Domestic airfreight: No obits, please
March 10, 2004
By Robert J. Masters
For years, domestic air forwarders have been chided for being in the wrong place at the wrong time. Various consultants, academics and otherexperts kept insisting that domestic forwarders were on the wrong side of the freight tracks. Growth lay on the other side, in the glamorous field of international freight.
Domestic forwarders supposedly suffered under a double whammy. It was impossible, the experts said, to make money moving cargo by air domestically. And those that also specialized in overnight delivery were told that shippers didn’t want it and that time-definite, deferred delivery was the preferred mode.
But a funny thing happened on the way to our funeral. With apologies for the mixed metaphor, the worm has turned. The domestic market, far from being moribund, is showing solid growth. The contrast with international air cargo is striking. Dollar and shipment count actually has declined during the past two years. The fastest-growing sector of the domestic market, surprise, is next-day delivery. What was once a cargo wallflower is now the life of the party.
What has transformed domestic airfreight from a flat line on a graph to one of meaningful growth while international airfreight has stalled? The most persuasive single reason for the glowing health of the domestic market is the strength and vitality of the U.S. economy. While much of the rest of the world with the exception of China, stumbles, the U.S. economy goes from strength to strength. The United States’ 5 percent rise in GDP last year was greater than the total GDP of Italy!
Accompanying this economic strength is the desire – indeed the necessity – of domestic manufacturers and distributors to produce and distribute merchandise more rapidly than ever before. Beating competitors to market is the name of the game. The consumer may be king, but he, or more commonly she, demands merchandise in size, color and quantity available when she is prepared to open her purse. Air, with its speed and preciseness of delivery, is the mode best suited to satisfy consumers’ wishes.
Even forwarders who traditionally have stressed deferred, time-definite movement of cargo are reporting greater interest from customers for overnight delivery. Integrators such as BAX Global are key players in the growth of the domestic cargo market. BAX’s daily flights are heavily booked. Its bottom line has changed from red ink to black, and the company posted a solid profit in 2003.
The international air-cargo market is enjoying none of the robustness of domestic freight. The reasons are political and economic. International terrorism has cast an ugly shadow on international freight and the airlines and forwarders that move it. Security at U.S. borders and safety when importing goods is the chief concern, correctly, of our government as well as the private sector. Inevitably, however, a succession of new rules and regulations promulgated by U.S. Customs and border Protection to heighten security is beginning to inhibit the speed and efficiency of cargo movements.
Economic conditions abroad, with the exception of China and perhaps a few other Asian nations, is hardly a cause for unrestrained joy. Europe remains in the economic doldrums. A return to genuine prosperity is hobbled by the rising strength of the Euro – making European exports more expensive and less competitive. Even mighty Lufthansa has been forced to slash selective cargo rates for U.S. – European traffic.
Mexico, which had been experiencing boom times along the U.S. border with hundreds of maquiladoras opened by foreign companies, finds that many of these same plants are closing. Manufacturing facilities are moving to – where else? – China. Forwarders who had been opening facilities with abandon in border towns such as El Paso, Brownsville, Juarez and Nogales are now shutting them down.
The U.S. economy deserves a lot of credit for the positive turn in the fortunes of the domestic forwarder. But certainly not all of it. Domestic forwarders deserve some of the credit for modernizing their operations to adapt to a changing economy and a changing industry. One of the chief strengths of the successful forwarder, domestic or international, is flexibility. It allows a forwarder to adapt to the changing requirements of the market or to offer delivery options that fit in with shipper’s own production and distribution schedules. These are the attributes of the successful transport agent.
Robert J. Masters is vice president at Orion Air Freight. He can be reached at (888) 217-7181 or rjmasters@manna.com. This article appeared in The Journal of Commerce, March 1-7, 2004.