FedEx hopes China treaty will deliver

By Dan Reed
USA Today

MEMPHIS, Tenn. — From Fred Smith's perspective, one of the great walls of protectionism will tumble any day now.

It will happen when the U.S. government formally awards FedEx, the company Smith founded 33 years ago, the authority to more than double its overnight air-freight service to China in the next six months.

A dozen more flights a week might not seem like much. But Smith promises that's just the first wave of new trading opportunities that will yield big benefits for the United States and China and, in the process, FedEx, too.

FedEx is hardly alone among transportation companies — or U.S. companies in general — in eyeing the profit potential in China. When the government grants authority for expanded service to China, other carriers, including rival United Parcel Service, will get similar rights.

But FedEx is better positioned than its competitors to take advantage of China's economic awakening. Because Smith saw the potential of the Chinese market two decades ago, the Memphis-based carrier leads the competition in its ability to deliver time-sensitive, high-value cargo across the Pacific, within China and among Asian nations.

The new authority to serve China couldn't come at a better time for FedEx. It has moved aggressively in recent years to exploit new business opportunities to offset slow growth in its traditional domestic delivery business. Development of its China business has ascended to the top priority for the company.

Now, FedEx has 295 flights a day across the Pacific and within Asia. That includes 11 a week to China, and 25 percent more capacity in that market than UPS. Working with Chinese partners, it serves 213 markets in China.

Thanks to the new air services treaty signed by the two nations last summer, FedEx plans to launch 12 more U.S.-China nonstop flights a week this fall and next spring. UPS, which has six flights a week to China, is getting a similar number of new routes. Combination carriers — passenger airlines that carry cargo in the bellies of their planes — will also get additional routes to China. And several Chinese airlines will get new rights to serve the United States.

But because of their deep roots in the Chinese market, FedEx officials believe they can expand their market-share lead. FedEx expects to extend its services to an additional 100 Chinese markets in the short run.

Later this decade, it expects to open a major cargo hub there, allowing for increased flow of goods and documents not only between Asia and the United States, but also among Asian nations. To capitalize on those new China route rights, in 2008, FedEx will take delivery of the first of 10 huge Airbus A380 freighters, which will have more cargo capacity than any commercial plane ever built. The A380s will replace the MD-11s that FedEx currently flies to China, and offer about double the capacity.

FedEx's global growth helps to offset slackening in the domestic air express business. Only about 10 percent of the company's revenue now comes from overnight document delivery.