First time since 2002, Colography Group report says; more collaboration with rivals yields lower costs, better service
Atlanta, GA — August 31, 2006 — The U.S. Postal Service, riding the wave of strong demand for its Priority Mail deferred air product, gained U.S. air market share in 2005 for the first time in three years, freight industry analyst firm The Colography Group said this week in releasing its full-year 2005 analysis of the domestic U.S. air cargo market.
According to Colography, the USPS' share of the air shipment market increased to 37.7 percent in 2005, as compared to 37.1 percent in 2004. The Postal Service, the only carrier to gain shipment share year-over-year, grew its shipment base by 4.9 percent in 2005, by far the fastest growth of any domestic air competitor.
Priority on Priority Mail
The Postal Service's gains were attributable to a resurgence in Priority Mail, its two-to-three day delivery product, which had fallen on three years of hard times following a 15 percent rate increase in 2002 that sent customers fleeing to competitors. Since then, however, the USPS has kept rates steady while its private-sector rivals have imposed annual price increases.
In addition, USPS can pass on lower operating costs to its customers because it cannot, by law, impose surcharges to offset rising fuel costs. The result of both factors has been a widening price differential between low-cost Priority Mail and its competition, leading to increased demand from value-conscious shippers.
Not surprisingly, deferred air shipments showed healthy growth in 2005, rising 4.2 percent over 2004 levels. By contrast, overnight air traffic grew by less than half that at 1.9 percent. Priority Mail accounted for almost three-quarters of total growth in the deferred air shipment category.
Domestic Air Industry Up
Another highlight of 2005 was the overall performance of the domestic air market. In the last three quarters of the year, domestic air growth exceeded that of U.S. gross domestic product (GDP), the first time in four years that has occurred. For the full year, air shipments grew by 3.2 percent to 2.5 billion shipments, with gains across all market categories: letters and envelopes, packages and freight. Revenue totaled $33.6 billion, a 5 percent increase over 2004 levels, a phenomenon driven largely by the impact of fuel and other surcharges on the carriers' top lines.
"It was a solid year for the domestic industry, paced by an impressive performance by the Postal Service," said Ted Scherck, president of The Colography Group. "The gains in Priority Mail illustrate two key points: First, shippers continue to substitute slower — yet still time definite — deferred transit times for faster, more expensive overnight deliveries. Second is the USPS' ability to leverage its superior infrastructure to capitalize on the growth of business-to-consumer retail activity driven increasingly by the Internet."
Greater Collaboration
Scherck noted a larger, more favorable trend in the increased spirit of collaboration between the Postal Service and its private sector rivals. Today, UPS, FedEx and DHL use USPS' unrivalled 'last-mile' delivery network to route customer shipments to residential and light-density commercial destinations. Meanwhile, USPS has agreements to move First Class, Express and Priority Mail shipments aboard FedEx and UPS aircraft in what has been successful collaborations that improve service reliability while driving down costs.
"The big picture here is that USPS and its rivals are cooperating more fully than ever before, and in doing so are focusing on their core competencies," said Scherck. "This bodes well for all concerned, especially shippers."
Regionalization of Commerce
Among the key findings in The Colography Group's 2005 Domestic Air Cargo Trends report:
Additional Articles of Interest
— To learn about best practices for optimizing last mile pick up and delivery operations, read "The Last Mile is the Longest Mile," in the June/July 2006 issue of Supply & Demand Chain Executive.
— Read about one high-tech manufacturer's quest to deliver near-perfect fill rates across its global service organization in "Managing a Global Supply Chain in a 'Flat' World," from the June/July 2006 issue of Supply & Demand Chain Executive.
Atlanta, GA — August 31, 2006 — The U.S. Postal Service, riding the wave of strong demand for its Priority Mail deferred air product, gained U.S. air market share in 2005 for the first time in three years, freight industry analyst firm The Colography Group said this week in releasing its full-year 2005 analysis of the domestic U.S. air cargo market.
According to Colography, the USPS' share of the air shipment market increased to 37.7 percent in 2005, as compared to 37.1 percent in 2004. The Postal Service, the only carrier to gain shipment share year-over-year, grew its shipment base by 4.9 percent in 2005, by far the fastest growth of any domestic air competitor.
Priority on Priority Mail
The Postal Service's gains were attributable to a resurgence in Priority Mail, its two-to-three day delivery product, which had fallen on three years of hard times following a 15 percent rate increase in 2002 that sent customers fleeing to competitors. Since then, however, the USPS has kept rates steady while its private-sector rivals have imposed annual price increases.
In addition, USPS can pass on lower operating costs to its customers because it cannot, by law, impose surcharges to offset rising fuel costs. The result of both factors has been a widening price differential between low-cost Priority Mail and its competition, leading to increased demand from value-conscious shippers.
Not surprisingly, deferred air shipments showed healthy growth in 2005, rising 4.2 percent over 2004 levels. By contrast, overnight air traffic grew by less than half that at 1.9 percent. Priority Mail accounted for almost three-quarters of total growth in the deferred air shipment category.
Domestic Air Industry Up
Another highlight of 2005 was the overall performance of the domestic air market. In the last three quarters of the year, domestic air growth exceeded that of U.S. gross domestic product (GDP), the first time in four years that has occurred. For the full year, air shipments grew by 3.2 percent to 2.5 billion shipments, with gains across all market categories: letters and envelopes, packages and freight. Revenue totaled $33.6 billion, a 5 percent increase over 2004 levels, a phenomenon driven largely by the impact of fuel and other surcharges on the carriers' top lines.
"It was a solid year for the domestic industry, paced by an impressive performance by the Postal Service," said Ted Scherck, president of The Colography Group. "The gains in Priority Mail illustrate two key points: First, shippers continue to substitute slower — yet still time definite — deferred transit times for faster, more expensive overnight deliveries. Second is the USPS' ability to leverage its superior infrastructure to capitalize on the growth of business-to-consumer retail activity driven increasingly by the Internet."
Greater Collaboration
Scherck noted a larger, more favorable trend in the increased spirit of collaboration between the Postal Service and its private sector rivals. Today, UPS, FedEx and DHL use USPS' unrivalled 'last-mile' delivery network to route customer shipments to residential and light-density commercial destinations. Meanwhile, USPS has agreements to move First Class, Express and Priority Mail shipments aboard FedEx and UPS aircraft in what has been successful collaborations that improve service reliability while driving down costs.
"The big picture here is that USPS and its rivals are cooperating more fully than ever before, and in doing so are focusing on their core competencies," said Scherck. "This bodes well for all concerned, especially shippers."
Regionalization of Commerce
Among the key findings in The Colography Group's 2005 Domestic Air Cargo Trends report:
- Domestic air revenue rose by 5 percent year-over-year. However, since shipment growth totaled 3.2 percent, it appears much of the revenue gains came from the impact of fuel surcharges. In fact, it is likely that fuel surcharges are actually retarding the growth of the underlying rate structure.
- In 2005 more than 56 percent of all overnight air shipments and 66 percent of second-day air shipments moved less than 350 miles to their destinations. This continues the trend towards the regionalization of U.S. commerce and represents service boundaries where ground parcel and less-than-truckload (LTL) truckers offer competitive transit times usually at lower rates. Despite that, air package traffic grew at a significantly faster rate than ground parcel traffic during 2005.
- USPS, UPS and BAX Global grew their shipments in 2005 at a faster rate than the industry average (3.2 percent). FedEx Express, with 2.8 percent growth, gained at a slower pace. DHL Express, beset by service issues surrounding its hub consolidation program in late 2005, reported a 1.4 percent decline in shipments year-over-year.
Additional Articles of Interest
— To learn about best practices for optimizing last mile pick up and delivery operations, read "The Last Mile is the Longest Mile," in the June/July 2006 issue of Supply & Demand Chain Executive.
— Read about one high-tech manufacturer's quest to deliver near-perfect fill rates across its global service organization in "Managing a Global Supply Chain in a 'Flat' World," from the June/July 2006 issue of Supply & Demand Chain Executive.
- More articles about The Colography Group.