Airborne, Inc. (known publicly as “Airborne Express”) is a delivery company and air freight forwarder that expedites package, document, and freight shipments to destinations throughout the United States and most foreign countries. Domestically, the company focuses on express services for high-volume corporate customers. Internationally, the company targets the outbound express and freight shipments of U.S. corporate customers and
sells the inbound service of the company's distribution capabilities in the United States. As of 1997, 70% of the company’s shipments were delivered via aircraft, with the remainder handled by either company-owned or contracted ground vehicles such as vans and trucks.
Airborne Express also provides door-to-door express and deferred delivery of small packages and documents throughout the United States as well as several foreign countries. Tracing its origins back to the 1940s, Airborne Express has grown to become a well-known domestic and international freight forwarder. In fact, Airborne Express has successfully adopted a best-cost provider strategy in which it matches close rivals on key product and service attributes while beating them on price. Indeed, the
company derives its principal competitive advantage from its unique bundling of quality service, flexible delivery, and low prices. Moreover, the company’s proposed merger with DHL during the summer of 2003 promises to increase competition and make Airborne Express a much stronger challenger to the dominant express delivery service providers.
More than 300 facilities in the US are involved in supporting the company’s domestic express and deferred delivery services. Shipments normally weigh less than 100 pounds and typically contain valuable, time-sensitive items, such as medicines, high-fashion goods, and computer parts, for which speed and reliability of delivery are paramount. Specifically, Airborne Express’ domestic products and services are as follows:
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Overnight Express – comprising nearly half of the company’s domestic shipments in 2002, the Overnight Express product provides shipment delivery before noon by the following business day to the 50-largest metropolitan areas in the US. In addition, weekend and holiday pickup and delivery service are available in many US cities. For an
additional $5 per package, customers can opt to have their shipment delivered by 10:30 A.M. instead of noon. |
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Next Afternoon Service – this product provides shipment delivery by 3 P.M. on the following business day and is priced lower than the Overnight Express product. |
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Second Day Service – this product provides shipment delivery by 5 P.M. on the second business day and is priced lower than the Next Afternoon Service product. |
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airborne@home - this is a deferred service product that serves the residential delivery market and also targets e-commerce businesses and catalog markets. These shipments are picked up and delivered by Airborne Express to more than 21,000 US Postal Service destination delivery units, after which they are delivered to private residences via
the Post Office’s parcel select service. Shipment times range from two to four days. |
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Ground Delivery Service – this is a deferred service product that targets corporate customers that require high-volume shipments. As the name implies, shipments are delivered by ground transportation units such as trucks and vans.
Because time-sensitivity is less of an issue, Ground Delivery Service shipments are typically priced lower than equivalent air express delivery shipments. |
The company also offers value-added services through its Airborne Logistics Services division. These services allow customers to maintain centralized inventories operated either by Airborne or their own personnel. Moreover, any items that customers store near Aiborne’s principal sort facility in Wilmington, Ohio, can be transported immediately on Airborne aircraft to nearly any destination in the world. Not surprisingly, these services are very
attractive to customers who employ Just-In-Time (JIT) supply and distribution networks.
Finally, the company’s Sky Courier subsidiary provides immediate domestic and international services at premium prices. Sky Courier accounts for only a minuscule portion of the company’s total domestic deliveries.
Figure 1
summarizes the breakdown of domestic delivery shipment types in 2002.
Figure 1 Domestic Deliveries by Shipment Type (2002)
Airborne Express provides freight and express delivery services to foreign customers through a network of company offices and independent agencies. The company also utilizes its extensive domestic network to bolster its offices in such far-flung places as Taiwan, Hong Kong, Singapore, Australia, New Zealand, France, Holland, Sweden, and the United Kingdom.
Airborne’s international air express service picks up shipments of up to 150 pounds and delivers them to virtually any foreign location within four days. The company also offers international air and ocean freight services for heavier shipments. To handle shipments to and from foreign locations, the company resorts to commercial airliners in addition to its own fleet of aircraft. The company also employs variable costing and service arrangements with
independent freight and express delivery agents to handle shipments to locations in which the company does not have a presence. In a few cases, Airborne has also entered into joint venture agreements to gain inside knowledge of unfamiliar markets and cultures, expand opportunities by combining its capabilities with those of its partners, and extend its international presence.
Nevertheless, as
Figure 2
illustrates, international operations remain modest, with foreign shipments accounting for only 2% of the company’s total shipments by volume in 2002.
Figure 2 Shipments by Destination (2002)
International shipments are also less profitable, generating $1.01 in revenue per pound versus $1.70 in revenue per pound for domestic shipments in 2002.
FOCUS (Freight On-line Control and Update System) is Airborne’s proprietary communications system that provides 24-hr real-time tracking and shipment information and monitors the company’s global operating performance. Besides linking company agents and facilities all over the world, FOCUS allows employees to easily input shipping information through hand-held barcode scanners. An added advantage of the system is that customers can access information on
their shipment by telephone or through the company’s website at http://www.airborne.com/.
As mentioned above, the company has installed new hand-held scanners that reduce domestic pickup and delivery times by allowing employees to easily input shipment information into FOCUS. In addition, customers can use the scanners to provide a digital signature and thereby confirm receipt of delivery. Airborne had deployed more than 12,000 scanners by the end of 2002, with plans to deploy an additional 5,700 scanners by July of 2003.
The four components of Airborne’s marketing mix are summarized in
Figure 3
and explained below.
Figure 3 Airborne's Marketing Mix
Product – door-to-door express and deferred delivery of documents and packages, along with ocean and air freight forwarding; logistics and other value-added services are also available
Place – Fifty-largest metropolitan areas of the United States; international locations served through network of local independent agents and forwarders
Promotion – direct sales force; no mass media advertising; domestic sales representatives responsible for both domestic and international marketing; upper management heavily involved in marketing; international division has its own sales force
Price - based on competitive factors, service type, anticipated costs, shipment volume, and weight; normally lower than price offered by major competitors; high-volume customers enjoy discounts
Airborne Express finds itself in a very competitive market in which the major players wrestle against each other in a never-ending quest to increase market share and profitability. Although customers often select carriers for a variety of reasons, Airborne must remain competitive as regards four primary factors that govern most customers’ selection of an express carrier (shown in
Figure 4
): price, reliable pickup and delivery, frequency and capacity of scheduled service, and value-added services.
Figure 4 Principal Carrier Selection Factors
Federal Express Corporation (FedEx) is the dominant competitor in the domestic air express business, followed by United Parcel Service, Inc. (UPS). Airborne Express finds itself in third position behind these two companies in terms of domestic air shipping volume. Other domestic air express competitors include the U.S. Postal Service’s Express and Priority Mail Services, as well as several other transportation companies offering next morning or next-plane-out
delivery service. Airborne also competes with small, regional ground transportation companies as well as fax and e-mail services.
At the international level, Airborne Express competes with FedEx, UPS, DHL, TNT, air freight forwarders and carriers, and many commercial airline companies.
On March 25, 2003, Airborne and DHL announced that they would enter into a merger in which DHL would acquire Airborne’s ground operations. Under the terms of the agreement, Airborne’s air operations will be spun off to form an independent company called ABX Air. The company will be completely owned by current Airborne shareholders, who will receive shares in the new company equal to the number of shares they currently hold in Airborne.
According to Airborne and DHL, the merger will strengthen DHL’s operations in the United States by allowing Airborne to more effectively serve small-to-medium-sized corporate customers. The merger is particularly attractive to Airborne as it promises to increase the company’s access to DHL’s large capital and resource base, which Airborne needs to effectively compete against the two “900-lb gorillas,” FedEx and UPS. Barring lack of regulatory approval, the merger is expected to be finalized by the end of the summer of 2003.
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Airborne is known for high-quality, reliable service |
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Company offers a variety of flexible delivery options and products |
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Prices are generally lower than those of competitors |
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Proprietary communications technology increases delivery speed and reliability |
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Airborne lacks resources and capital to become undisputed industry leader |
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Company has a very limited international presence |
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Airborne has a much lower profile than its two major competitors |
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Company must continually juggle low cost and high quality |
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Merger with DHL promises to increase scope of international marketing and operations |
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Growth of e-commerce and shorter product development cycles may generate increased need for express delivery services |
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Value-added services (supply chain management, inventory control, etc.) may become most profitable segment |
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Airborne may be able to target niche markets not currently served by UPS and FedEx |
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Earnings are very susceptible to level of business activity |
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Geopolitical uncertainty and threat of terrorism could hurt bottom line |
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Fax and e-mail could eclipse need for parcel delivery services |
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Rising fuel and security costs may lower earnings |
Airborne Express must develop and effectively execute a corporate strategy that befits its status as a best-cost provider in runner up position. Accordingly, it is recommended that the company implement most if not all of the following strategies to build and maintain long-term competitive advantage:
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Continue investments in time-saving machinery at Wilmington hub |
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Revamp the entire length of the value chain to streamline or bypass inefficient cost drivers |
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Employ time/motion studies to eliminate or reduce unnecessary physical activity or tasks |
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Fully implement use of hand-held barcode scanners to increase delivery reliability and efficiency; expand and improve communications technology (i.e., FOCUS) |
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Expand practice of utilizing lower-cost independent contractors whenever feasible |
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Avoid frontally challenging FedEx and UPS on the basis of scale of operations or product offerings |
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Adopt industry-leading best practices that accord with company’s stated competitive strategy; employ benchmarking regularly and consistently |
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Exclusively target corporate customers, particularly small-to-medium-sized business-to-business (B2B) customers that may be overlooked by FedEx and UPS |
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Initiate aggressive marketing campaign focused on the slogan that Airborne offers a “premium service without the premium prices” |
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Avoid getting “stuck back in the pack” with no coherent long-term strategy or distinctive competitive position and little prospect of climbing into the ranks of the industry leaders |
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Take advantage of positive Airborne/DHL synergies to improve efficiency and profitability of domestic ground operations |
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Leverage DHL’s significant international presence to pursue attractive foreign opportunities |
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Take advantage of DHL’s marketing resources to promote viability of Airborne as a best-cost delivery provider |