LCC for Freight Carriers

[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.

 

[SDF2BUF2MCO]

Impact of Menlo

Just wanted to hear opinions of the impact of UPS buying Menlo Worldwide Forwarding. Think with all the trade coming FROM China it will certainly help the international side of things. Also think that it gives UPS the inside track being the provider for shipments (whether by land, sea, or air). This may allow them to head off any potential threat from a LCC freight company. Cetainly makes them a competitor with other companies besides FedEx.

 

[Big Beer Belly]

Illegal Public Subsidies Harm Private Transportation Companies

An interesting aspect to this discussion that no one has yet keyed on is the monopoly abuse of first-class postage profits used to cross-subsidize money-losing package operations by quasi-governmental agencies. What the ....??? you say. I have read estimates that it COSTS the USPS a mere 10 cents to actually deliver a first class letter and the rest goes to subsidizing their money-losing package operation that competes with the likes of UPS, FedEx, and DHL (errrr... the German Post Office ....errrr ... Deutsche Post .... errrr.... DHL Again). Think about that the next time the USPS pushes through another first-class postage hike! It's all BS!

Many independent studies have been performed to highlight this. One I recall ... the study company mailed packages from the left coast to the whacked out Kerry-lovin east coast and the USPS charged say $40.00 and its competitors charged about that or slightly less. Same package was then mailed the same distance (but this time NY across the Pond to London and the USPS charged a ridiculously low $10.00 or some such figure, while all its private competitors (UPS, FedEx) charged approx $40.00. Bottom line ... the USPS uses monopoly earned first class profits to cross-subsidize their money losing competitive package operation. UPS has successfully sued (and won substantial judgments against) The German Post Office and the Canadian Post Office for this exact scheme. All UPS and FedEx are saying is separate the books and keep monopoly profits on the monopoly side and make your competitive package business compete against private companies fairly without a public subsidy.

What say you?

 

[Clyde]

BBB,

Great post. I remember reading something like that, but I didn't have the numbers to go ahead and post on here. I'm glad you did.

The USPS has a lousy reputation regarding package delivery. Overnight to them usually translates to several overnights before a package arrives. I know several people (family and friends) who will pay more to ship on UPS or FedEx because they know it will get there. Some of the same people refuse to ship on DHL too. Their service isn't much to brag about and most people have never even heard of Duey Huey and Louie.

The USPS reminds me a lot of Amtrack. Some will be quick to say the USPS is not a government-run or government-subsidized business, but it is. It depends how you are reading the books. I would love to see how the USPS would do if it had to stand alone without ANY government assistance. Being cheap is one thing, but people understand they get what they pay for. And people are willing to pay a little more for good service.

 

[UPSer]

Some aircraft here are leased, but UPS is one of the few places that OWNS their assets, including the majority of it's fleet.

What Clyde failed to mention is that of the few aircraft that are leased, UPS owns the leasing company.

 

[klhoard]

Now if I could just do that with my truck. . . .