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US couriers catch the TPP express

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United Parcel Service's air cargo hub in Louisville, Kentucky   © Reuters

NEW YORK   At Worldport, an air cargo hub in Louisville, Kentucky, Boeing 747 jets with cargo bound for Asia take off one after another before dawn. The facility belongs to United Parcel Service, the largest U.S. package delivery company.

     Airlines shun the 747 because of its low fuel efficiency, and Boeing has reduced production of the aircraft. For UPS, however, the large-body plane may become more important, because demand for cargo shipments to Asia is likely to grow. David Abney, CEO of the logistics company, said a major driver of this growth will be the Trans-Pacific Partnership, the 12-nation trade agreement that was signed last month and is awaiting ratification. He said the pact will help boost goods distribution across all industries.

     "TPP will help UPS customers across multiple sectors by bringing down tariffs, accelerating the release of goods through customs, and supporting the participation of small businesses in regional and global supply chains," Abney said.

     A signing ceremony for the TPP took place on Feb. 4 in New Zealand. Once ratified by its member nations, the partnership will create an economic bloc with a population of over 800 million. For the U.S., it is a major strategic deal that will allow it to take advantage of economic growth in Asia. Trade barriers within the bloc will be removed, in principle. With physical distribution set to be the first sector to benefit, major U.S. airfreight carriers, such as UPS and FedEx, see a big business opportunity.

     "By improving customs clearance in 12 TPP countries, trade will become simpler, faster and more transparent for all our customers," said Karen Reddington, president of the Asia-Pacific division at FedEx Express.

E-COMMERCE BOOM   The easing of trade will help UPS and FedEx take advantage of an e-commerce boom in Asia. The region's market for physical distribution of goods bought online is expected to reach $1 trillion by 2017, surpassing the North American market by 20%. "There is no place where online shopping is hotter than in Asia," Abney said.

     Many local businesses are competing in the market, including logistics providers. Japanese companies are also looking to expand in Asia, including Japan Post, which spent about 620 billion yen ($5.46 billion at current rates) to turn Australian logistics giant Toll Holdings into a subsidiary. Toll operates in Australia and Asia, and among the company's strengths are its third-party logistics services. Kintetsu World Express paid about 144 billion yen last year to acquire APL Logistics of Singapore, and Yamato Holdings paid 549 million ringgit ($134 million) for a 22.8% stake in GD Express Carrier, a Malaysian logistic company. Yamato's investment will give it access to GDEX's nationwide network.

     U.S. airfreight carriers, however, have an advantage in terms of cross-border distribution, particularly between the U.S. and Asia. A UPS survey shows that 11% of people in Asia who shopped online in 2014 made purchases on U.S. websites. Cross-border e-commerce in the region grew at seven times the average pace of expansion of gross domestic product, while Asian e-commerce as a whole grew at four times the pace. The percentage of people in the region who place orders on U.S. websites is also expected to rise further. Boeing says the volume of goods transported between North America and Asia will continue growing at an average annual rate of 5.4% over 20 years.

     Anticipating this expansion, FedEx has built its AsiaOne distribution network, which provides overnight delivery of goods between main Asian cities. UPS expanded its Worldwide Express service, which guarantees deliveries by specified times of the day, in October to cover more than 23,000 additional postal codes in the Asia-Pacific region.

     Another key area within e-commerce where physical distribution services can be expanded is the return of purchases. According to a UPS survey, 81% of people who buy goods online in Japan confirm return provisions before purchasing, while the proportion for Singapore is 90%. When sending back items, 45% of customers in Asia are concerned that it takes too long to get refunds; in Japan alone, the proportion is 20%. The numbers suggest that if shippers can ease buyers' concerns regarding the return process, it will help boost demand.

     In September 2014, FedEx launched Global Returns, a shipment service that simplifies the work of returning goods, in Asia. The service speeds up the process by letting shippers create return labels and customs documents when they ship goods.

     UPS is also focusing on services for small businesses, which can use e-commerce to expand direct sales. Even if trade is liberalized, complications such as language barriers, foreign exchange and cybersecurity remain and may be a heavy burden for small companies in particular. UPS has started a service called i-parcel that supports cross-border e-commerce operations, allowing merchants to serve online customers in more than 100 countries and helping them handle more than 70 currencies. The company is also working to open the door to Asia for small U.S.-based businesses.

     "As the supply chains in Asia become stronger, small companies can become more than just suppliers to big companies," Abney said.

TAKING ON DHL   While the U.S. airfreight carriers are increasingly looking to Asia, they are late to the game compared with Deutsche Post DHL group, the major German logistics company that is affiliated with Deutsche Post. DHL has a 44% share of international express delivery services in the region -- far outstripping FedEx, which has a 20% share, and UPS, with 11%.

     DHL has been working longer to expand in Asia than its U.S. rivals and has been deploying cutting-edge technology. In December, the company opened its Asia Pacific Innovation Center in Singapore. The center is a research facility for efficient logistics systems that use technologies such as small unmanned aerial drones, 3-D printers, augmented reality and robotics. It is DHL's first facility of its kind outside Germany.

     FedEx's acquisition of TNT Express, a Dutch airfreight carrier and express delivery company, may help the U.S. company take on DHL. FedEx in December finally received approval from the European Commission to take over TNT, which has a 4% market share in Asia.

     Another challenge for the industry is the global economic slowdown that began in China. "With continued weak economic growth, we need TPP now more than ever," said Ralph Carter, managing director of legal, trade and international affairs at FedEx Express.

     American airfreight carriers' heightened activity in Asia reflects the U.S. ambition to take full advantage of the TPP's benefits.

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