Commentary: Saying "No Thanks" to Overnight Air

During the 1990s boom, Dell Computer's (DELL ) customers got hooked on speed. Most were willing to pay a premium to have their computers shipped by overnight air express. But today, the equation has flipped. Customers prize cost savings over speed. "Now, most of our computers [in the U.S.] are shipped on the ground--and we can still reach just about everyone within two days," says Fred Montoya, Dell's vice-president for worldwide logistics.

Express air shipping isn't in a death spiral. But recession-spooked consumers and manufacturers are less willing to pay for overnight delivery, which is three to five times more expensive than ground shipping. Even when they pay, satisfaction is not guaranteed. After September 11, security scrutiny of air freight can result in long delays--which means roads may actually be faster. That's another reason the number of packages shipped by air domestically fell 7.6% in 2001. And even with the recovery under way, air-express volume is forecast to rebound by just 3% this year. "There's a mass migration from air to trucks," says Jerry Levy, marketing director for air shipper Bax Global Inc.

The industry's giants are ready to roll with the change. In the past several years, FedEx (FDX ) and UPS (UPS ) have rebuilt their ground networks as a series of regional hubs able to deliver most packages overnight within a 700-mile radius. "Now, we can move a package in the most expedient way--ground or air or a combination of both," says Tom Weidemeyer, UPS' chief operating officer and president of its airline unit. New technologies--including bar coding, satellite tracking, online billing and status--are easing the transition. Even impatient customers are willing to do without overnight delivery "if they know when [a shipment] will arrive," notes Brian Clancy, a principal at industry consultant MergeGlobal Inc.

The grounding of so much freight is solidifying the lead of UPS and FedEx. "We're able to keep business in the family that we might have lost," says William Margaritis, FedEx's corporate vice-president for worldwide communications. His company has invested $700 million in a new ground-delivery network while deferring the delivery of 123 aircraft. And strict new security requirements have forced the passenger airlines to stop carrying packages for the U.S. Postal Service, notes Richard Lung, director of revenue management at United Airlines Inc.'s (UAL ) cargo unit. And small shippers, whether air or truck, lack the capital to build hybrid networks. "We got caught with our pants down," says Levy of Bax Global, which added a ground-delivery unit in 2000. Slow and steady really does win the race.

By Charles Haddad in Atlanta and Michael Arndt in Chicago

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