Presentation Transcript

1. 2001: An Airspace OdysseyThe Airport Noise SymposiumUniversity of CaliforniaInstitute of Transportation StudiesAir Cargo and Electronic Commerce William Langham, PhD Managing Director Strategic Market Analysis FedEx Services, Memphis, TN February 28, 2001 San Diego, CA

2. Air Cargo and Electronic Commerce • Air Cargo Customer requirements • Air Cargo Growth Trends • Air Cargo & GDP • Electronic Commerce Trends • Overarching Trends in Business & Manufacturing • Business, Manufacturing, Electronic Commerce Impact on Aircraft Choice, Airports, Flight Operations • Summary

3. You are the CEOYour mission is to satisfy your customers Suppose you are a home business owner making specialty dolls that customers order over the internet, or you are the CEO of a major distributor such as: Wal-Mart Intel Dell General Motors

4. Customer Requirements for Air Express • High-Value Products and Critical Documents • Just in Time / Time-Definite • Time-sensitive • Information Intensity • World Wide Geographic Coverage

5. Customer Requirements for Air Express • JIT / Time-definite • Specific Time Commitments • Express Service (NFO, Next-day at 10:30 or 3:00) • Economy Service (2D, 3D, 4D, 5D) • Late Pickup, Early Delivery • Highly Reliable • Total Custodial Control

6. Customer Requirements for Air Express • Information Intensity • Tracking and Tracing • Pro-active Delay Notification: GIVS (Global Inventory Visibility System) • Worldwide Geographic Coverage • Ability to Pick Up and Deliver Anywhere • Customers Prefer to Use a Small Number of Carriers

7. Transportation / Logistics Providers Must also Consider the Overarching Trends in Business • Globalization / Decentralization of Manufacturing • Long Beach: Late pickups require aircraft from LGB and Ontario airports to serve local areas. LAX unable to serve due to distance or increasing traffic gridlock. • Sioux City, South Dakota: Gateway can choose their optimal location without transportation constraints, since Express service that FedEx created is ubiquitous in the US.

8. Transportation / Logistics providers must alsoconsider the overarching trends in business • Miniaturization: high-value, low-weight components • Mass customization • Supply Chain Management • Logistics • Future re-engineering with IT / internet support • JIT / time-definite delivery • Tracking, tracing, pre-alerts • Intermodalism • Air / Truck Networks • Truck / Rail • Ocean / Rail / Truck

9. Transportation / Logistics Providers Must also Consider the Overarching Trends in Business • It is the customer demand for next-day express shipments that drives the need for night-time operations at airports and hubs. • The air express customer may be a consumer making an individual purchase, or the customer may be a business managing its supply chains.

10. Air Express and Air Cargo GrowthUS Domestic (1970-1999) CAGR 19.7% 1.9% * Includes Scheduled freight, Charter freight and Mail. Source: Boeing

11. US Domestic Air Cargo Moves At Least 10% of US GDP • US Domestic Air Cargo Moves 8% of US GDP as product, and another 2% as services (accounting, payroll, professional services, etc) • Air express and air cargo are important to customers, as they position 10% of US GDP to the locations where the products become useful. • From this we conclude that air cargo moves a great amount of the GDP.

12. International Trade is a Growing Component of the US Economy Total Domestic* Total International* Source: Boeing * Includes Express, Scheduled freight, Charter freight and Mail for US airlines.

13. Projected Air Express and Air Cargo Market (International - 2019) Express: 63% 31% Express: 4% Int’l Express Freight/Mai Int’l Freight and mail 9.2% Source: Boeing

14. Importance of Electronic Commerce to Local Economies Source: Forrester Research, February 2000

15. Importance of Electronic Commerce to Local Economies (FedEx examples) • FedEx has partnered with companies in Supply Chain Management and Electronic Commerce • As one example, fresh flower consumption quadrupled between 1980 and 1990 • Imports from South America now represent 70% of fresh-cut flowers sold in the US • Consumer prices of cut flowers fell by 15% in real terms since 1980 • No longer a luxury just for holidays and special occasions

16. Importance of Electronic Commerce to Local Economies (FedEx examples) • HP’s online store • Decreases return cycle time by 80% • Decreases return unit product cost by 70% • Dell outsources most of its logistics and SCM functions to FedEx. • Delivers from Austin to rest of US • Delivers from Malaysia to rest of Asia • Dell turns inventory in less than 8 days vs. 60-90 days with traditional suppliers

17. Importance of Electronic Commerce to Local Economies (FedEx examples) • Nova Biomedical • HP’s online retail store • Dell • Gateway Computer • Submitorder.com • barnesandnoble.com • Toysrus.com • williams-sonoma.com • Adornis.com • Bikeworld.com • Calyx and Corolla • AeroXchange

18. Electronic Commerce and Fleet Planning • EC and underlying trends in international commerce will require air cargo express to grow • Trend toward more widebodies • FedEx has replaced multiple daily flights with fewer flights of larger aircraft size • Progression toward larger & fewer operations

19. Electronic Commerce and Fleet Planning • FedEx order of A/C • 1973 Falcons 6.5k pound payload • 1979 B727 48k • 1990s MD11/MD10/DC10 140-170k • 2000s A380/MD11,MD10 140-170k+

20. Electronic Commerce and Fleet Planning • Narrowbodies serve smaller markets or secondary airports in metro areas plagued by air traffic congestion and/or traffic gridlock. For example: • O’Hare: An emerging role for airports in Gary and Milwaukee • LAX: Ontario and Long Beach too far in time and distance to be served via LAX • Air express customers require late evening pickup and next morning / next day delivery • Packages must be in MEM by 1:00 am for sortation • Cannot waste time trucking from suburban locations far from central airport due either to distance or traffic -- customers would shift to a carrier willing to fly direct

21. Essential Aviation Services for a Local Community • Match aircraft to inbound and outbound city cargo demands • Cargo does not require numerous flights/day like passengers do, but it does require the minimum essential flights, or that city receives no service

22. Essential Aviation Services for a Local Community • Cargo does require: • Late pickup / early delivery • Aircraft to support hub-hub flights e.g. LAX-MEM, LAX-OAK, LAX-EWR • Late a/c to support customer requirements for late pickup, LAX-MEM

23. Essential Aviation Services for a Local Community • Cargo does require: • Secondary airports to ensure service while avoiding local traffic congestion (air or ground) • Local ground infrastructure such as close proximity to airport, stations, service centers, drop boxes • Normal aircraft service infrastructure

24. Summary • Air cargo moves a significant and growing portion of US GDP • Trends in Manufacturing and Consumer Demand point to increase usage of Overnight and other Time Definite Services • JIT / Time-definite / Miniaturization • Globalization / Decentralization • Supply Chain Management / Logistics / Intermodalism • Information content • Re-Engineering / IT / Mass Customization • EC / Internet • Full integration transportation, communication, IT, logistics, and electronic purchasing

25. Summary • Forrester Projection that EC will account for 17% of the US GDP by 2004 • More widebodies for larger markets • Narrowbodies to serve smaller markets or secondary airports in metro areas plagued by air traffic congestion and/or ground traffic gridlock • The Ultimate Decision-Maker: The Customer drives the transportation system • No cargo airplane moves without a business purpose and each airplane delivers a major economic benefit to each community it serves everyday

26. Backup slides

27. Importance of Electronic Commerce to Local Economies (BTB/BTC) Source: Forrester Research, Inc. February, 2000

28. Importance of Electronic Commerce to Local Economies (FedEx examples) • Nova Biomedical • Manufacturer of blood-diagnostic devices • Low inventory • Central distribution location • Express distribution

29. Importance of Electronic Commerce to Local Economies (FedEx examples) • Nova Biomedical • $6 million inventory on $80m business • Saves its customers $5m+/yr vs. 3-month inventory level • Reduces inventory losses due to product obsolescence • Rapid overnight delivery • “Total cost is everything” including “the satisfaction of our customers.” John Wallace, CEO, Nova

30. Importance of Electronic Commerce to Local Economies (FedEx examples) • Phillips Semiconductor • Outsources SCM to FedEx • Global customer response time reduced to less than 5 days from 2 weeks • Frees up $millions of unproductive value stockpiled in inventory • Lower administrative costs vs. multiple carriers, freight forwarders, customs brokers • Customer receives quicker delivery at less cost

31. The FedEx Formula • Inputs • Faster / JIT / Time-definite • Near perfect reliability • Information Intensity • SCM / EC • Re-engineering

32. The FedEx Formula • Outputs • Less expensive in total distribution costs • Speed to market • Savings to customer • Lower inflation in FedEx sphere of influence

33. Importance of Electronic Commerce to Local Economies (BTB) 8 of the Top 10 Industries Projected to Use EC in 2004 Are Major Users of Express Shipping Online Sales as a % Of Total Sales Online Sales $700,000 45.0% Computing & electronics 40.0% Computing and electronics $600,000 35.0% $500,000 30.0% Motor vehicles Motor Vehicles $400,000 25.0% Petrochemicals 20.0% $300,000 Motor Vehicles Office Products 15.0% $200,000 Utilities 10.0% Consumer goods Aerospace & defense $100,000 5.0% Pharma/Medical $- 0.0% Source: Forrester Research, February 2000

34. Importance of Electronic Commerce to Local Economies E-Commerce Hypergrowth Timing by Region

35. How Did EC Perform in 2000? Online Retailing Revenue Posts $48.3 Billion in 2000 8.0 6.0 Monthly online Sales ( $billions) 4.0 2.0 Jan Feb Mar Apr May Jun Aug Sep Oct Nov Dec 2.8 2.4 3.0 3.3 3.4 4.0 4.0 4.2 4.4 6.4 6.2 billions Source: National Retail Federation and Forrester Research, February 2001