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- July 15, 2010 -

Global Logistics News: FedEx Thinks New Boeing 777 Fleet is a “Game Changer” in Air Freight out of Asia; UPS Disagrees

FedEx Says it will Take Delivery of Six More of the Planes in Next Year; Global Air Cargo Volume Surges in 2010

 
     
 


SCDigest Editorial Staff

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In the southern coastal province of Guangdong, where there is a lot of apparel manufacturing, the monthly minimum wage rose on average by more than 20% starting in May.

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In its most recent quarterly earnings call, FedEx says it will add six new long range Boeing 777F long distance cargo planes in the next year to the six it has already taken delivery on starting last September, in a move that legendary CEO Fred Smith calls a “game changer.”

 

Why the big fuss about an airplane?

 

Currently, cargo-ladened air freighters leaving Asia for many US cities cannot make the flight without stopping for fuel (in FedEx’s case, a station in Anchorage, Alaska. Ditto for cities in Europe.

 

With the 777s, which sport a range without refueling of 2100 more miles than the Boeing MD-11s FedEx has been using on most global routes, FedEx says it an expand its shipping cutoff out of Asia from one to three hours, giving companies more flexibility to meet schedules or get urgently needed goods or parts to US or European destinations one day earlier.

 

FedEx rival UPS, not surprisingly, disagrees.

 

“We don’t believe it is a game changer,” UPS spokesman Norman Black told The Wall Street Journal this week. “If we seen any material change in competitive pick up times, we have ways of adjusting our own network to address that.”

 

UPS currently relied on MD-11s and Boeing 747-400s for its global freight hauls. 

 

The special Boeing “triple sevens,” designed for cargo hauling in a collaborative effort between Boeing and FedEx, can carry 14,000 more pounds of goods (for a total of 178,000 pounds) than the MD-11s, and the 2100 thousand mile range improvement allow the plane to go an impressive 6675 miles at that weight without refueling, according to FedEx.

 

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It also will deliver lower operating costs, using as much as 18% less fuel than the MD-11s while carrying more cargo. The new planes are said to cost about $225 million each.

 

FedEx had originally planned to upgrade its air fleet with the Airbus A380-800Fs. However, that deal was cancelled in 2006 after Airbus announced significant delays in delivery of the A380.

 

The new planes became briefly politicized, when Fred Smith said in 2009 that if Congress amended to Railway Labor Act to make it much easier for FedEx employees to unionize, the company might have to cancel the large order, which would result in the loss of thousands of jobs at Boeing and its suppliers. That change has never happened, though the issues is still on the table in Washington.

 

The FedEx 777 investment comes as the global air freight market rebounds from taking a tremendous hit during the recession. Global air freight revenue declined 27%in 2009 driven by an 11 drop in cargo volumes, which is the largest drop yearly decline on record.

 

That air freight depression started to turn in the latter part of 2009, as the industry fiercely cut capacity. The Air Transport Association (IATA) says that 12% of cargo capacity was lost in 2009, with wide body freighter capacity down 22 percent.

 

That led to a strong upward turn in rates in the last few months of the year, and now volumes are coming back strong as well. FedEx says that in its quarter ending May 31, volumes shipped across the Atlantic or Pacific oceans grew 23%, and even stronger in volumes coming out of Asia (up 41%). Export volumes coming out of the US were up a weak 1%, leading to the 23% total volume increase across all routes.

Earlier this year, the International Air Transport Association said global air freight volumes had risen 26% in the first quarter of the year.

 

That growth is driving FedEx’s 777 investment, which will grow to 31 by the end of 2016, up from the 12 currently purchased or on order for the next year.

 

The early investments in 777s could also really pay off in oil and jet fuel prices spike again as they did in 2007-08.

 

How big an impact on the air freigt market do you think the Boeing 777 could have for FedEx? Does the increase in the shipping window really matter? Let us know your thoughts at the Feedback button below.

 
 
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