LCC for Freight Carriers

[Clyde]

LCC Has Already Come to Cargo

My point, Clyde, is that when LCC comes to cargo, it won't attempt to duplicate what you are doing. It won't be seeking expensive infrastructure. It will seek contracts with key customers in key market cities and work that way. You won't see "LCC Cargo Company" trucks driving on your street. That is the whole point!

Also, your information about Delta's position versus UPS is just plain incorrect. Prior to 9/10/01, Delta had net worth of $6 billion (22 bil assets, 16 bil in liabilities); UPS has a net worth of $12 bil.

See for yourself:
see http://www.sec.gov/Archives/edgar/data/27904/000095014401501932/0000950144-01-501932.txt for Delta's Balance Sheet in 2001

and

http://finance.yahoo.com/q/bs?s=UPS to see your comapny's most recent balance sheet.

I'm not trying to be an @ss, simply stating that the cargo industry is not immune to new entrants from LCC operators, and if you guys think that it is, you're just kidding yourselves.

Let's revisit this subject in five years, shall we? I have been on this board for 7 or 8 already, hey, what's another 5 years killing time with such pleasant folks?

It's already here. In fact, it's been here for a while. The on-demand freighters such as USA Jet, Ameristar, and Cherry Air, just to name a few. They have been doing what you have been typing about for years. They have found a niche in the automotive market and tried to capatilize on it. Basically, doing what UPS/FedEx/DHL have no interest in doing.

To go a step further, look at airlines such as Evergreen, ATI, and Kitty Hawk. They too have tried to "cherry-pick" certain markets.

How about Atlas, Polar, and Gemini?

From what you have been posting, it sounds as if there might be a LCC cargo company who could come in and take a little bit of the market share from the big 3. Again, I know you said these companies won't be seeking expensive infrastructure, but to be successful, they would need it. Otherwise, they are just going to be an ad-hoc outfit, bidding on whatever happens to come down the line.

I would agree that no industry is immune from new entrants. However, to think that a LCC carrier could come into freight and have the same success it has enjoyed on the passenger side is far-stretching at best. Unlike the passenger side, you can't just buy a few cheap airplanes, hire pilot's at low wages, and start service and expect it to grow from there. Low wages help keep the costs down on your side of the fence, but it wouldn't make much of a dent on my side of the fence. It's a free market, and if anyone wants to try to be the "next UPS or FedEx", I guess there is nothing stopping them. How successful they will be is another story.

Now, regarding balance sheets. I took a look at both links, and even though I analyzed both, I share a short summary of what I found.

DAL: as of 03-30-01, total assets were $22.1B. Cash on hand was $1.172B. The sum of DAL's current and non-current liabilities was $15.9B, with Long-term Debt at $5.896B. DAL's current and non-current liabilities on 03-30-01 was equal to 71.9% of their total assets. The amount of cash on hand on 03-30-01 was equal to 5.3% of their total assets. The amount of Long-term Debt at DAL on 03-30-01 was equal to 26.6% of their assets.

UPS: as of 09-30-04, total assets were $30.9B. Cash on hand was $2.8B. The sum of UPS TOTAL liabilities was $15.4B, with $3.1B in Long-term Debt. UPS's total liabilities on 09-30-04 was equal to 49.9% of their assets. The amount of cash on hand on 09-30-04 was equal to 9.1% of their total assets. The amount of Long-term Debt at UPS on 09-30-04 was equal to 10.1% of their total assets.

I referenced the data in the above links posted by Ty Webb to research the balance sheets.

Not really sure what your point was by putting in these links. However, after analyzing the balance sheets, UPS is in much better shape now than DAL was in the pre-9/11 airline economy. If DAL's (and a lot of legacy carriers) financial health were this strong, perhaps there wouldn't be any LCC's around, except for maybe Southwest. I guess to sum up my point, I would say the reason that the legacy carriers lost business to the LCC's was not because companies like AirTran can fly cheap, but rather because of their costs, specifically the amount of debt they carry. The salaries of the employees are a big expense, but that's not why they are in dire financial straits. Tell your boss to borrow 2 or 3 Billion dollars so you can buy more airplanes, gates, and expand. Then, offer to take a 10-15% paycut. Think AirTran would show some record profits then?

 

[Ty Webb]

I think that the premise that started this whole debate was, "Could a Jet Blue-type entrant hit the cargo market like has happened to pax-carrying ops?".

I would say, that, yes, a well-funded, well-managed carrier could do what Kitty Hawk, Evergreen, Polar, etc have not done. Would they displace the diverse companies that are UPS and Fedex? Probably not. Would it affect them, if this were to happen, with multiple LCC entrants? Undoubtedly.

Will that scenario unfold? I don't think anyone really knows for sure. I hope not, because I like to see more high-paying jobs than less . . . . but I think anyone saying that it "can't happen" is "whistling past the graveyard".

Thanks for an interesting and informative string.

 

[Publishers]

Someone mentioned LandAir and their "Forward Air " product. Landair started this as the trucker off the Flying Tigers hub in LCK and handled the two day product.

Back then, Scott Niswonger, the chairman of Landair, and I discussed putting up three hubs like we had in Columbus and running an aircraft in a constant circle moving the inter hub freight while all else went just like we were doing with the two day system. He got tied up with PilotFreight before we ever further investigated it. 60% of the hub traffic was truck freight through the two turns and that represented 5% of the cost of the whole operation.

When I went with Evergreen, we set up the hub at Terre Haute and trust me that was an LCC operation handling their express product and using first class mail as filler. We had guys like Connie Kallitta out there going every night.

 

[JerkyHerky]

What kind of freight operation were the "executives at B6" talking about starting? There's alot of flavors of freight that have been discussed on this thread and they are all distinctly different. The express freight operation has the highest barriers and lowest to entry and lower profit margins, and only a select few companies engage in that business. As for the other freight operations, there are a bazillion companies that engage in that including the freight forwarders as well as the airlines themselves. There's the Kitty Hawks, the Atlas', BAX, ATI, ... ad infinitum (?) all moving freight but all occupying different niches within the vast freight industry. Will B6 engage in home delivery of express freight or some other form of the freight industry? They may not even be considering any of the aspects of the industry that UPS/FedEx, etc compete in. Unless you know exactly what type of fruit B6 is considering its like comparing apples and oranges.

 

[LEROY]

I think Ty et al are correct; there could be a LCC freight carrier in this industry. As a matter of fact, I believe there already is. It's called the U.S. Postal Service. Domestically, they offer substantially cheaper overnight rates than either FedEx or UPS. No doubt they have the infrastructure to handle the door-to-door aspect of cargo ops. They even dabble in international operations.

BTW, they outsource their operation too. In fact, they outsource so much, that if FedEx mgmt agreed to it, ALL the domestic USPS express mail would be handled by FedEx (or by someone else who put up a reasonable bid after 2008). USPS is already asking more from FedEx than they are willing to handle.

In my humble opinion, this cargo gig is not about airplanes, gates, hubs, or pilot wages. It's about getting the box from 'A' to 'B'. And if the USPS (niether rain nor sleet nor even snow) has to outsource to a private company for its hi-pri ops, the idea of a "LCC cargo operation" moving in just doesn't seem logical.

What DOES seem logical is someone out-bidding FDX for the USPS express market. But unless they have even greater infrastucture in place than either FDX (or Brown) OR USPS, it won't happen. Period.

Today with most freight company networks it is almost as easy to ship 2-day from anywhere to anywhere domestically via truck as it is via air. 18-wheelers burn a lot less than converted 72's. The domestic market is shrinking. Not an easy market to crack. Internationally, someone said it earlier, you can't just wish your way into new gates in Taipei or Orly. You've gotta have some influence.

So as far as LCC cargo goes, I think it's the opposite of the pax market; it's more expensive to ship on an upstart carrier. But as always, I could be wrong...

 

[Clyde]

I think Ty et al are correct; there could be a LCC freight carrier in this industry. As a matter of fact, I believe there already is. It's called the U.S. Postal Service. Domestically, they offer substantially cheaper overnight rates than either FedEx or UPS. No doubt they have the infrastructure to handle the door-to-door aspect of cargo ops. They even dabble in international operations.

BTW, they outsource their operation too. In fact, they outsource so much, that if FedEx mgmt agreed to it, ALL the domestic USPS express mail would be handled by FedEx (or by someone else who put up a reasonable bid after 2008). USPS is already asking more from FedEx than they are willing to handle.

In my humble opinion, this cargo gig is not about airplanes, gates, hubs, or pilot wages. It's about getting the box from 'A' to 'B'. And if the USPS (niether rain nor sleet nor even snow) has to outsource to a private company for its hi-pri ops, the idea of a "LCC cargo operation" moving in just doesn't seem logical.

What DOES seem logical is someone out-bidding FDX for the USPS express market. But unless they have even greater infrastucture in place than either FDX (or Brown) OR USPS, it won't happen. Period.

Today with most freight company networks it is almost as easy to ship 2-day from anywhere to anywhere domestically via truck as it is via air. 18-wheelers burn a lot less than converted 72's. The domestic market is shrinking. Not an easy market to crack. Internationally, someone said it earlier, you can't just wish your way into new gates in Taipei or Orly. You've gotta have some influence.

So as far as LCC cargo goes, I think it's the opposite of the pax market; it's more expensive to ship on an upstart carrier. But as always, I could be wrong...

You can pretty much ship anything domestically to anywhere in the lower 48 by truck quite easily in 2 to 3 days. Take the sleeper teams for example. With two drivers and a truck with a sleeper cab, the truck never stops. If you want to go a step further, you can piggyback those trailers on rail cars. Bottom line, once a package or piece of frieght is in the system, it is always moving.

LCC cargo is a possibility, but I think there are a lot more costs that must be kept lower than there would be on a passenger side. I think wages would be a small part of that.

 

[Ty Webb]

That's pretty interesting, how things have evolved at Fedex. I worked the ramp about 13 years ago (just out of college, hadn't found an entry-level flying job). They had just started doing the sorts for overnight ground transportation- ie from Tampa to MCO, FLL, ATL, RSW, MIA. Prior to that, almost everything went through Memphis.

Sounds like more and more of it is going by truck. Interesting discussion.

 

[Clyde]

That's pretty interesting, how things have evolved at Fedex. I worked the ramp about 13 years ago (just out of college, hadn't found an entry-level flying job). They had just started doing the sorts for overnight ground transportation- ie from Tampa to MCO, FLL, ATL, RSW, MIA. Prior to that, almost everything went through Memphis.

Sounds like more and more of it is going by truck. Interesting discussion.

Ty,
Intersting discussion indeed. Transportation and logistics tend to be one of my favorite topics. Thanks for helping to keep this thread going.

I read something very interesting not too long ago, I think it was in Air Cargo World. I used to fly on-demand frieght. A very large portion of our business ( I would say greater than 90%) was automotive freight. Typically, we were called out because of an auto plant being short of parts. An assembly line that is shut down could cost a plant in excess of $100,000.00 a minute that it wasn't running. Usually, the loads we carried were just enough to keep the line running until a bigger shipment arrived. Our loads were the critical ones.

Now, regarding the article, it centered on trucking parts within a 500-mile radius as opposed to flying them. Now, if the plant is shut down because of a lack of parts, the fastest way to get some there is via a LearJet or similar type airplane.

But, if the need for parts isn't very critical yet, customers are finding that trucking it within 500 miles is more cost-effective than flying it there, especially if it isn't needed ASAP. Manufacturers started using trucks more during a recessed economy, and found that even during a good economy they can be used effeciently, a lot cheaper than flying it, and the time frame in which it was needed was still met by truck.

One thing to consider, is if the air-frieght companies such as Ameristar and USA Jet would ever consider setting up a trucking side of their business. Not so much the long-haul type trucks, but more of a regional-type service. This service could utilize single-axle box trucks, and tractor-trailers with day cabs and double-bottom trailers. That way, if you had a less than full trailer load, you could use a short trailer. You could also have some longer boxes (45 and 53 foot) trailers.

Just like with aircraft bases, have some regional truck bases. Offer to provide some storage facilities for certain automotive (or other large freight) items in differnt regions of the country.

The air side would still operate, but each side could complement the other.

Just a thought. After flying 135 on-demand, I noticed how the air carriers are more like an integral part of the manufacturing process. To be more specific, the transportation side is integral. I often wondered what the future of this type of on-demand air freight has in store also. It will be interesting to see if they reinvent themselves into more of a larger transportation-service, or stay where they are.

Any comments from anyone?

 

[Publishers]

Auto parts shipments are usually fairly small and often become critical due to weather related issues. I flew many a Cessna 402 with gas lines that did not even take up the nose bagage area.

You cannot put together a system based on that kind of business.

Amerijet is a good example. They fly into the South Florida area and then truck to the north.

 

[Clyde]

Auto parts shipments are usually fairly small and often become critical due to weather related issues. I flew many a Cessna 402 with gas lines that did not even take up the nose bagage area.

You cannot put together a system based on that kind of business.

Amerijet is a good example. They fly into the South Florida area and then truck to the north.

What about auto parts and oversized freight? True, some auto parts shipments were usually pretty small. But, they were usually just enough to get a line running and had to be there ASAP.

There is a lot of automotive parts that are shipped in large quantities, usually on some kind of a schedule. It's when these shipments are late, that the call goes out to get the minimum there quick. Some of these shipments are carried in larger aircraft or trucked.

Oversized freight in addition to auto parts could be something some of the larger on-demand carriers could begin to branch into. Also, what if they bought a small trucking company and transformed themselves into more of a transportation company specializing in large, bulky-freight? I think before too long, these companies are going to have to reinvent themselves if they want to stay in business.