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Air Express: Engine of global economic growth

by Michael L. Ducker

Mr Michael L. Ducker is Executive Vice President, International of Memphis-based Federal Express, a position he assumed in Dec 1999 after serving as President of FedEx's Asia Pacific Division. He started his career as an hourly employee the FedEx Memphis hub in 1975, becoming manager of the hub in 1979 and quickly followed by promotions to Senior Manager in 1980. In 1983, he became Managing Director in the company's Domestic Ground Operations Division. After holding positions in Houston, Atlanta, and Memphis, Mr. Ducker made his entry into international
operations in 1991 as VP for southern Europe, based in Milan, Italy.
In 1992, he assumed the South Pacific/Middle East Regional VP role; in 1995 was appointed Senior VP of Asia Pacific Division. He was then named President for Asia Pacific, based in Hong Kong in 1998. Under his leadership, the intra-Asia network was launched and has grown well in the past few years. A native of Chattanooga, Tennessee, Mr. Ducker attended the University of Mississippi and Memphis State University and got his MBA from Northwestern's Kellogg School of Management and Hong Kong University of Science and Technology.

The air express and air cargo industry substantially affect the global economy and vice versa. The industry fuels the world economy by keeping trade in motion, linking trading partners in 24 to 48 hours. The integrated air/ground delivery industry itself impacts the growth and development of major markets in addition to those economies forging new distribution networks.

The FedEx global express network serves 95% of the world's GDP within 48 hours or less. The FedEx AsiaOne network connects 19 major Asian markets on an overnight basis and to the rest of the world on a 24 to 48 hour basis. According to IATA, FedEx is the largest global airfreight carrier as measured in revenue-ton-miles. With our size and global reach, some experts have suggested that our loadfactors alone are a valid economic indicator. For these reasons, FedEx is in a fairly credible position to comment on the global economy.

First let's look at the current economic fluctuations and how they are reflected in the air express and air cargo industries. Then, we'll focus on the Asian economy, Hong Kong in particular, and consider the economic situation, both from an industry and an economic impact perspective.

Worldwide economic growth, led by the slowdown in the US, has left few countries or regions unscathed. With worldwide growth at a virtual standstill by mid 2001, the US and Mexico are officially in recession. Some tentative signs show that output is stabilizing in emerging Asia. Korea is showing some positive signs in business sentiment, Taiwan's industrial production is marginally encouraging and Singapore, Malaysia and China exports and export orders are starting to rebound. The forecast growth rates for the five largest ASEAN economies range from 7% to 12%.

A host to regional headquarters of multinational firms, Hong Kong will benefit from the resulting overall increase in business transactions, particularly in the service sector.

Impact of FedEx, express, cargo

A report from SRI, Global Impact of FedEx on the New Economy, notes that "Major breakthroughs in trade and economic liberalization have opened borders for virtually unrestricted movement of trade and investment around the globe." As a result, the percentage of US exports and imports transported by air freight has grown steadily. Domestic air cargo moves 8% of US GDP as product and another 2% as services, positioning 10% of US GDP to locations where the products become useful. In the year 2000, the combined direct and indirect output generated by FedEx activities totaled nearly US$53bn throughout the US (including the "ripple effect" or multiplier analysis).

These studies of FedEx and air cargo impact on the US economy suggest that our industry's impact on the global economy is, indeed, substantial. We can extend this conclusion with additional facts:

1. The economic impact of round trip cargo flight is five times greater than that of a passenger flight.

2. World trade grew at an annual rate nearly three times higher than world GDP from 1973 to 1999. Even with the current economic downturn, these numbers are still accurate today.

Future prospects

Reports from FedEx Express first half (December 19, 2001) reveal that both US domestic and international express volumes declined. In the coming 3Q of this fiscal year (December-February 2002), our volume outlook is for US domestic average daily package volume to be 5% lower and for FedEx International Priority shipments to be down about 2% year over year.

In the near term, the economy could get worse before it gets better. Both the International Monetary Fund (IMF) and the WTO are expecting global trade to slow even further, from 13% growth in 2000 to less than 3% in 2001. With this backdrop, global air cargo traffic suffered significantly, in particular in the Asia-North America lane where the majority of high value, high-tech related trade flows. Because the express segment of the air cargo industry is so closely tied to the IT industry, the inevitable rebound of tech products should bolster air express as well.

The long range outlook is quite positive. Currently 20% of goods cross international boundaries. According to McKinsey and Company forecasts for the next 20 years, 80% of goods will be manufactured in a country different from where they are purchased. This means that air express and air cargo will continue to grow. Even though the IMF and WTO forecasts global trade to slow down to less than 3% in 2001, we believe when the economy recovers, as it will, global trade growth rates will also pick up, perhaps to the double-digit rates we experienced as recently as 2000.

FedEx is managing through the current economic turbulence by running a very "tight ship" from a cost containment perspective. At the same time, we are offering more services to more international markets and expanding both our network and our capacity to meet market needs.

Clearly, our industry as a whole must manage intelligently through the inevitable economic ups and downs"and we believe it will. Shippers worldwide will benefit from major breakthroughs in trade and economic freedoms around the globe. Taking advantage of unprecedented global connectivity, Hong Kong market will be in the forefront of economic growth and prosperity.