Canadian Shipper

News

The Year Ahead: Diversification name of the game in the fast lane


After rapid growth in the 1990s, the express courier industry’s fortunes remained in a holding pattern in 2002, reflecting economic uncertainty and frugal spending from shippers.

“The industry remained flat this year,” says Robert Johnson, CEO of Purolator.

Customers have been thinking twice about spending money on premium services. Clive Shepherd, President of TNT International Express Canada, says that shippers have been leaning towards slower – but still time-definite – services. Within Canada and across the border, that has meant chiefly expedited trucking rather than overnight air transportation, a trend that is reflected in the most recent quarter results of FedEx, which showed healthy growth in its surface business.

“Our results show that shippers look for reliable operations at lower costs,” comments David Binks, Vice President of Sales and Marketing of FedEx Canada. Hence the big operators have spent a lot of time in the past year on their surface offerings.

Traditionally the express business has outperformed the Canadian economy, but at the moment it is not benefiting from the strength of some industries.

“The economy has improved, but sectors like real estate or oil and gas don’t feed small packages,” Johnson observes. Traditional strongholds like telecom will eventually come back but are expected to remain depressed in the near future, adds Shepherd.

Johnson reckons that the shift from air to ground will reverse itself as shippers turn their focus from cost control to improving customer service, but he does not expect to see significant improvement in the months ahead.

The first half of 2003 should bring some slight improvement; what happens further down the road will depend on a number of factors, such as whether or not there will be war in the Middle East, or what shape the stock markets will be in by then, he says.This means that express firms can’t put all their chips into the premium segment of their business; they have to offer a broad portfolio of services.

“There’s definitely still demand for express, but there has to be breadth. Customers don’t want to use a different provider for each requirement,” comments Amgad Shehata, Director of Marketing of UPS Canada.

Hence express operators will continue to broaden their offerings. Purolator introduced a deferred ground service from anywhere in Canada to anywhere in the U.S. in October, while FedEx launched a time-definite airport-to-airport service for cargo the same month and was preparing to introduce a first flight out service in December that would use space on commercial airlines.

“Customers look for more choices, more flexibility. You need the ability to customize services. The days of having a one-product solution are long gone,” remarks Binks.

Shehata agrees that express firms will have to come up with tailor-made solutions for individual customers. To some extent that has already happened with large firms, but it is still in the early stage vis-a-vis smaller and medium-sized shippers, who constitute the bulk of the Canadian industry, he remarks.

UPS has been quite successful with a string of warehouses set up along the border on the U.S. side where Canadian customers can store their products for distribution across the U.S., he adds.

Shippers will see more special products in the new year. For TNT a major focus will be the development of special services that don’t work with standard networks, such as solutions for time-critical customers in the life sciences area, Shepherd says. Over at Purolator the push to widen its service portfolio is about to lead to the launch of an Internet-based return service. This is currently in the testing stage and will be fully introduced in early 2003.

“We’re continuing our expansion beyond transportation from A to B. We’ll roll out more new services next year, starting with the domestic market. We’ll have to be a solutions provider and not a provider of transportation,” comments Johnson.

Besides breadth of service, another key element will be IT, Shehata says. “Deep integration, supported by e-business solutions, that’s where the industry is going,” he reflects.

Shepherd also views IT as critical. “Customers are looking more at IT solutions. The distance between Toronto and Paris won’t shrink and there’s a limit to the speed of flight. Customers have woken up to the fact that if they use IT, they can have a later pick-up time or arrange multiple pick-ups by releasing information to us faster. One way of doing this is imaging,” he says.

Throughout 2001 the operational parameters of the industry have been overshadowed by questions of security measures, which have yet to be finalized south of the border. Johnson is certain that Canadian regulations on that front will keep pace with US measures. There passenger airlines have been hurt by restrictions on carrying mail and could face even tougher rules on cargo. If this happened, it would probably push more traffic to operators that have their own aircraft, Johnson reckons.

The state of the airline industry itself is another matter of concern to express operators, especially the predicament of most of the big US carriers. Besides the spectre of airline bankruptcy, there are worries over the ongoing need of airlines to cut costs. “We’ll probably see more pull-outs from routes, less service to some smaller markets, which means fewer options for us,” reflects Shepherd.

While the options may be dwindling, costs for shippers are likely to go up, and this has little to do with the services offered by the express operators. It is a reflection of spiraling costs, which now account for a significant share of the overall transportation price.

“Cost volatility is there, and it’s upwards,” confirms Shepherd.

Fuel costs have been climbing and show little sign of coming down any time soon, airlines have imposed security surcharges which could go higher if further regulations on that front are introduced, and NavCan announced a 3% hike of its fees come January 1.

Purolator has refrained from levying a security surcharge on its customers and will not do so unless something dramatic happens next year, says Johnson.

Nevertheless, he expects prices to go up in the new year, but adds that the increase should be held in check by improvements in productivity.


Print this page

Related Posts



Have your say:

Your email address will not be published. Required fields are marked *

*