FEDERAL WAVES ITS FLAG BY FLYING TIGERS' ROUTES

FEDERAL WAVES ITS FLAG BY FLYING TIGERS' ROUTES

People called Robert W. Prescott all kinds of names, but timid was never one of them.

When the founder of the Flying Tiger Line began his legendary, post-World War II march across the continents, he was determined to fly the Tigers flag in as many international commerce centers as possible.In the process, competitors were to be brushed aside or stomped on. Government fiats were either ignored or used as a shield to protect his company's vital interests. Eventually, Tigers staked its claim to a network that stretched from Bangkok to Berlin, and from Montreal to Montevideo.

Now, another air freight maverick, one who has set the tone for the industry's last 20 years in much the same way Mr. Prescott did for the first 20, has launched perhaps the most ambitious commercial venture in aviation history, and he's doing it in the house that Prescott built.

A SPRINGBOARD

Last January, after two years of toil and trouble, Federal Express Corp. Chairman Frederick W. Smith ushered in the Expressfreighter network, a long-awaited project that meshed Tigers' vast route system with his company's vaunted air express programs.

Expressfreighter would become the springboard for Federal Express to try the unthinkable: Offer a guaranteed one- or two-day delivery service of documents, packages and heavy freight between points thousands of miles apart.

For the first time, a shipper in Tokyo could be assured that a shipment bound for London and Frankfurt would arrive either at the airport or the consignee's dock within one or two business days.

It is arguably the most logistically demanding aviation service ever attempted. A shipment spanning three continents, for example, to be dispatched to the origin airport, loaded, flown, clear customs, sorted and delivered at destination, all in the space of 24 or 48 hours.

But company officials say the network holds the key to reviving its flagging international fortunes, and for ensuring that its future will be as glorious as its past.

"It is the best way we know to differentiate ourselves from the competition," Mr. Smith said in a recent interview.

Today, Tokyo, Osaka, Hong Kong, Taipei, Singapore and Malaysia are on the system, as are London and Frankfurt. Expressfreighter also flies from San Francisco to Tokyo, delivering packages from the U.S. West Coast to Japan the next business day.

In October, the company put an Expressfreighter on its Tokyo-Singapore route to tap the rapidly growing intra-Asia market.

The Products

Three types of products move on Expressfreighter: International Priority, or IP, a time-definite, door-to-door service; International Express Freight, or IXF, a time-definite, airport-to-airport service that shippers and freight forwarders can use; and Airport-to-Airport service, or ATA, the traditional, deferred-delivery product that Tigers built its name on.

Federal Express officials say Expressfreighter is designed with one goal in mind: To give shippers more flights more frequently, so they can get their goods to far-flung markets as soon as possible.

"What we're trying to do is build a business-class service for the shipper," said Charles Malone, Federal Express' vice president of international sales for Asia, Latin America and U.S. Air Freight.

It doesn't come cheap. Shippers who use IXF can expect to pay rates 15 percent to 30 percent higher than if they used the traditional ATA service. But Federal Express officials say shippers will appreciate the service improvements and not mind paying the higher costs.

"The customer is value-sensitive, not just price-sensitive," said Thomas R. Oliver, Federal Express' executive vice president of worldwide customer operations.

Not everyone buys into the Expressfreighter concept. United Parcel Service, which has now extended its domestic battle with FedEx across both oceans, said its research shows most international shippers want a two- to four-day delivery service, which would generally cost less than an overnight service.

IS IT NEEDED?

Some experts question if a need exists for an international overnight operation. "You have to wonder how many shippers really need their freight at an international destination the next day," said Brian Clancy, director of systems logistics planning for Global Aviation Associates, a Washington, D.C., consulting firm.

Passenger airlines, with their vast amounts of cheap belly space and their large quantity of flights, could also pose a threat to Federal Express, according to Guenter Rohrmann, president of Air Express International Corp., a large international forwarder.

"If the commercial airlines ever get their act together . . . FedEx with this surcharge is in deep trouble," he said. So far, though, Federal Express' infrastructure is light years ahead of anything the airlines can muster, Mr. Rohrmann added.

Mr. Smith said Expressfreighter is just another response to the demands of the marketplace. The old approach is "not what the world wants and it's not what they're going to get," he said.

Expressfreighter is the product of a turbulent, often-painful process of tearing down the Tiger system and reshaping it into its new owner's image. When Federal Express bought it in late 1988, Tigers' international system had begun to decay. Its fleet of 20 large, fuel-guzzling 747s were moving too much low-yielding freight. It operated too few flights over a multi-stop network, thus cities like Bangkok received only spotty weekly service to and from the United States.

The Fleet

Mr. Smith and his lieutenants went to work. They began pulling down the 747s, replacing them with smaller, more fuel-efficient MD-11 freighters. It realigned Tigers' network, untangling the complex web of routes and launching service over individual routes.

Three MD-11s are deployed as Expressfreighters, but 10 more are slated to enter the fleet by 1993. Federal Express has options for 11 more.

It hasn't been easy. The company has invested heavily in the type of infrastructure required to meet its service commitments. It has also been forced to cope with a sluggish economy and resistance from certain forwarders who believe the company's strategy is to cut them out of the equation eventually and sell directly to the shipper.

The cumulative effect: Losses. An estimated $93 million on its international business in the first quarter of the current fiscal year alone, that ends May 31.

Federal Express officials deny the forwarders' charges, saying they cannot fill any of its trans-oceanic flights with the type of low-density packages that shippers tender. At the same time, company executives say the high fixed costs of its international network now prohibit it from carrying nothing but forwarder-generated consolidations.

"We have to dramatically increase the mix," said Mr. Oliver.

The company's goal is to fill one-third of an Expressfreighter with forwarder consolidations and then overlay the higher-yielding packages on top of it, according to Mr. Oliver.

Mr. Smith is fond of pointing out that IXF was up 31.5 percent to 43.5 million pounds from 33.1 million, and that the bulk of its clientele are forwarders. As he sees it, progressive forwarders will listen to their shippers and gravitate to the service. The rest, he admits, will probably stay angry at him.

"They're mad at the customers and we just get in the middle," he said.