July 24 2006 03:41 PM

The status quo doesnt cut it anymore. A significant transformation is needed in the rate-setting process.


Some very interesting developments are occurring that will have a long-term impact on domestic parcel shipping and how you do business. Although its easy to get lost in the rigors of everyday tasks, there are a few things that deserve close attention.


The US parcel delivery market is moving closer to having a stronger third competitor to UPS and FedEx. In July, DHL Airways was purchased by three US businessmen, and it was renamed AStar Air Cargo. Additionally, Airborne Express shareholders overwhelmingly approved the sale of most of its company to AStar Air Cargo. This was hardly surprising, since it has long been speculated that Airborne would be acquired or merged with another parcel delivery company.


To better understand the impact of having additional domestic competition in the parcel market, just take a look at the profit margins of the many LTL carriers. Then make a quick comparison of the large margins that UPS and FedEx enjoy. This should be all you need to see to understand why the DHL/Airborne marriage is healthy for the pocket book of domestic shippers.


As you would expect, UPS and FedEx are making every effort to prevent AStar from operating in the United States. US law requires airlines that fly within the US to meet corporate citizenship requirements including that they be under effective control of US interests. UPS and FedEx are trying to convince regulators that AStar is controlled by German postal giant Deutsche Post AG and is therefore in violation of aviation laws forbidding foreign-owned airlines from transporting people or freight between US cities. At the heart of the debate is whether AStar is effectively controlled by Deutsche Post simply because it generates a large percentage of its revenue from them. AStar insists that although Deutsche Post and its subsidiaries are its primary customers, it is a US-owned and controlled company that operates independently. Rest assured that neither UPS nor FedEx will leave any fire power at home as they battle this issue. When it comes to protecting their turf, neither company shies away from a good old fashion dog fight. The stakes are simply too high!


In an equally interesting development, a Presidential Commission charged with shaping the future of the U.S. Postal Service has recommended keeping the Postal Service as a government agency but giving it more leeway to function as a business. Sounds simple enough! But what does that really mean?


In a general sense, it means that the current way of doing business is not the blueprint for tomorrows success. Quite simply, the status quo doesnt cut it anymore. A significant transformation is needed in the rate-setting process, and the Postal Service must have its handcuffs loosened, if not removed, so that it can close facilities and reduce hours of operation when warranted to right-size operations and control costs.


Postal management would also like to reduce labor costs through labor agreement revisions. In return for the much-sought-after rating and operational flexibilities, the Postal Service will be required to report more detailed financial information to the Securities and Exchange Commission. Just how far the Postal Service will be allowed to go with the numerous desired changes is anyones guess. But an extremely positive signal was sent earlier this year when the company received approval from the Postal Rate Commission to offer special discounts to the countrys heaviest users of First Class mail. Will a similar program be established for parcel shippers? Its hard to say. But it would seem like the logical next step! Lets keep our fingers crossed that more positive changes are on the horizon for the Postal Service.


As you can see, the landscape of domestic shipping is changing. 2004 should prove to be a telling year for our industry. We will begin to see how dramatic the shipping landscape will change as more carrier options become available to our countrys shippers. One thing is for sure, you will be better off at the end of 2004 than you are today. Competition has a funny way of making sure that happens! Have a great holiday season and I, like you, look forward to what the new year will bring!


Joe Loughran is president of SmartTran, Inc. and an expert in parcel carrier rate analysis. SmartTran is a transportation consulting company offering services in carrier rate negotiation, guarantee refund service and logistics planning. SmartTrans management team has over 60 years of experience in parcel transportation management. Joe can be reached by phone at 724-934-0626 or by email loughran@smarttran.com.