Analysis

Eight miles high: FedEx, UPS, DHL do battle in the air

The last mile might occupy the thoughts of many in the delivery sector, but it’s what happens miles above us that matters to the big names of the shipping world.

FedEx in particular has its sights set on supremacy in the air, having ordered 50 new Boeing 767 freight planes, at an estimated cost of $5bn. They will replace 56 McDonnell-Douglas MD-11 FedEx currently has on service, and are an adjunct to the $246M write-down FedEx made last year to retire 15 planes and take 21 engines out of commission. A further 23 aircraft and 57 engines are due to be retired.

In current airfleet standings, FedEx out guns its two nearest shipping rivals with 390 planes.

UPS has 238, and DHL just 25.

Big is beautiful may once have been the order of the day, but with the current trend for more localised stock placement, greater levels of customer convenience, and higher refresh rates, a more fitting adage might now be less is more.

According to the International Air Transport Association (IATA), air freight volumes grew by 3.4% in the first half of 2015, which doesn’t compare particularly favourably with the 4.5% overall growth seen in 2014. And although it is far too early to predict what the impact on air freight volumes of the sudden decline in the Chinese economy’s fortunes, it’s unlikely to have a profoundly helpful effect. In Europe and the US, air freight carriers saw a contraction in volume in H12015 (0.6% and 0.4% respectively).

In the Middle East volumes were up more than 15% in June year-on-year (the most recent figures available) though, despite the ongoing turmoil in parts of the region.

Probably doesn’t strike you as great time to go splashing out on $5bn worth of aircraft.

Add to that the fact that, earlier this year, FedEx acquired TNT Express for €4.4bn – succeeding where UPS had failed in a similar bid two years earlier. The move has given FedEx an accelerated foothold in Europe, and it is in the process of completing a new 8000m² mega DC in Denmark.

Playing the long game isn’t without risk, but with the TNT purchase sewn up, not to mention its own Express parcels and packages service, maybe that’s the game that FedEx is playing.

FedEx may well be anticipating heavy consolidation in the airfreight sector over the next 5-10 years, and is possibly betting that a larger fleet of aircraft will make it the most likely winner should a war of attrition in the big freight sector occur.

Last van standing, anyone?