western Louisiana, Las Cruces, New Mexico and Mexico. It claims on-time delivery performance of better than 99% with its range of time-guaranteed, next day delivery options.

Speaking of the company’s moves, LSO president and CEO, Ed DiSalvo, said, “This latest round of territory expansion is in direct response to an increasing demand for our reliable, efficient overnight delivery service. Our simplified regional footprint provides customers with an increased level of service at a lower price.”

In reaction to such speculation, DPWN chief financial officer, John Allan, said, “The US Express business is a key management priority and we are looking at a variety of options to improve performance. In doing so, we are committed to maintaining a significant presence in the US market, which remains of strategic importance to the group.”

DHL is part of a large international enterprise having expertise in express, air and ocean freight, overland transport and contract logistics solutions. US operations benefit from enhancements to the entire DPWN 220 country and territory network. DHL makes use of the integrated DPWN integrated group in its freight offerings.

A rollout of a unified and simplified express product range for the entire DHL global network began in January and is to be completed by the end of the year. The aim is to align the DHL brand throughout the world. DHL explains that these harmonized products and services use standardized tools, processes and systems including e-commerce tools, waybills and the Internet.

These new products are contained within three categories, with core products supported by optional services designed to adapt to specific customer requirements. The categories are emergency same-day deliveries, time-definite next day delivery and cost-effective day definite deliveries.

John Pearson, executive vice president, Global Marketing & Sales, DHL Express, claims that, “as one global organization, 25we are fully leveraging our integrated network and worldwide presence without limiting our local expertise. Our updated product portfolio ultimately makes it easier to do business with us, both for large, multinational customers as well as small, local businesses, no matter where in the world they are based.”

Purolator USA Offers Cross Border Shortcuts

Following closely on the announcement of its opening of a new processing center in Morrisville, NC, the US small package and freight forwarding subsidiary of Canada’s largest freight services provider is touting its cross border expertise and solutions.

The carrier points to Purolator Trade Solutions service as a way for customers to access the expertise of its trade and logistics specialists to develop plans for moving freight between the US and Canada as quickly and cost-effectively as possible.

“Most businesses aren’t well versed on the intricacies of transporting goods between the two countries. By using the Trade Solutions service, they don’t have to be,” explains Purolator USA president John Costanzo, “We alleviate that concern for our customers so they can focus on other things.”

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