On the face of it, the four global express operators - FedEx, UPS, DHL and TNT - seem ideally placed to benefit from e-commerce. Their ambition - to create a network that can link the world's major economic centres in no more than 48 hours - could almost have been designed for the new economy in which even the smallest company reaches a global audience through its website.
These integrators, equipped with both ground and air operations, have not been slow to see the possibilities either. FedEx chairman and founder Fred Smith set up a functional website (with a tracking capability) as long ago as 1994, and by 1997 was rolling out InternetShip, which allowed customers first in the USA and shortly afterwards in Europe to get quotes, to book, and even to arrange for a FedEx pick-up online.
It also set up Virtual Order, a hosting service for catalogue sellers who wanted to put their products on the web, though this has since been discontinued now that such services are widely available from specialist e-business consultancies.
At the same time, UPS had a trial run of international e-commerce with its 1997 "e-christmas" initiative. It linked up with merchants to offer a range of goods online to various European countries. In 1998, it launched Online Tools, its equivalent to InternetShip.
The formidable IT expertise of the integrators gives them tremendous advantages in the e-commerce environment. FedEx, which even in the dim and distant 1980s was offering its customers free computers packed with FedEx shipping software so that it could lock them into its services, can these days offer customers a dizzying array of IT integration products. Ship API, for example, seamlessly integrates FedEx Express services into a customer's online environment, making it the default mode for all orders from a web site. FedEx PowerShip Server is a hardware and software package that helps companies with high parcel and mail volumes to manage their flows.
FedEx also reached a deal to integrate its shipping into the systems of German software giant SAP, the world's largest provider of enterprise-wide computing for major corporations. UPS reached a similar deal with logistics software company i2.
Hugh Doyle, managing director freight management for Unisys, describes this as the integrators "embedding themselves in the DNA" of e-commerce. Like many commentators, he believes that it gives the integrators an almost invincible lead in the new e-commerce world.
Looking at the US experience, that would seem to be the case. But there are dangers in applying US market lessons to the rest of the world. The USA has a greater history of home shopping and express services that undoubtedly fuelled e-commerce. That, in turn, has created a natural market for the express operators to benefit from.
The history of UPS is one of the special factors in the US market. Started in 1913 as a package delivery company for Seattle stores, it flowered into a national institution after the Second World War, and now boasts a package delivery network that embraces every US household and has a 75% share of the domestic ground parcel market. That not only gave UPS a key advantage as e-commerce grew, but may have been a factor in the new sector growing so rapidly.
Making up ground
Meanwhile, FedEx, which was traditionally an air rather than ground delivery company, and which even pulled back from domestic deliveries for a time, has been desperately trying to make up ground. In particular, it bought RPS, the third largest ground package delivery service in the USA in 1998.
Overseas, however, UPS is a different animal. In Europe, like FedEx, it concentrates on deliveries between business addresses, and is ambivalent about getting into the costly area of domestic deliveries. "We are not going to shy away from business-to-consumer (b2c), but companies that want residential delivery are going to have to realise quality of service comes at a cost," says Jos Dujardin, e-commerce director for UPS in Europe.
FedEx is even worse placed. It pulled out of intra-European services after disastrous losses in the early 1990s and is now starting to rebuild that network, opening up a hub in Paris in September 1999. In March, Stefaan Butaye, manager of e-commerce marketing, said FedEx was still "looking at how we can address" home delivery outside Europe.
Of the big four integrators only one is even present in the local delivery market in Europe to any extent, and that is TNT. Otherwise, this sector is the preserve of national, ground-based parcel operators.
This would not matter if e-commerce were shaping up as the early pioneers imagined - small, potentially far-flung companies using the web to sell products across the world. In the USA, it is possible to sell Omaha Steaks over the web to Florida, as the USA is a unified market, with a single culture and set of brands.
The rest of the world is not. Even in the European Union(EU) single market, national preferences and languages matter. Germans tend to buy off German websites and Frenchmen off French ones. Pushed to think of good cross-border e-commerce examples earlier this year, Butaye could only call up niche sellers of European foods - Italian salami, French cheese - shipping to the USA.
He is confident that pan-European e-commerce will develop. FedEx and rivals must hope so, because if e-commerce brands remain nationally focused, the beneficiaries will be catalogue fulfilment companies and national parcel operators, not global integrators.
The jury is still out. "In as much as the Internet offers a new channel by which to connect buyer and seller, traditional distribution patterns remain largely in place at present," notes a report by financial analysts Schroder Salomon SmithBarney.
On the cross-border level, the integrators will also face competition, at least in Europe. Postal deregulation within the EU, a typically slow process proposed in the early 1990s and is due a modest start in 2003, has been occupying the minds of the big national post offices.
Contemplating the loss of letter monopolies, they have been scrambling to become pan-European parcel businesses instead. Triangle, a UK consultancy, has been monitoring the resultant buying frenzy. It counted nearly 50 deals in a two-year period to March. Most of these were purchases by post offices of national package delivery companies in rivals' markets.
Two deals stand out. In December 1996, the Dutch post office bought TNT, and in 1999, Germany's counterpart, Deutsche Post (DP), bought Danzas and AEI, two of the world's largest freight forwarders. Intriguingly, DP also has a 25% share in DHL, which it has pooled with Lufthansa's similar-sized share in a new holding company called Aerologic.
Domestic delivery networks
How the e-commerce pie will divide up between integrators and post office groups remains to be seen, but the latter do have one considerable advantage: their domestic delivery networks.
The famous "last mile" of the e-commerce chain is the one all operators agree is the most expensive. UPS may control it in the USA: national post offices own it in Europe.
One last but very important area is business-to-business (b2b) e-commerce traffic, predicted to be four or five times the size of b2c in a few years. Here, there is no doubt that the IT savvy of the integrators will be a major advantage.
As an example, the parts exchanges being set up in many industries - such as Covisint, a joint venture by Ford, General Motors and DaimlerChrysler - will require transportation partners who can integrate shipping and trading systems. It is not hard to see FedEx or TNT as best-suited to such a role.
Even here, though, the integrators are going to face stiff competition. Leading global freight forwarders such as Panalpina, MSAS and Circle (which is merging with major US domestic forwarder EGL) have for years been developing their logistics expertise in sectors such as automotive, computing and electronics. Not about to let their core business slip away to integrators, they have belatedly but rapidly been investing in IT recently and pushing airlines into offering time-definite products to match those of the integrators (Lufthansa Cargo's being the best example).
Like just-in-time manufacturing, which was a killer weapon for the Japanese until the rest of the world caught on, the larger forwarders are learning the lessons of the integrators. The battle for b2b e-commerce is definitely not going to go all the way of the integrators.
Source: Airline Business
