SIC 4513
AIR COURIER SERVICES



The air courier services industry includes establishments primarily engaged in furnishing air delivery of individually addressed letters, parcels, and packages (generally under 100 pounds), except by the U.S. Postal Service. While these establishments deliver letters, parcels, and packages by air, the initial pick-up and the final delivery are often made by other modes of transportation, such as by truck, bicycle, or motorcycle. Also classified in this industry are separate establishments of air courier companies engaged in providing pick-up and delivery only, "drop-off points," or distribution.

Establishments of the U.S. Postal Service are classified in SIC 4311: United States Postal Service ; and establishments furnishing delivery of individually addressed letters, parcels, or packages (generally under 100 pounds) other than by air are classified in SIC 4215: Courier Services, Except by Air.

Establishments primarily engaged in undertaking the transportation of goods from shippers to receivers for charges covering the entire transportation but making use of other transportation establishments for delivery, are classified in SIC 4731: Arrangement of Transportation of Freight and Cargo.

NAICS Code(s)

492110 (Couriers)

Industry Snapshot

Definition of Service. The air courier industry is a division of the air cargo industry. As defined by the Air Transport Association (ATA), cargo is the total volume of freight, mail, and express traffic. The air courier division includes both freight (generally under 100 pounds) and express mail. As defined by the ATA, freight and express mail are commodities of all kinds, including small packages, counter service, express service, and priority-reserved freight. Air courier service does not include the delivery of U.S. mail.

Major Integrators. In general, two kinds of companies have provided air courier service in the United States. First have been the integrators or all-cargo companies, such as Federal Express and DHL. These companies have a fleet of planes, carry cargo only, usually fly at night, and have ground transportation and personnel for door-to-door pick up and delivery.

Integrators have controlled 90 percent of the domestic market for envelopes, packages, and freight. These companies have been Airborne, Burlington, Air Express, DHL, Emery Worldwide, Federal Express, and United Parcel Service (UPS).

Combination Carriers. Air courier service also has been provided by passenger airlines, such as American Airlines. These companies transport cargo (freight, express, and mail) in the holds of their passenger aircraft. They fly during the day, since passenger traffic is their first priority. Passenger airlines have provided service similar to integrators, except most airlines have to subcontract ground transportation. Airlines also provide airport-to-airport deliveries.

Eleven passenger airlines once included all-cargo aircraft in their fleets. As of 1999 Northwest Airlines, with 10 747-200s, was the only U.S. passenger airline operating all-cargo equipment. The other 10 retired the all-cargo aircraft from their fleets by the end of 1984.

Air Forwarders. Both major integrators and combination carriers have worked with air forwarders to provide shipping services. Air forwarders are companies that arrange the complete shipping process and receive charges for the entire transportation. These companies do not own or operate aircraft and have to purchase space on the planes of airlines or integrators for their packages. Although air forwarders were the precursor to the air courier industry, these companies are not represented in this industry but are classified in SIC 4731: Arrangement of Transportation of Freight and Cargo.

Revenue Generated by the Industry. According to the Air Transport Association, cargo services (freight, express, and mail) reached nearly 22 billion revenue ton miles in 2001. A revenue ton mile (RTM) equals one ton of revenue traffic transported one mile. Freight, express, and mail cargo traffic dropped 7.9 percent from 2000 figures, due mainly to the increased security measures initiated after the September 11, 2001, terrorist attacks on the World Trade Center towers and the Pentagon. As a result, cargo revenue fell 10.4 percent to $13 billion in 2001.

Most Used Airports. The airport that received the most air cargo (freight, express, and mail) in 2001 was Memphis with 2.6 million tons of cargo enplaned and deplaned. Los Angeles International came in second, with approximately 2.1 million tons that year. Anchorage, Miami International, and New York's John F. Kennedy Airport (JFK) followed with 1.69 million, 1.61 million, and 1.5 million tons, respectively.

Kinds of Service. Companies within the freight/express mail division of the air cargo industry have offered various services related to time-sensitive delivery conditions. Customers can request next-morning or afternoon delivery, same-day service, or second-day delivery. Most international express services require a few days for delivery, depending upon the country's customs procedures and regulations.

Background and Development

The U.S. airmail system was the forerunner to the air courier industry (or express mail industry). The U.S. airmail system also spurred the growth of the air passenger industry and the creation of the modern airlines. Yet the air courier industry and the time-sensitive delivery of letters and parcels remained dormant until the late 1970s.

Prior to deregulation of the air cargo industry in 1977, air transport of packages was made by the U.S. Postal Service or air forwarders. Time-sensitive shipments were not possible because air forwarders did not operate their own planes and had to depend upon the scheduled service of the airlines.

Deregulation in 1977. Following deregulation, the air cargo industry underwent dramatic changes, as air forwarders and ground transportation operators acquired their own aircraft and became integrators. Some passenger airlines also began to pick up market share, but it was the all-cargo carriers (or integrators) that created the express delivery service that has been most commonly known as air courier service.

Creation of the Hub System. Development of the hub system made possible the large-scale, overnight deliveries and the very existence of the modern air courier industry. Federal Express initiated the hub system, and it has remained the standard operating method in use.

Using this system, all freight is originally shipped to the company's central hub, where it is sorted and rerouted to its final destination. As the air courier industry has grown, some regional hubs have been formed to serve particular areas of the country. Integrators as well as passenger airlines use the hub-and-spoke system.

Air Express Service. The rapid growth of the air courier industry during the 1980s was primarily due to the success of express delivery service. Integrators have dominated this particular service. From 1982 to 1990, the domestic air express market grew at an annual rate of nearly 19 percent. In 1999 the air express industry continued to grow, along with air cargo. Air express deliveries accounted for 60 percent of air shipments in 1998, with overnight letters and envelopes alone accounting for 27 percent of the industry (in both shipments and revenues).

Competition. A flurry of overnight express companies appeared on the scene during the 1980s. By 1992 only seven significant air carriers remained in the express service business. Five companies continued to dominate the category in 1999: the U.S. Postal Service (USPS), the world's largest air-and-ground package delivery company, which offers express mail along with other options; Federal Express, the world leader in the overnight package delivery market; United Parcel Service (UPS), the second largest express courier service; DHL, the world's largest and most experienced international air express network; and Airborne Express, the third largest air express carrier.

Many analysts have considered the status of the air freight industry as a vanguard of the direction of the overall economy. During tight economic times, people cut costs by using the more economical two-day delivery service. As conditions improve, traffic in the more expensive, priority overnight service increases.

A Mature Market. Compared to the growth rates of the 1980s, the cargo industry (freight, express, and mail) slowed by the early 1990s. For example, annual growth in 1990 was 2.2 percent, compared to the 7 percent annual rate during the 1980s. Part of the slower growth rate was not only due to the recession but also to the use of long-range cargo aircraft in the Persian Gulf War.

By 1993 a general upturn in air cargo was reported in both domestic and international markets. Moreover, steady growth in express service (or courier service) has been predicted for the next decade, especially in the international arena. In 1996 air cargo traffic was at a 10-year high; total air cargo was up 30.5 percent from September 1995 to September 1996. All major air express carriers experienced growth in the late 1990s.

Service-Oriented Competition. As the express service industry has continued to mature, integrators have turned to service refinements as a competitive tool. Services such as guaranteed early morning or afternoon deliveries have become commonplace. Second-day service has been expanded, and weight limits have been raised. Extensive tracking processes and communications networks have been established to automate billing and accounting services for customers.

Status of Combination Carriers. The integrators have continued to dominate market share of the express service industry, as most U.S. combination carriers still treat cargo as a secondary service. Although most airlines could compete with integrators in head-to-head competition, they have not yet done so. While airlines have emphasized improved customer service, some have attempted to gain a foothold in the small shipment sector.

According to the Colography Group, an Atlanta-based research firm specializing in the air-freight and air-express industries, there were 2.8 billion domestic air shipments made in 1998. The U.S. Postal Service (USPS) moved 1.3 billion Express and Priority Mail parcels and represented 45 percent of the domestic market. In late 1999 USPS announced an affiliation with DHL Worldwide Inc. for expedited global service to 65 countries.

Overall, the 1998 industry realized a modest 7.6 percent increase from 1997. Federal Express captured 25.6 percent of the public market, followed by UPS at 15.6 percent, and Airborne Express at 11.3 percent, but the lion's share of the market remained with USPS. As of 1999 there were 18 listed companies operating in the air courier industry, only three of which were publicly held.

Current Conditions

Freight and express cargo revenue ton-miles fell from 21.1 billion in 2000 to 20.1 billion in 2001. This 6.2 percent decline in cargo volume caused operating revenues for the freight and express segment of the cargo industry to fall 4.8 percent from $12.2 billion to $11.9 billion over the same time period. The mail segment of the cargo industry experienced a steep 22.8 percent decline in volume, with revenue ton-miles falling from 2.1 billion in 2000 to 1.8 billion in 2001. Mail operating revenues plummeted 46.3 percent, from $1.9 billion to just over $1 billion. International cargo traffic, which represents nearly 60 percent of total traffic, dropped 6.3 percent, while domestic revenue ton-miles declined 10.1 percent.

The decline in both volume and revenues for the industry reflected heightened security efforts, which were put in place after the September 11, 2001, terrorist attacks in the United States and subsequent reports of mail laced with anthrax. Also causing a slowdown for the industry was the weakened global economy early in the twenty-first century. Mail cargo experienced a sharper revenue decline than freight and express cargo partly because of a 30.5 percent price decrease for mail shipments in 2001, compared to a 1.6 percent jump in freight shipment prices.

Industry Leaders

Federal Express. Federal Express had 26 percent of the private market share in 1998 and 45 to 50 percent market share in the air express service division. Each day, Federal Express delivers approximately three million items.

Beginning operations in 1973, the company is known as the creator of the hub system of distribution. By 2002 Federal Express had nearly 185,000 employees worldwide and served 210 countries. It operated 650 aircraft and 50,000 vehicles. Federal Express' headquarters are located in Memphis, Tennessee.

Federal Express has also been the industry leader in various technological advancements. The company was the first to develop a computerized tracking system that could tell where any package was at any time from pick-up to delivery. Federal Express created the customer service system with 32 call centers worldwide that handled 300,000 calls daily. The company also developed the digitally assisted dispatch system (DADS), which communicates to couriers through computers in their vans. In 2002 revenues reached $20.6 billion, with profits at $710 million. Federal Express became a publicly held company in 1978 and is listed on the New York Stock Exchange.

United Parcel Service. United Parcel Service (UPS), headquartered in Atlanta, Georgia, is the second largest private express courier in the United States and the world's largest package delivery company, as well as the leader for domestic air shipments.

The company was founded in Seattle, Washington, in 1907, furnishing messengers for errand service. The company merged with a competitor in 1913 and took its name, Merchants Parcel Delivery, reflecting the company's concentration on retail packages. In 1919 the company changed its name to United Parcel Service (UPS) in the process of expanding its business into California and eventually to all of the West Coast.

In 1929 UPS began air delivery along the West Coast, but its airline, called United Air Express, ended operations in 1931 due to the depressed economy. During the 1930s and 1940s, the company concentrated on retail delivery service and opened major urban areas in the Midwest and eastern United States. UPS renewed its air service in 1953, and major cities on the East and West Coasts became connected with two-day service. By 1975 UPS had become the first company to serve every address in the 48 contiguous states.

UPS entered the overnight delivery business in 1982, offering UPS Next Day Air to 24 major metropolitan areas. UPS was already the largest carrier of packages in the United States, but the packages were primarily transported by ground service. On a daily basis, UPS delivers by air more than 1.78 million express mail packages, with UPS Next Day Air and 2nd Day Air Services combined. The company serves more than 200 countries and territories and every address in the United States. With 371,000 employees, UPS operates 146,000 vehicles, including package cars, vans, tractors, and trailers, and 600 aircraft. Sales in 2001 grew 2.9 percent to $30.6 billion, although net income fell 18.2 percent to $2.39 billion.

Airborne Express. Airborne Express is the third largest air express carrier in the United States, second only to Federal Express and UPS. Airborne operates its own airline, ABX Air, Inc., with 120 planes in its fleet and its own ground transportation vehicles. It is the only U.S. air cargo company to own an airport. The Airborne corporate office is in Seattle, Washington.

Airborne Express operated as a freight forwarder until 1980, when it expanded into an overnight air express company. The company, initially Pacific Air Freight, merged with Airborne Freight Corporation of California in 1968, taking the Airborne name. The company first began operations by leasing the services of Midwest Air Charter in Wilmington, Ohio. With deregulation in 1977, Airborne began to purchase its own fleet of aircraft, which reduced the company's dependence on chartered space on other airlines. In 1980 Airborne acquired Midwest Air Charter and the Wilmington Airport, and turned the property into the company's hub airport. In 1995 the company expanded its fleet with the acquisition of Boeing 767-200 aircraft and opened a second runway. It also formed Airborne Alliance Group, a consortium of transportation, logistics, third-party customer service operations, and high-tech companies providing value-added services.

Airborne has been moving freight internationally for more than 40 years. The company has operated overseas with a combination of its own facilities and foreign-service partners. Airborne has entered into joint operating agreements with other large, well-established transportation companies worldwide. The firm posted an overall loss of $19.5 million in 2001 on revenues of $3.2 billion.

DHL Worldwide Express. DHL is the carrier with the most worldwide coverage, operating 4,000 offices around the globe. DHL employs 71,500 people and serves nearly 120,000 destinations in 230 countries and territories with its fleet of roughly 250 aircraft. Handling more than 65 million shipments each year, the company works out of 13 hubs, including a Miami-based facility built in 1997. DHL's domestic hub is located at the Greater Cincinnati/Northern Kentucky Airport.

DHL Airways, Inc. was founded in 1969 by Adrian Dalsey, Larry Hillblom, and Robert Lynn (hence DHL) as a shuttling service between Hawaii and San Francisco. In 1971 the company was the first international air express company to provide service to the Pacific Rim, starting with the Philippines. Service was extended to Japan, Hong Kong, Singapore, and Australia in 1972. DHL moved into Europe in 1974, Latin America in 1976, the Middle East in 1977, and Africa in 1978. It was the first company to bring air express service to the Eastern Bloc countries in 1983 and to the People's Republic of China in 1988. The DHL Worldwide Express network is part of both DHL Airways Inc., based in Redwood City, California, which provides service to the United States and its territories, and DHL International, Ltd. in Brussels, which operates in all other areas of the world. Japan Airlines and the German airline Lufthansa each own 25 percent of DHL International, and the Japanese securities firm, Nissho Iwai, owns an additional 7.5 percent. The estate of the company's late cofounder, Larry Lee Hillblom, owns 60 percent of DHL Airways and 24 percent of DHL International. In 1999 DHL announced a deal with the Boeing Company for the long-term lease of 44 Boeing 757 special freighters to assist with the expanding global express delivery market. DHL also announced plans to sell 23 percent of the company early in the twenty-first century. Sales in 2001 grew 9.1 percent to roughly $6 billion.

Another carrier is Emery Worldwide, a $2 million global, multi-modal transportation and logistics company. It operates 580 service agencies in 95 countries, owns 98 aircraft, and uses a ground fleet of 2,000 trucks. In 1997 the U.S. Postal Service awarded Emery a $1.7 billion, 58-month contract to create and operate a new network for the exclusive handling of priority mail. Cargo ton-miles reached 719 million in 2001.

Workforce

In spite of the recession during the early 1990s, the express service of the air cargo industry continued to grow along with career opportunities. Employment opportunities in the industry have been greatest in major metropolitan areas. In 1997 Federal Express had to advertise nationally for employment in Indianapolis, because there were not enough qualified applicants to fill the job openings locally. At the end of the 1990s, job outlook was favorable because of the expected growth in the global market serviced by the same carriers.

Employees with experience in industry-specific software and knowledge of Electronic Data Interchange (EDI) will be needed, as companies head toward greater interconnectivity with client companies. To provide service to their customers, these companies will need Information Systems (IS) professionals with experience in developing various programming languages, such as C and C, under the Unix operating system. Computer networking skills also have become critical, because companies have been adding new client sites to their network. With industry trends suggesting that the over-night express service will continue to lead in the growth figures for the industry, employment opportunities for IS professionals, such as computer and information systems managers, are projected to increase faster than other occupations through 2010.

America and the World

By far the most important factor in the global expansion of this industry was the 1999 World Trade Organization (WTO) meeting in Seattle, Washington. At stake was China's anticipated contribution to a global air cargo value, which in 1998 surpassed the $2 trillion mark (including ground services). In December 1999 Federal Express, UPS, and Polar Air Cargo companies were all filing documents with the U.S. Department of Transportation in an attempt to secure rights to provide service for 10 new authorized round-trip flights to China, the newest member of the WTO.

Research and Technology

Advances in computer technology, software development, and the communications industry have provided the air courier industry with the necessary tools for efficient and timely functions related to all aspects of operations. Everything from hand-held computers, to online, real-time data systems has allowed air courier companies to communicate more effectively with ground personnel and their customers. Continued advances will bring additional automation and provide improved accuracy in delivery and billing, and improved service to the customer.

Electronic Data Interchange. Electronic Data Inter-change (EDI) is a computer-to-computer exchange of information between businesses. This information, such as inventories and purchase orders, travels over phone lines. Many overnight delivery companies have developed their own personal computer (PC)-based EDI systems to use at their client sites. For example, UPS' Maxi-Ship system consists of a PC, UPS-developed EDI software, and a printer. The system enables clients to produce all shipping documentation and manage all cost accounting within their own offices.

Federal Express' system, PowerShip, is an internally developed computer system that allows customers to generate their own billing labels and invoices, and track their own packages through the Fed Ex delivery system. The Federal Express EDI system resolved the paperwork problem identified by their salespeople as a burdensome task, by performing four customer functions. First, it generates the shipping label. Second, it prints a manifest of what was shipped at the end of each day. An invoice is automatically generated, and shipping charges are accrued and sent to the home office system for billing procedures. The third function is an array of shipping management and reporting. And finally, PowerShip allows customers to access the Federal Express' computerized package-tracking system. More than 25,000 Federal Express customers began to use this system in the mid-1990s. Customers who do as little as $75 worth of shipping per day with Federal Express can receive this system. Individuals with access to the Internet can track their own packages online, using the Federal Express Web site.

Cellular Technology/UPSnet. UPS entered the cellular market with the development of one of the first cellular data networks in the country. The system, called UPSnet, transmits air and ground package delivery information in real-time that can be accessed by any ground transportation vehicle anywhere in the country.

To process delivery data for transmission on UPSnet, a driver first obtains a customer signature on a Delivery Information Acquisition Device (DIAD), a hand-held computer that captures signatures electronically. Next, the driver attaches the DIAD to UPS' DIAD Vehicle Adapter, which is inserted in a cellular telephone modem in the truck. The modem then transmits the information from an external transceiver on board to cellular switches provided by four different cellular carriers and to a UPSnet packet switch. The information is transmitted to a mainframe system at the UPS worldwide data center in Mahwah, New Jersey. UPSnet was expected to be installed in more than 50,000 vehicles in the UPS fleet.

Teller Machines Drop-Off Boxes. Federal Express had been test marketing its own new product, a self-service center based on Automated Teller Machine (ATM) technology. Anyone with a credit card or a prearranged Federal Express account number would be able to drop off an overnight letter or small package at this self-service center at any time. All labeling and billing would be executed on a touch-screen terminal similar to a bank ATM. The system, known as Federal Express Online, has a touch screen video display terminal that offers computer menus for making an address label or choosing either next-day or two-day delivery service. Payment is made by running a credit card through a magnetic slot.

The self-serve center processes the information, sends it over telephone lines to a local or regional database computer that authorizes the credit card transactions, stamps a time on the bar-coded address label, and confirms the delivery address for the customer. These centers were planned to be used around-the-clock and were intended to complement and possibly replace some of the 29,000 Federal Express drop-off boxes. The company hoped that increased automation would reduce costs and improve service.

Further Reading

"Air Cargo Tells New Story." Transportation & Distribution, December 1999.

Air Transport Association. "2002 Annual Report." Available at http://www.airlines.org .

"Boeing, DHL Sign Freighter Conversion Deal." Business Times, 26 November 1999.

"Business This Week." Economist, 18 December 1999.

"Computer and Information Systems Managers." Occupational Outlook Handbook 2002-03. Available from http://www.bls.gov .

Corder, David R. "USPS Delivers New Low-Cost Mail Option." Business Journal Serving Jacksonville & Northeast Florida, 12 November 1999.

Hoovers Online. Austin, TX: Hoovers, Inc., January 2003. Available from http://www.hoovers.com .

Orr, Deborah. "The Post Office With a Ticker." Forbes, 29 November 1999.

"Pipeline." IPO Reporter, 8 November 1999.

"Tenth Freighter for Northwest." Transportation & Distribution, December 1999.

Thompson, Richard. "Federal Express' Memphis, Tenn.-Based Parent Reports Low Earnings." The Commercial Appeal, 17 December 1999.

"U.S. Postal Service Dominates Domestic Air Cargo." Logistics Management & Distribution Report, November 1999.

Yung, Katherine. "Airlines, Cargo Carriers Fight to Add New Flights to China." The Dallas Morning News, 7 December 1999.



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