BAX Globals Plan in Action

BAX Global is scrapping its former heavyweight integrated air model in favor of a lower-cost, mode-neutral plan it hopes will put the company on a consistent and profitable track, something it hasn't achieved in a long time.

Eighteen months into a three-year plan to shift the focus from its domestic airline to an army of lower-cost trucks to move customers' high-priority, heavy-weight shipments, the Irvine, Calif.-based company is showing some signs of success.

In 2000, the BAX Saver ground service generated $15 million in its first year. Last year, that number was $60 million and this year the company is on track to make $100 million from its surface solution. While the push is to move more freight over the road (and even over the seas through a similar push in ocean transportation), BAX is not considering eliminating its fleet of aircraft.

"Being an asset-based carrier has gotten some of its value back," said Jerry Levy, director of marketing for BAX Global. BAX is winning back freight from customers that defected for lower forwarders' rates, but who grew tired of having their shipments split up to fit into an ever-shrinking network of passenger belly space, said Levy.

BAX actually is going to invest in its airline. After flying a 30-year-old fleet of DC-8s and Boeing 727s for the last decade, the company is close to announcing a replacement aircraft for its nine DC-8s owned and operated by its subsidiary airline ATI. Evaluations have centered on used Boeing 757s, 767s and DC-10s, all plentiful and cheap right now. The deal will be signed this year, said Levy, but the aircraft won't enter the fleet until next year at the earliest. He is leaning toward a fleet of 767s that would allow the airline to increase its capacity without having to add additional aircraft. "We will never again have 42 aircraft like we once had but will have a fleet of about 22 aircraft," he said.

The last turmoil-filled year caused shippers around the country and world to rethink how and why they use air freight. "There has been a fundamental shift from the bellies of airlines to ground," said Levy. "The big question is how much will the shift continue. Will it take 10 percent of the air freight business or half?"

BAX is seeing the same signs of recovery that everyone is talking about. Asia is showing solid signs of a rebound. March turned out to be a "real" March, when air freight demand typically picks up. Last year, the industry's best month was January, traditionally the slowest. The first quarter most likely will be weak. The second quarter will be the real test if this latest BAX incarnation is working.

"Our view is when the economy turns around, there always will be demand for overnight, heavy air freight – enough to support a couple of heavy air carriers. We fully intend to be one of those carriers," said Levy. Kitty Hawk, however, is more at risk, because the forwarders' freight it relies on is the first to move to a slower ground solution, he said.

BAX Global's real rival is Emery Forwarding. Emery and BAX have a competition much like FedEx and United Parcel Service, where one company is constantly trying to set itself apart from the other. "We don't want to create a business just to compete with Emery," said Levy. "We are focused on where the time-definite market is going."

In tandem with its move to the ground, BAX is expanding aggressively its supply-chain activity. While the company has had success in Europe and Asia, North America has largely been ignored. After rolling the supply-chain unit back into the transportation company, BAX had a string of big wins in the United States, including Microsoft, Epson, Xerox and Polaroid.

The biggest change is that BAX now has full profit and loss visibility for all customers and can make pricing decisions based on the full package. The goal is to have every customer generate a profit. This is a seismic shift in BAX culture that in the past has been driven by an "every deal is a good deal" mentality. "We are not going to continue to cross-subsidize marginal business with more marginal business," said Levy.

As part of its supply-chain push, BAX is rolling out a number of international products geared at importers. DirectShip, launched Feb. 18 with one large beta customer, gives customers a full manufacturing-to-distribution solution. BAX handles the international air transportation and then distributes the finished goods via its airline or surface network to retailers around the country. The program costs about 25 percent less than FedEx or UPS offerings but more than a customer would pay for a purely forwarded product. Without the surface option, BAX usually lost the business once it hit the U.S. gateway.

Ocean transportation is another new revenue generator for BAX. While the company has no plans to compete on price for low-end ocean shipments, it does believe it can offer faster and simpler service for midsize customers. "We want to offer door-to-door pricing management of the whole in-bound supply chain," said Levy. While the choice in pure transit time can mean four days or four weeks, BAX believes it can help speed up the processes on either end of the shipment. "The greatest delay isn't on the ship," said Levy. It's in the port where inspections and paperwork slow shipments down, especially for middle-tier businesses that don't benefit from the quick clearance programs that large importers use. BAX made $200 million in ocean business last year. This year, the goal is $250 million.