Airborne Express, which started as an airfreight forwarder in 1979, is now one of the leading competitors in the air express industry. Originally, the company would pickup, ship and deliver any small package to most cities in the United States with their resources and outsourced contracting of any other needed assets. It was the growing demand for carrier services that lead Airborne Express to start making strategic moves and acquisitions to guarantee their services would be needed.
The company was trying to run with a very tight operations schedule and was only being hurt by the loose coordination of their air carrier, Midwest. As a result the acquisition of Midwest soon followed the deregulation of the airline industry. The acquisition proved to have more benefits than initially expected. Now, Airborne Express was the only player in the industry to have its own airport. The next step was setting up a hub-and-spoke system in Wilmington, Ohio, which had an incredible record for clear weather. The acquisition came at a time right before the market was flooded with new competitors all trying to gain from the growing industry. The strategies that Airborne instated were the reason that it did not disappear like many of the new competitors forced out by competitive falling prices.
Airborne established 265 ground stations operating as the outer part of the spoke and 10 trucking hubs containing 12,800 delivery vans and trucks (some of which were contracted). The benefit to having such a large ground transportation crew spread across the country was the fact that they could send packages at about one fifth the cost on the ground as compared to sending it by air. The customer has no idea if the package is going to be sent by air or by ground, either way they were being charged for the air fair, which allowed for profit margins to increase in a highly competitive market. The ground transportation dealt with 25% of the total shipping and left the remaining 75% to air transportation, this allowed for below maximum capacity operation.
Airborne is also in the international carrying service, which provides delivery and pickup from over 200 countries. International revenues only amount to approximately 16% of total revenues, so instead of flying their own planes overseas they would contract other cargo planes or cargo holds of passenger planes to minimize costs and to use their assets most efficiently. If they had a route flying overseas, the plane would be 70% full leaving the country and return only 30% full.
The volume of overseas business does not justify flying even one plane back and forth. Plus, Airborne could see no reason to break the contracts with the current international carriers since they were paying low prices and finding space on flights with out a problem. What they did do to assist their international clients was to establish the first ever privately certified Foreign Trade Zone (FTZ). This was a tax free zone where international goods would be stored and then when needed for JIT systems or the like could be shipped easily. The taxes were not charged until the goods left the premises. The possible expansion into international routes would remain an open option, but will wait until business required it.
The specialization in large corporate clients was decided when Airborne realized that service to infrequent customers was out of their cost spectrum. That market would be left to FedEx and UPS. The servicing of high volume frequent customers would cause some distress to Airborne and allowed their clients to get discounts because of the volume. The clients that were focused on required high maintenance and attention to their needs, this forced Airborne to improve an already efficient system. The need for upgraded technology was the solution. When you cannot do any more with the given processes, it is time to rethink your processes.
LIBRA II equipment was part of the solution to assure efficient operations. The system was composed of a meter device to weigh packages and then PC software to calculate the shipping charges and print out the shipping labels. The system even provided the user with a daily shipping report. A system called FOCUS was created to assist in domestic and global delivery. FOCUS (Freight, On-line Control and Update System) was a computer system that allowed the package to be recorded into the system by the driver when the package was picked-up. The use of hand-held scanners assisted in the job, to insure reliable data entry and the system allowed tracking for customers checking the status of their order. For clients that operated with extremely high volume shipments, the electronic data interchange (EDI) program was setup.
This system allows the client to create the shipping document as they are placing the order. The elimination of paperwork being sent back and forth was an immeasurable advantage that competitors were not offering at the time. Another cost reducing improvement for the shipment of goods by air was the creation of the C-container. The C-container was an advantage that reduced costs by $1 million per plane. The container was smaller and could fit through the passenger door of the old upgraded planes. Planes that were purchased usually had to upgrade with a cargo door to fit the older A-container. This was a problem for competitors that were not as innovative as Airborne. Another cost reducing strategy used by Airborne was the purchase of older and used, instead of brand new planes.
An older DC-8, DC-9, and YS-11 would be bought, gutted and then refurnished with highly automated cockpits and a more efficient use of the body space for cargo storage. The investment in each old plane, although it might seem costly, paid off with a higher rate of reliability and did not require servicing as often as others like it. An internal mechanic crew always performed servicing when it was needed. This alone reduced hourly wage costs by 75%, compared to outsourcing the repairs.
It is the sum of all these cost reducing and competitive actions that kept Airborne as one of the top competitors in the industry. They followed there competitors at times when they were unsure what to do, but soon realized that they had to do what was best for them and travel that path for the first time alone.