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“Air Express” was a term used to denote movement of documents and relatively small parcels by air within a short prespecified time. The movement was usually by scheduled passenger flights of airlines, or through chartered/owned dedicated aircraft. Air express traffic was a post-1960 development. It started as a courier service for documents, but, by mid-nineties had become a major industry giving door to door service of various types of documents (the so-called DOX traffic) and non documents and parcels (the so called WPX traffic). Recently, it was moving towards becoming a total logistics service involving movement of materials (usually of lightweight weighing not more than 50 kgs) from door to door and deliveries as needed by the consignor and/or consignee.

The general air cargo market could be categorised into three types. In the freight forwarding sector, the operations were done by freight forwarders, who were primarily agents who were responsible to the shippers for the movement of freight, but did not own aircraft of their own. They bought capacity from airlines as necessary, and had no weight or commodity limit. They operated essentially through consolidation of cargo, which meant slower delivery but cheaper rates. Their typical delivery times were:

intra-region more than 5 days; and intercontinental more than 10 days.

The second category was the door-to-door freight sector where again there were no weight limits. Unlike freight forwarders, the operators here did not wait for consolidation, and as such saved some time. Typical delivery times were less than 5 days in intra region and less than 10 days in intercontinental deliveries.

The Air Express sector, the third category, dealt with consignments of up to 50 kg 2 . The main characteristics of these consignments were that firstly they needed quick delivery; secondly, they were time sensitive; and thirdly, proof of delivery could be provided if required. The consignments were cleared from the originating station the same day and through suitable agreements, and were carried at the highest priority by the airlines. Most international express companies owned their own fleet of aircraft and surface transport. The typical delivery times were one to three days in intra region and one to five days in intercontinental deliveries.

In this note, we are concerned with the Express segment.

The Air Express industry worldwide was both domestic (within a country) and international. The main features of the Air Express industry were:

1 This note was prepared from published data and material supplied by Airfreight Ltd. as a basis for class discussions. The case research was supported by the Research and Publications Committee of the Indian Institute of Management, Ahmedabad. The support extended by Airfreight Ltd., in particular, by Mr. Cyrus Guzder, Chairman, Airfreight Ltd. and Mr. Jayant Khosla, General Manager, DHL Division are gratefully acknowledged. Teaching material is prepared as a basis of class discussion. Cases/notes are not designed to present illustrations of either correct or incorrect handling of administration problems. Copyright © 1998, Indian Institute of Management, Ahmedabad.

2 This was not a legal stipulation; it was just what was currently the practice. The weight limit was moving upwards recently.



Speed of Service: This was a core feature. Overnight delivery within a country or region (e.g. North

America and Europe) was the usual norm. Thus time was absolutely critical in this business.

(ii) Door-to-door Delivery: Usually the consignment was picked up at the consignor’s premises /and

delivered at the consignee’s premises, although for small, one time customers this might not be done.

(iii) Proof of Delivery. Proof of delivery was always obtained and produced to the consignor if called for.

(iv) Tracking Systems: Usually all air express operators had the facility of “tracking” and “tracing” the consignments so that delivery schedules were kept, and in case of complaints, the consignments could be located immediately. Many operators gave these facilities to the customers themselves who could do the tracking from their own premises.

(v) Security and Reliability: Many consignments were sent through Express for the security and reliability

they provided. There was virtually no scope for lost or misdelivered consignments in this business. This

was supported by the door to door service and advanced tracking and tracing systems.

(vi) Global Network: The air express operators worked on a global network, even though their emphasis

on domestic vs. international business varied. There were, however, a number of small local operators in every country and especially in India where angadias 3 operated in regions or between cities.

Air Express Industry: Its Origins and Evolution

The express concept was developed by three entrepreneurs (Dalsey, Hillblom and Lynn) who, in 1969, packed ship manifests as excess baggage and couriered them on scheduled flights between San Francisco and Honolulu, delivering the documentation to port before the arrival of ships 4 . They started the DHL Worldwide Express (derived from the initial letters in their names), having identified a market for rapid door to door distribution. The demand was at first for shipping documents but quickly banks saw the advantages of reduced transit times for their documents, saving them millions of dollars. With the expansion in international trade in the early 1970s, international express services began in Japan and Hong Kong. The services expanded rapidly to other countries of the World, and more players entered the industry. For example, TNT Express began its express operations in 1969 through an agency agreement with Overseas Courier Service to handle newspapers for Japanese nationals in Australia, and by 1972, the service was extended to Europe 5 . Federal Express started operations as a domestic express service in U.S. in 1973 and expanded its operations to international services in mid 1980s. United Parcel Service (UPS) started its Express services in 1970s, at first in the domestic US market and then in the international segment. Profiles of the major international players are given in Annexure I.

Essentially, the industry owes its birth to the inability of post offices, the traditional agency for delivery of domestic as well as international mail and documents, to meet the customer requirements for speedy and reliable service and proof of delivery. With the progressive dismantling of postal monopolies all over the world, the air express industry received a boost. The customers quickly realised the great advantage of having the documents quickly, so that delays at customs and ports of entry, demurrage charges for ships and bottlenecks at the banks for negotiation of documents could be avoided. It was also realised that with quicker transit times of documents such as contracts, many more opportunities could be availed of. Thus quick delivery of documents could prove to be a source of competitive advantage to exporters/importers,

3 Angadias were couriers who carried letters, consignments and money between cities. They essentially operated for relatively small clients. Based on mere slips of paper as means of communication, they operated on trust and had very low overheads. 4 Cranfield School of Management, International Air Express Report (Cranfield, U.K.: Cranfield School of Management, 1993), pp.39.

5 Ibid., pp.42.


banks and firms engaged in international business. All this further spurred the growth of the Express industry.

In a sense, the industry that was basically a courier of documents when it started, evolved into a carrier of documents, emergency parts and samples. In the late 1990s, it further evolved into a provider of logistics solutions. This was possible due to the synergies derived from the surface transport, freight forwarding, and sometimes travel agency businesses most of the Express companies were already engaged in. Every major player was claiming in 1990s that they were not just couriers but providers of logistic solutions.

Value added services were becoming increasingly popular. Specialised packaging for fragile and sensitive items such as computer parts, flexible billing to allow customers to be billed at any country of choice and even split between countries, giving the customers facilities at their own premises for tracking and tracing, and specific modifications to suit the requirements of particular customers were some examples of these “value added services”. Besides, through Electronic Data Interchange (EDI), advance customs clearance had become an integral part of business in many commodities by early nineties.

With changing technologies, newer ways to serve customers and add value were being evolved. Thus for an air express operator, anticipating the needs of their customers had become an important requirement.

With the emergence of superior production systems such as “Just-In-Time” manufacturing (JIT), the logistics needed to become more sophisticated and also improved responsiveness to customers. This was getting accentuated through globalised manufacturing, with sourcing of components in one market, manufacture taking place in another country and selling in yet a different country. Express transportation, though costly, could lead to considerable savings in inventories and capital costs, and also improved responsiveness to customers. Hence more and more companies were using the express industry as a part of their regular logistics (not merely as a once-in-a-while courier or transporter). Along with this were needed different logistics infrastructure such as centralised storage facilities and use of information technology (IT).

International Air Express Industry Today

The International Air Express (IAE) industry had experienced a high growth environment in its early days. During the eighties, growth on the IAE sector was between 25 to 40 percent per year 6 . In the nineties, the growth was still continuing at 15 to 20 percent per year, despite the general deceleration in the growth of economies of the triad countries. The emergence of ASEAN nations as a fast growing group had further stimulated the business within this region, and to this region from Europe, U.S.A. and Japan.

In 1992, the total value of the world airfreight market was estimated to be about $31 billion, of which IAE market was estimated to be $ 5.1 billion. This was projected (in 1992) to reach $6.5 to 7 billion by 1995 7 .

The total air freight market was expected to show the highest growth of 11.9 percent in the intra orient; 9.3 percent in US-Latin America and eight percent in US-Orient sectors. US domestic, US-Europe, and intra Europe were on a negative growth phase in 1991. This decline was, however, considered by the industry experts as a temporary blip; the cargo market was projected to grow at least at the rate of six percent right till the year 2005 A.D.

6 Ibid., pp.15.

7 Ibid., pp.22.


Operations in the Air Express Industry

This section describes the sequence of operations from the time an air express document was collected from a consignor till it was delivered to the consignee.

Physical Flow of Shipments: The consignment was usually picked up at the customer’s premises in the case of regular customers. Air express companies employed courier boys and equipped them with two wheelers or a surface transport (such as a pick up van). These courier boys would visit all the regular customers everyday. The non-regular customers (cash customers) gave their packages at the counter of the collection centres of the express companies in each city. The air way bill numbers and the other particulars were entered in the computer at the collection centres and this marked the first entry of the packets into the system. The consignments were sorted and sent to the express centres at the gateways where they were further sorted by destinations and air lines. The consignment packets were put in separate plastic bags which carried bar coded prefixed labels. These express centres were also usually the hubs which, in the developed countries were highly automated, with bar code readers capturing the needed information. The bar codes were read at every transit point of the consignment during its journey and the information fed into the computer systems, and it was thus that track and trace was made possible.

The latest time at which a document could be given by the consignor for clearance on that day depended on the system the company used. Usually the latest time was around 6 p.m. But companies having quicker sorting facilities could have later pick ups; those having their own aircraft could postpone the latest time still further.

The sorted documents were then sent to the airports. They were loaded on to the right aircraft, and at the destination, the bar codes of the packets were again read and the packets sorted. The bags were then dispatched to the express centres, contents were scanned to denote “opening” of the bag and the content list matched with the data on the computer system. Then they were delivered to the customer.

As per the Indian Post Office Act, 1898, carrying letters was the monopoly of the Department of Post of the Government of India. Thus, strictly speaking, no express company could carry a letter legally 8 . Documents however, could be carried, but what constituted a letter was not defined, and this gave a loophole to be exploited. Most Indian express companies, however, played it safe by calling their packets as documents (in the eighties, threatened with prosecution, the express companies took a declaration from the consignor that the packet contained no letters!).

In India, regulations required that all air express consignments were to be actually accompanied by a courier (There was no such requirement for most of the countries). These documents were taken as excess baggage against a valid passenger ticket. This method of operation had given rise to another link in the supply chain, namely, a set of people called “co-loaders”. These were the couriers who physically traveled to the destinations; the air tickets were brought in their name; and the excess baggage was also in their name. However, in reality, they were checked in, as also their “excess baggage”, by the express companies themselves; they were usually unaware of even what consignments they were carrying. Co- loaders were provided by middlemen registered as firms, who did not accept any responsibility for anything except providing a body who would physically travel. The legal position on the consequences of their being involved in violations of law (e.g. carriage of contraband) was not very clear.

Exhibit 1 gives the flow of a shipment.

8 Section 4 of the Act states: ”Wherever within India posts or postal communications are established by the Central Government, the Central Government shall have the exclusive privilege of conveying by post, from one place to another, all letters except in the following cases and also shall have the exclusive privilege of performing all the

incidental services of receiving, collecting, sending, despatching and delivering all letters except in the following



The exceptions are not significant. Incidentally, what constitutes a letter is nowhere defined.


Information Flow: When a customer called up the office of the Express company, the details of the customer and shipment were entered in a computer. Regular customers had identification numbers which enabled the system to display all the details on the screen. The courier boy collecting the shipment gave the details of the air way bill and the destination. At the Express Centre, the airway bill was scanned and its bar code entered into the system. The plastic bags in which these documents were inserted had their own bar codes, and these were scanned to link their bar codes to those of the airway bill. This denoted “closing” of the bag. At the hub, the plastic bags were once again scanned to mark their exit from the gate way.

The information from all the consignments for each flight and destination were next consolidated and alerts were sent to the origin country gateway. The transit hubs and the destination gateways were also given the alert messages. At the destination, bags were collected from different flights and brought to the express centre of the company and they were again scanned for their bar codes. The scanned list was matched with the alert advices and mismatches detected. This denoted the “opening” of the bag. In case of a mismatch, immediately tracing operations were set in motion to retrieve the missing consignments. After the destination branch scanned all documents, they were sorted route-wise and delivery boys were allotted to each route. On receipt of the consignments by the addressee, one copy of the airway bill way signed by the addressee, and this was entered into the system to “close” the transactions. Mismatches indicated non-delivery and were noted for immediate action.

The system tracked delays also. This was done by fixing the expected time between events (e.g. exit from India and arrival at London) and identifying all consignments not arriving within this time limit. Usually there were codes for reasons for delays, and these were entered in the system for needed action.

Exhibit 2 shows the cycle of information flow of a shipment.

Most of the above features, consignment and information flow applied to India as well.

Air Express Industry in India

“Courier” business was quite old in India. There was a highly developed system prevalent over a long time, of carrying cash and orders to pay by means of messengers (angadias) plying between important cities, often not very distant, as for example, between Mumbai, Ahmedabad and Baroda. (These messengers transfer cash at charges much lower than any other system even today). They also carried documents and letters and sometimes small parcels usually between regular customers at low rates.

Some of these angadias also travelled overseas as personal carriers of documents and small parcels; they also formed the backbone of the unofficial (and illegal) trade in foreign currency and silver (called hawala). Thus, in a sense, by the time organised air express industry arrived in India in 1979, the unorganised sector was not only, in its own way, “well organised” but also had become “international”.

The organised international air express industry in India started in 1979, when Airfreight Ltd., a company dealing in airfreight forwarding business, set up a division for air express in collaboration with DHL Worldwide Express. This Division was named DHL India. The person mainly responsible for this move was Mr. Cyrus Guzder who subsequently became Chairman and Managing Director of Airfreight Ltd. The first consignments were international shipping, bank and company documents, and the customers were mainly exporters, importers, foreign companies and banks. The industry was an illustration of the concept of latent demand, as seen by the very high growth in demand for its services and very soon DHL became a substitute generic word for air express itself.

Encouraged by the success of DHL, and sensing that DHL was not focusing on domestic airfreight and overseas parcel businesses, other companies made their entry. Elbee came into existence in 1981, with a tie up with IML, an international express company. Later, in 1989, it tied up with United Parcel Service


(UPS) of U.S.A., one of the largest carriers of documents in the world and the leader in the parcel business. Blue Dart Express Company was formed in 1983 by Mr. Tushar Jani. Blue Dart concentrated on the domestic airfreight and overseas parcel business segments but built some strength in international documents sector as well. It had initially a tie up with Gelco in Europe which was later acquired by Federal Express of U.S.A. Skypak couriers came into existence in the mid eighties, with a tie up with TNT, another larger player in the industry.

Faced with competition from the newly formed private companies, the Department of Post introduced their own “Speed Post” scheme. They also tied up with Express Mail Service (EMS) (an international association of post offices) for international coverage. Three drawbacks of the Department of Post’s scheme were (i) the parcels/packets needed to be delivered at the post offices; (ii) the operation involved post offices of different countries, most of them having their postal departments under the government, leading to difficulties in co-ordination and (iii) facilities for tracking and tracing were not comparable to those of the private companies, all of which had access to the world-wide computerised network with sophisticated software.

It may be noted that in none of the above tie ups, the foreign collaborator had an equity in the domestic company. The Indian companies were earlier engaged in cargo transportation, both domestic and international, by sea as well as by air. We shall be giving more details about the major Indian companies later in this note.

The Indian Air Express Market

Due to the presence of unorganised sector both in the domestic and international sectors, it was difficult to estimate the true size of the Indian market in the air express industry. A rough estimate is given in Table 1 below.

Table 1 Size of Indian Air Express Market as on 1996

(Rs. million)

Domestic traffic

International traffic

Organised market



Unorganised market



Total: Rs. 7500 million.

Source: Estimate given by DHL executives. Credit Capital Research estimated the market as Rs. 10,750 millions (Blue Dart Annual Report, 1995-96, pp.7).

This may be compared to the total air freight forwarding market of Rs.30,000 million in India. Of the market, about half would be with very high volumes and at low prices and margins; many served the unorganised sector. About 30 percent would be price sensitive medium yield sector, while 20 percent would constitute the high yield (premium) segment.

The growth of air express industry from 1995 to 1996 and projections till 1999 are given below in Table




Table 2 Growth of Indian Air Express Industry (’000 kgs)







DOX (Documents)






(As per cent of DOX+ WPX)






WPX (Non documents)






Total Air Express






(As per cent of Total Air Express + Air Freight)






Air Freight












Source: Estimates given by DHL executives.

The growth prospects were considered by industry executives to be very good in heavier weight packages both in domestic and international sectors. In the domestic market, demand for packages were considered to be growing at a high rate but was fragmented.

The total weight of air express materials dispatched out of India per day was estimated to be 30 tonnes in 1997. The domestic shipments was much more difficult to estimate, but a very rough estimate would be 110 tonnes per day. Documents were charged in slabs, the minimum weight for purposes of charging being 50 gms. In reality, however, most of the documents were much less than 50 gms. Parcels, on the other hand, tended to be heavier. The realisation per kg. was much higher in documents than in parcels. The only way to enhance earnings in WPX was through consolidation. Thus when the percentage of WPX in total express consignments carried increased, the profitability tended to come down.

Serving the domestic market and the international market required different capabilities and skills. International shipments involved knowledge of handling international customs, rules of imports in different countries and negotiating with airlines with regard to rates and the timings of carrying the packet. An international package earned on an average about Rs.1000 per packet, while domestic packages earned only about Rs.45/- per packet. The costs of picking up a packet, whether domestic or international were, however, not much different.

Documents offered great scope for consolidation. Documents usually were charged in slab rates, the minimum being 50 gms. but in reality most packages weighed much less, so that clubbing them together could give significant scope for enhanced profits.

Structural Determinants of the Air Express Industry

Buyers: The buyers of the services offered by the airfreight industry could be broadly classified into corporate customers, who operated on a credit account, and sundry buyers who paid cash. Usually corporate customers got their consignments picked up from their premises, while sundry customers generally had to deliver their consignments at the express company’s collection centres. Corporate customers had an ID number which enabled quick booking of the details, and express companies were usually proactive with respect to tracking and tracing of their consignments. That is to say, the moment even a small delay occurred, efforts were made to rush the consignments to make up for lost time. Of course, in case of sundry customers also, delays occurring would be highlighted but the quality of attention paid to corporate consignments was much higher.


In general, banks and multinational corporations (MNCs) tended to use DOX services much more, while exporters were the main users of WPX services. Such exporters were to be found in many industries, such as engineering, software exports, yarn, fabric and garment manufacturers, leather and leather goods manufacturers, and suppliers of engineering spares including automobile ancillaries. The usual consignments were in the form of samples, prototypes, gift items and floppies containing software. Repair and return items (items purchased by Indians while abroad and which needed repairs) and imported equipment constituted an important and growing market. Of course, these buyers also made use of the DOX sources for accompanying documents. The growth prospects in heavier weight packages were especially good.

Demand was emerging for facilities for logistics support such as bonded warehouses and distribution facilities. The demand was mostly from manufacturing companies using imported components in the international sector; but a vast market was expected to open up in the domestic sector also where small parts could be flown in and supplemented by surface transport. Since most of the express companies were already in such lines of businesses, they could utilise their facilities to cater to these demands, and some were even building new facilities to cater for special needs of their customers.

According to an international study carried out by MBL, a research agency, in the Asia Pacific markets of Sydney, Melbourne, Jakarta, Singapore, Kuala Lumpur, Bangkok and India, “There is an apparent level of parity with little by way of brand differentiation. Partly this seems to be due to brand relationship being driven by a highly functional interaction; people “see” the product, not the brand. This is a limitation which has developed for the very nature of international air express services; largely invisible, tending towards a purely pickup and delivery operation. The fragmented nature of product differences would also tend to confuse or diminish out potential differentials on a brand level” 9 .

With a view to ascertaining the priorities of the buyers with regard to the different aspects of service offered, the case writers conducted a survey of six customers. They were asked which Express company they preferred, the relative importance they attached to factors such as price, reliability etc. and whether they used only one company or more than one. The results of the survey may be seen in Exhibit 3. The survey revealed that the buyers were not very sensitive to price as such but were highly sensitive to quality and reliability of service. After sales support including track and trace systems were also considered important. The prices charged to corporate customers were much less than that charged to sundry customers (often by as much as a factor of three), and these prices were negotiated periodically. Many large buyers were known to play off one company with another, although many were quite loyal customers.

Suppliers: Airlines constituted the most important “supplier”. As noted earlier, express cargo would generally move through passenger planes (air freight cargo would be both through passenger as well as cargo planes) and negotiations were held with the airlines periodically to fix the rates and other terms of carriage. Even though the airline industry itself was very competitive, and airlines competed vigorously for the lucrative freight and express cargoes, due to the need for suitable linkages and connections, airlines actually available for choice were limited. Relative bargaining power depended on the volumes offered and the destinations; skill of bargaining for rates and terms with airlines was considered to be a key skill in this business. It was, of course, not in the interest of either the airlines or express companies to enter into frequent negotiations; hence all express companies finally tied up with only few airlines. Some companies entered into strategic alliances with airlines; airlines had in fact equity stakes in some express companies 10 , but inherently there was a conflict of interest between the two, since the airlines always would prefer to carry cargo on their account. Thus it was difficult to make alliances work sustainably.

Some companies tried to solve the problem of negotiating with airlines by owning their own planes. One great difficulty with passenger airlines was that their timings were set by considerations of passenger

9 Cited in “On DHL Time”, Economic Times, 9 July 1997 (Brand Equity Supplement).

10 For example, Lufthansa had a stake in DHL Worldwide.


convenience, and hence a large number of international flights, especially between the triad countries were daytime services which did not suit the needs of express companies. In India, in the domestic sector, the last take offs in most airports being around 9 P.M., this set a limit on the latest time for pick up. A company owning its own aircraft could, on the other hand, set its own schedules. It would also not be subject to disruptions in airlines’ working due to strikes etc.

But owning an aircraft meant other headaches. Negotiations had to be held with airport authorities for a variety of items such as parking space, parking and landing charges and timings for takeoffs after the last passenger aircraft had taken off. Negotiations had to be still held with airlines for their maintenance facilities (which needed to be used), besides with a number of other agencies like police (security), fire services and equipment spare manufacturers. Thus the number of “suppliers” went up dramatically. Also, when a company owned its own aircraft, it became imperative for them to utilise their space fully, and this, in India, was very difficult for any company to do on its own. Thus it had to lease out its own space to its direct competitors to whom it became a supplier. Lastly, if any of the aircraft developed problems which necessitated their grounding for prolonged periods, or worse, one of them crashed or was badly damaged, the impact on the company could be disastrous.

Surface transport was a vital need in this industry and would consist of pick up vans and small trucks for movement within a city, from the collection centres to the express centres and then to the airport (and vice versa). Some companies owned wholly or a part of this fleet of road vehicles, while others preferred to arrange for contracts with suppliers of these vehicles.

All companies did some work through wholesalers who, in turn, dealt with individual customers (major accounts would not usually be dealt with by the company directly). They formed a group of “suppliers” of buyers.

Firms supplying IT software and service were another important group of suppliers to be managed. Due to changing customer needs, continuous updating and upgrading of software was a must, as also training of the employees.

Lastly, co-loaders formed a vital supply source in India, as already noted.

Potential Entrants: Air express industry, in a sense, had low entry barriers, and in another sense, quite high barriers. In the unorganised sector, basically, anyone could start a small angadia or local courier service, although for handling money some trust had to be built up. This business was in the hands of established groups. The unorganised operators needed to provide only the basic service, and since they hired people at low wages to travel as co-loaders, and reportedly frequently cut corners, their overheads were very low, but still reliability was quite high. Of course, they could not provide IT based track and trace systems, but the need rarely arose since the delivery was point to point and the number of consignments handled was small. Such operations had, of course, their inherent limitations on the size and scope of their operations.

Organised sector, on the other hand, posed high barriers to entry. The first was the well established brand names such as Federal Express and DHL. This inspired trust and a feeling of security. The second was the infrastructural requirements of the industry. The IT support required was expensive and required facilities such as extensive computer networking systems, bar code scanners and trained personnel. For setting up a hub centre at Mumbai, DHL India, for example, had spent Rs.170 million 11 . Companies used IT to build switching costs by installing track and trace assistance at customers’ premises (these would, naturally be linked only to the providing company’s system). Worldwide operations necessarily involved tie-ups with well known majors so as to be able to access their systems. Besides IT, other facilities such as hubs, collection centres and transport facilities (at least to some extent) were required. If tied up with logistics operations, other facilities such as warehouses were also needed. Lastly, the business involved building of

11 Data supplied by DHL.


relationships with many people such as airport authority and airport staff, co-loaders, police, transport providers and wholesalers.

This meant that a new potential entrant would find it necessary to (i) be already in some related business; (ii) have a tie up with a well known international express company; and (iii) have deep pockets to invest in the needed infrastructure.

An international express company faced different entry barriers. They needed a tie-up with some domestic company until they could build their own network. They had to build relationships too. Federal Express, for instance, which had recently (in September 1997) set up its operations in India had confined its direct operations to the metros; for the rest of the country, it had a tie up with Blue Dart. TNT had also entered India recently.

For potential Indian companies, it was perfectly feasible to find some niche segments and operate there. Many operators did so, although no one knew how many.

Airlines themselves constituted another group of potential entrants as noted earlier, although most airlines preferred to avoid getting directly into this business. They preferred to hold equity stakes and form strategic alliances with express operators. In Europe and North America, airport-to-airport service was offered by airlines.

Substitutes: The major threat of substitution lay in elimination of the need for documents by Electronic Data Interchange (EDI). It was the opinion of the industry experts that EDI had already led to reduction in the growth of express document transportation, but they were of the view that the need for paper documents would continue for a long time (for example, in ports and customs). Some others, especially IT experts, thought that the prime problems with EDI had been security and means of verification of genuineness. These were on the process of getting solved, and once these were solved, the growth of EDI could be very high and could substitute much of DOX business. EDI of course, was far cheaper than express.

There were no indications that substitutes were emerging in WPX business.

Competition: There were four major players in the express industry in India. They were, DHL, Blue Dart, Elbee and the Department of Post with its EMS-Speed Post. There were also a number of smaller companies operating nationally, such as First Flight Couriers, Overnite Express and Skypak. Besides the above, there were a host of small local courier companies and angadias. Their estimated market shares in 1995-96 in the domestic segment are shown in Table 3 below.

Table 3 Relative Market shares in Indian Domestic Air Express Market, 1995-96 (Percentages)

Table 3 Relative Market shares in Indian Domestic Air Express Market, 1995-96 (Percentages)
Indian Domestic Air Express Market, 1995-96 (Percentages) DHL Blue Dart Elbee First Flight Overnite Express Speed


Blue Dart


First Flight

Overnite Express

Speed Post

Others inclg. Speed Post

(in terms of packages)






Not available separately


Source: Blue Dart Annual Report, 1995-96, pp.7. Their data are based on their Blue Dart Load Monitor, a system to identify the number of packages loaded into the aircraft by each express company.


The market shares of the different players in 1995-96 in the international package segment of the Indian market are given below in Table 4.

Table 4 Relative Market shares in Indian Air Express Market, International segment



(Percentages; in terms of packages)


As per DHL

As per Blue Dart









Blue Dart















Not given





Sources: Estimates given by the DHL executives for columns 2 and 3; Blue Dart Annual report, 1995-96, pp.7 for col.4. Blue Dart’s estimate is based on their Airport Load Monitor.

It may be noted that the above are very rough estimates, and with the number of companies operating and

way they operated, it was extremely difficult to arrive at reliable estimates.

Profile of Companies

Airfreight Ltd.

DHL Worldwide Express, the international air express company, had a tie up with Airfreight Ltd. of India and the air express division of Airfreight Ltd. is referred to in this note as DHL India. DHL India was the pioneer of air express industry in India. It was formed as a division of Air Freight Ltd., which was a company involved in freight forwarding in shipping as well as airfreight; in logistics and in travel agency

business (it continued to be a division of Airfreight Ltd. at the time of writing this case). It was formed in 1979 with a tie up with DHL Worldwide and this tie up had continued. DHL Worldwide, however, had no equity participation in DHL India or Airfreight Ltd., but had allowed DHL India to use its name, with no royalty being charged for this use. Whereas the domestic express consignments were carried in plastic bags bearing the name of Airfreight Ltd., the international packets were carried in bags with the DHL Worldwide Express name in them. There was no repatriation of profits by DHL Worldwide, but there was

a system of payments of charges for outward as well as inward consignments between DHL India and

DHL Worldwide. For outward consignments, DHL India paid a charge to DHL Worldwide per kg. of consignment carried, and was responsible for carrying till the first hub outside India. For inward consignments, DHL Worldwide paid a fixed charge per kg. to DHL India, immaterial of where the consignment was delivered.

Besides giving the DHL name, DHL Worldwide also assisted DHL India in making its world-wide IT network available seamlessly to DHL India. This enabled customers to track and trace their consignments all over the world from their own premises. DHL Worldwide also made available, free of cost, their training programmes and training software to DHL India. Mr. Jayant Khosla, General Manager, DHL India told the case writers: “They treat us exactly as if we were their subsidiary”.

DHL India felt it was very important to invest in the state-of-the-art in IT. In 1995, it opened a new hub and express centre in Mumbai close to the international airport at a cost of Rs.350 million. The IT facilities installed cost the company Rs.100 million. DHL claimed that its Mumbai facility was the best such facility in India and was of international standards, having advanced features such as automated


material handling, automatic telephone call distribution and state of the art information input and retrieval. The material handling system could also handle packets at a rate of two-and-a-half times that of other facilities, which meant that the processing time was cut down and hence later cut offs could be given to their customers. The system could also handle heavier consignments.

DHL India invested continuously in IT, to the tune of Rs.80 million per annum. IT also leased circuits from the Department of Telephones to have its dedicated lines for data transfer, and spent Rs.12 million for these lines. “This is essential for assured reliability of our systems”, stated one DHL executive.

DHL planned to open two more hubs at Delhi and Madras in 1997-98, to be followed by hubs in Calcutta and Bangalore.

DHL India prided itself on its customer service. It had made considerable efforts to train its staff at all levels; it had also evolved its standards for every aspect of operation. It had even installed an advanced automated call distribution system in its telephone exchange at Mumbai which would route customer calls

to the first available customer service executive, while ensuring that calls were distributed evenly between

available executives.

Airfreight Ltd., of which DHL was a division, was a private limited company with a turnover (billings) of Rs.4850 million and revenues of Rs. 3000 million. DHL’s turnover was about Rs.2460 million (revenues:

Rs. 2300 millions) of which about 13 percent came from domestic business and 87 percent from international business. Airfreight’s foreign exchange earnings in 1995-96 were Rs.330 million of which the express operations accounted for Rs.242 million. Its foreign exchange remittances in the same year were Rs.731 million of which Rs.713 million were accounted for by the express operations 12 . In terms of number of shipments, 60 percent of its shipments were in domestic segment and 40 percent in the international segment.

Unlike their Indian competitors, DHL India did not own or operate their own aircraft. It was their opinion that managing the aircraft was in itself a demanding business and they did not want to get into it.

DHL Worldwide had launched a “Jumbo Box” scheme in 1995 and DHL India also launched it in the same year. Jumbo Box was a rigged cardboard carton which could be filled with consignments (usually prototypes and samples) up to 25 kgs by the customers. These could be picked up and delivered door-to- door; and the charges were flat, depending on which one of the four zonal destinations it had. This was reported to be a great success, and in 1996, DHL India had introduced a “Jumbo Junior” for handling consignments upto 10 kg. The source also relieved the exporters of having to deal with middlemen, regulatory paper work and customs formalities.

A series of advertisements emphasised team work and the value of time through images of relay races

juxtaposed with shots of teamwork at DHL - at the office, at the hub and at the airport. “If you can beat the clock, you can beat the world. When you find a team that pulls together, you can stand apart. Every minute counts, every second counts” was the message of this campaign.

Blue Dart Express Ltd.

Blue Dart Express was a public limited company based at Mumbai. Started in 1983 by Mr. Tushar Jani, the company had a turnover of Rs.1574 million and a profit after tax of Rs.4.9 million in 1996-97 (a turnover of Rs.1151 million and a net profit of Rs.98.6 million in 1995-96). The dip in profitability was stated to be due to a much higher interest burden (Rs.48 million against Rs.- 7.8 million) and depreciation (Rs. 46.7 million as against Rs. 23.5 million) 13 . Its earnings in foreign exchange were Rs.167 million and

12 Airfreight’s Annual Report, 1995-96, pp.31. 13 Audited financial results of Blue Dart for the year ending March 31, 1997 as published in the Business Standard, 1 July, 1997.


expenditure in foreign exchange, Rs.185 million in 1995-96. It claimed that it had a market share of 59 percent in the premium domestic segment. Undoubtedly, it was the market leader in the domestic market. Its total revenues (except for “other income”) in the period April 1996 to August 1996 were Rs.711 million, of which Rs.411 million was from domestic operations, and the rest from international operations. 14

Blue Dart had a tie up with Federal Express. But its operations were still strongly domestic. Federal Express had helped Blue Dart to start the company without any charges, but had not taken any equity stake. Unlike DHL, Blue Dart had operated in the country with its own brand name, and had done little to promote the Fed-Ex name. There was a revenue sharing arrangement with Federal Express, under which the revenue from international operations were shared in a fixed ratio. The exact ratio, however, was not known. Its domestic shipments were estimated to constitute 85 percent of the total shipments.

Blue Dart had also invested heavily in IT, with excellent facilities for tracking and tracing (the broad design of the system was similar to DHL’s) 15 . It used VSAT (Very Small Aperture Terminals) technology at eight locations within the country and with this technology, the company claimed, it could offer high levels of reliability and response time. It could provide free computerised proof of delivery fax, including the time, date and the name of the person accepting the delivery to its customers within 24 hours of the consignment delivered. It had developed its own tracking systems, called COSMAT-2 for domestic services, COSMOS for international services and a central aviation load booking system, called SMART (Space Management Allocation Reservation and Tracking). It was setting up a Rs.200 million facility near Sahar international airport, Mumbai.

Blue Dart had acquired two aeroplanes (Boeing 737s) in 1996, with a payload capacity of 16 tonnes each, at a cost of Rs.138 million. One plane operated in the route Madras-Bangalore-Mumbai-Delhi-Calcutta and back, six days a week, and the other plane, the reverse route. On week days, the aircraft would leave Madras/Calcutta at about 10.30 P.M. and arrive Calcutta/Madras at about 7.30 A.M. after touching the intermediate points. This schedule would connect all satellite townships by the early morning commercial airlines’ flights. Besides the two aircraft above, the company had procured one more old Boeing 737 for use as spare parts. The company had also set up facilities for maintenance of these aircraft at Madras and Calcutta, with its own team of engineers.

The acquisition of aircraft was done because it was thought that this would enable much later cut off times for pick ups, and reduced costs. The normal daily capacity of a commercial aircraft to carry express consignments would be about 2 to 2.5 tonnes, which was not sufficient to take care of Blue Dart’s volumes, according to Mr. Pradeep Bonde, General Manager, Marketing, Blue Dart. To take care of Blue Dart’s cargo, according to Mr. Bonde, it would need 10 to 12 aircraft. Also, in the words of Mr. Bonde, “Transit time is the main area where you can score over your rivals, and owning an aircraft gives you an edge over you rivals. We offer transit time facilities to satellite towns and cities as well as metros. Blue Dart wants to secure a dominant position in the domestic industry, and this is a sure fire way of doing it”.

In reality, however, it appeared that the company faced a problem of how to fill the capacity of their planes. According to Mr. Jani, in 1996, 80 percent of the capacity was filled by packages of other companies and freight whose yield was low. Only 20 percent were high yield products. This, however, was gradually getting reversed to 60-65 percent being their own express “consignments” 16 . It was the opinion of industry experts that much of the future performance of Blue Dart would depend on how the operation of these planes turned out to be.

14 “Domestic Priorities”, Financial Express, January 6, 1998, “Brand Wagon” supplement.

15 For details of the IT used by Blue Dart, see the case “Blue Dart Express” (Ahmedabad: Indian Institute of Management).

16 “We Have Created an Entry Barrier with Aviation”, interview with Tushar Jani, Business Standard, February 24, 1997, p.16.


That, it appeared, was not an easy thing to predict. In the last week of December 1996, one of its planes had an accident at Bangalore airport which rendered it out of operation for nearly 11 weeks. Although the aircraft was insured, the company had to absorb some of the loss. It also affected the earnings of the company significantly in that year.

Blue Dart aimed to take its revenue from the present figure of Rs. 1150 million to Rs.10,000 million by the year 2000. It planned to cover the entire country by the year 2000 building the facilities needed, including acquiring more aircraft. Federal Express had extended its own flights to Mumbai and this would enable Blue Dart to connect with these flights and offer new international services currently not available in India. Its objective was to cover 700 destinations in India, thus having a very wide reach.

Federal Express had entered on its own into India in late 1997 and set up operations in the metros of Mumbai, Bangalore, Madras and Delhi. In these metros, it would book its consignments directly from the customers, and Blue Dart would be the exclusive provider of pick up, domestic transportation, custom clearance and delivery services for the Fed-Ex consignments. In the other cities and towns, Blue Dart would continue to accept consignments on behalf of Fed-Ex. Blue Dart provided Fed-Ex with office space and other infrastructure for its operations. Like DHL, Fed-Ex also had launched a carton service called FedEx box for consignments upto 10 kgs. and upto 25 kgs. that could be booked to any destination in the world at competitive rates. Fed-Ex had also been advertising on its own.

Blue Dart was also planning to launch business logistics services, including provision of ware housing, order processing, express distribution and inventory management to its clients 17 . It was planning to open a hub near the international airport at Mumbai by the end of 1997. It had set up its warehousing facilities in all the five metros interconnected by Local Area Network/Wide Area Network.

Elbee Express Service

Elbee Express Service was the third major operator in the industry. Started in 1981, it had a total income of Rs.978 million and a profit of Rs.80 million in 1995-96 18 . From 1989, it had a tie up with UPS, which, it was rumoured, was planning an equity stake. Elbee, like Blue Dart, had a strong domestic network and owned two planes (Fokkers) purchased in 1996 at a cost of Rs.280 million. With these two planes, it had launched a cargo airline, India’s first cargo airline. It seemed to believe strongly that ownership of planes was a source of competitive advantage. Even with its smaller aircraft, Elbee was reported to be offering capacity to its competitors to make up capacity. Elbee had also access to the excellent IT network of UPS. It had a track and trace system called Super Tabs which was linked to the UPS’s world-wide network. In this system, a customer could locate his consignment from his premises and provided options such as advance payments, cash on delivery, bill on delivery and Value Collect. The company operated its own network called ElbeeNet connected through VSAT terminals.

The company also claimed to have a solid logistics capability. “From pickup through warehousing, transportation, distribution and delivery, it is Elbee all the way!” said its Annual Report. This was made possible by a solid domestic surface logistics capability. It believed that it could offer a better integrated logistics solution capability than its competitors. It had a hub at Bangalore and was building a modern, state of the art hub at Mumbai at a cost of Rs.170 million. It was also planning to set up hubs at Delhi and Madras. Elbee also offered its services as a co-loader to other express companies.

Elbee was reported to be an ambitious competitor, with an eventual objective of becoming a market leader. Its growth rate in 1995-96 was 40 percent. It was a public limited company.

EMS - Speed Post.

17 The information in this and the previous paras taken from Blue Dart website, http://www.bluedart.com.

18 Elbee’s Annual Report, 1995-96.


The Department of Post woke up rather late to the erosion in its higher value business by the entry of express companies. As a response, in 1986, it introduced Speed Post for quick domestic delivery and the EMS-Speed Post for international operations. The EMS Speed Post tended to be much cheaper than the express services of private companies but proof of delivery was reported to be difficult to obtain; and the reliability in terms of time for delivery was considered to be less than the express companies. Their dispute settling mechanisms were also considered to be long winded and time consuming, being a government department. The Department of Post had no arrangements for picking up the consignments at the customer’s premises. Its customer response was regarded as indifferent and lackadaisical. However, its ability to deliver in all nooks and corners of the country was unmatched, thanks to the vast network of post offices. In fact, for cities other than metros, quite often, express companies had to make use of domestic Speed Post to get their documents across quickly.

The Department of Post had the law on its side: carrying letters was its monopoly. It sought at times to enforce these provisions and put the express companies in difficulty. It also attempted to pass a legislation which effectively could have put the express companies out of business but not successful in getting through this legislation 19 . It also took advantage of restrictions on entry of courier boys into the premises of most ministries and public enterprises, which made personal delivery to the addressee impossible. Postmen, however, were permitted to enter all government buildings.

The Department of Post was reported to be making attempts to improve its image and service, and to give new services to its customers. In the domestic sector, it had introduced new schemes in 1994 and 1995 to ensure quick transmission of letters between metros. For example, it had introduced “metro” and “Rajdhani” channels for quick delivery (within 48 hours) between metros 20 . The Department had also been issuing advertisements to increase its visibility and awareness of its services.


Skypak had a tie up with TNT, which had recently been taken over by Dutch Post Office. It was till a relatively small player but was considered to be a tough and ambitious competitor and likely to be one “to be watched”. However, TNT had made a direct entry into India, and industry observers thought this would land Skypak in serious trouble.

Outlook for the Industry

It was the opinion of the industry that the coming years would see great expansion in the industry. Liberalisation had pushed up the general growth rate of Indian economy at six percent per annum; exports were growing at about 20 percent in dollar terms; and there was much greater consciousness of the time element. All this would mean greater opportunities for international as well as domestic operations in the industry. Especially important was the shift towards WPX segment which was expanding faster than the DOX segment, at least at the rate of 30 percent per annum. There was intense competition likely for a share of this market.

Firms were increasingly making use of express service in the export operations (for sending samples and prototypes) as well as in spare parts management, especially of relatively small and light parts. This was especially pronounced in the electronics and computer industries. For example, Wipro Ltd., one of India’s largest computer manufacturers, used express services for its spare parts service and delivery to service its customers quickly. Microland and Hewlitt Packard India also used express service to distribute parts and

19 For example, in 1994, it attempted to introduce an amendment to the Post Offices Act, 1898 by which it would be illegal for any agency other than the Department of Post to carry any article less than 200 gms in weight.

20 “Revamp of Postal Service Planned” , Economic Times, 28 December, 1994.


software all over the country. It was expected that with land prices soaring, more companies would opt for cheaper locations for their ware houses away from metro cities and move the spare parts as required.

Software exports was another potentially high growth area, although with EDI connectivity, more of software were getting dispatched electronically rather than through floppy disks.

With all this cause for good cheer were also what could be called ominous clouds in the horizon. Some foreign express companies such as Federal Express, UPS and TNT were reported to be planning to enter India on their own. This would make the position of the Indian companies difficult.

Lastly, there was the legality question. How long it would take for the anachronistic Post Office Act, 1898 to be modified and the monopoly of the Department of Post for carriage of letters done away with, was anyone’s guess. But so long as it was there, it could be a source of annoyance and uncertainty for the others.


Annexure I

Profiles of the Major Players in the International Air Express Industry

DHL Worldwide Express was the pioneer in the industry, starting its operations in 1969 as a domestic U.S. courier with the proposition “Anything, anywhere, anytime”. But very quickly it began its international services to Japan and Hongkong and then to other countries of Asia and Europe. It opened an international service to China in 1980s.

DHL entered into an alliance with Japan Airlines (JAL), Lufthansa and Nissho Iwai, with equity participation. It derives synergies from using the long haul networks of these airlines. For example, Lufthansa and JAL use DHL’s aircraft, which were earlier used only for night flights, also during the day, thus leading to their better utilisation.

DHL had a wide network operating in 217 countries with a global market share of 40 percent in documents and parcels. It was reported to service 900,000 international customers, with a turnover of US $4.5 billion. It owned or leased 165 aircraft and 11,400 road vehicles. About 1500 DHL commercial flights were operated everyday. The Company, in its publicity materials, talked of one DHL Aircraft taking off every minute. It had 21 hubs all over the world providing an overnight service within a reach of two or three thousand miles. Other countries were linked through “spokes” to these hubs.

DHL was a private company.

Federal Express was the largest domestic operator in U.S. with a turnover of US$ 13 billion. It started its operations as a domestic express package service in the U.S. in 1973. It operated on the hub and spoke system. International expansion began in the mid eighties through an aggressive acquisition programme. This included the purchase of Tiger International, the parent of Flying Tigers, the world’s largest cargo airline. But the company had not been able to establish itself in Europe and decided that the resulting losses were unsustainable. It reduced its presence in Europe.

In 1988, Federal Express introduced the Business Logistics Services (BLS). As an important component of this programme, it established “Parts Bank” International distribution centres in many countries. The facility offered a selection of services to users including collection of goods, storage, stock control, customs services, forwarding and airfreight and delivery.

Federal Express was a public limited company.

TNT Express Worldwide (TNT) started as a division of the Australian TNT (Thomas Nationwide Transport) Group, a company involved in trucking, shipping, aircraft trading and leasing and tourism related ventures. Air express operations began in 1969 through an agency agreement. It had a history of acquisition and split ups. In March 1992, TNT signed an agreement with Federal Express for delivery of inbound consignments to 10 European countries. From 1985, it was also involved in logistics when TNT contract Logistics was established to handle logistics sources on a dedicated contract basis for individual clients.

This was a joint venture of TNT (Public) and GD Net, group of post offices of five countries. Its turnover was around A$ 7 billion.

United Parcel Source (UPS) was the largest ground based package delivery company in the U.S. with a turnover of US$ 18 billion. It entered the air express segment in 1970s and had become a strong presence in U.S. UPS was a privately owned company, and had most of its operations in U.S. It had a fleet of


129,000 vehicles, mostly in U.S., and this was considered to have enabled it to develop international coverage than would have been possible by air services alone.

Express Mail Service (EMS) was the operational arm of the International Post Corporation (IPC) which was a Netherlands based organisation formed in 1989 to allow national postal administrations around the world to co-operate and co-ordinate express deliveries. IPC had 21 member countries including US, Australia, Japan and most of West European countries. EMS operated with countries’ post offices, and with a different name in each country. In India, it was known by the name of EMS Speed Post.

The main problem with EMS was the lack of integrated door to door operations by many postal authorities. Difficulty to enforce accountability with many different postal administrations was another major problem. IPC received a blow in 1992 when five of the larger postal administrations, Canada, France, Sweden, Germany and Netherlands broke away from IPC to form TNT in a joint venture called GD Express Worldwide. This departure contributed to the closure of the IPC hub in Brussels. This had posed some uncertainty to the EMS’s operations.


Exhibit 1

The Cycle of a Shipment – Physical Flow

Source: Internal Documents

Exhibit 2

The Cycle of a Shipment – Information Flow

Source: Internal Documents

Exhibit 3

Customer Survey from Users of Express Services: Questions Asked (Conducted by the Case Writers)

1. What is your usage of the Express services?

2. Is it mostly domestic or international?

3. How do you rank the following factors in the order of their importance to you?

Time Reliability Ability to track and trace Cost Any other

4. Do you use only one agency or more than one?

5. Which agency do you use more often?


Blue dart


6. Why do you prefer this agency?



7. Have you changed your agency in the past? if so, why?

Source: Internal Documents


Exhibit 3 (Contd.) Results of a Customer Survey of Users of Express Services (Conducted by the Case Writers)



Responses by Customer No.:


1 (Bank)

2 (Mfr. of textiles)

3 (Exporters)

4 (Mfrs. of pharma products)

5 (Mfrs. of textiles)

6 (Mfrs. of pharma products)



Usage of express services

25 / day

3 docs + 1-2

4-5 p.m.

125 docs + 15- 20 parcels

Large no.

20 parcels = 40 docs


parcels (I); 30-40

docs (D)



Domestic(D)/ International

15-20 (I); 4-5

As above


99% I


I & D





Rank in order of




















Ability to track and trace






Rarely used










Any other

Use only one agency or more than one?


More than one (DHL for I; Blue Dart and Angadias for D)



Two or three (DHL, Blue Dart and others)

One (DHL)



(DHL; Blue



Why do you prefer this agency?


Answers given separately below


Have you changed your agency in the past? I f so, why?


Answers given separately below


Answers to Questions No. 6 and 7

Customer # 1

1. We do not want to try any other. In the past, we have tried Skypak/TNT and our experience was not too

good. EMS/Speed Post takes to long.

Customer # 2

1. DHL is time tested; quickest service.

2. They pick up materials from factory and do all the formalities with port and customs in 3 to 4 days.

3. Customers insist on DHL.

4. If required, DHL gives confirmation at no extra cost.

5. To Bombay, we use angadias; they are very cheap. To madras, Bangalore, Calcutta and Delhi, we use


6. For all international docs, we use DHL.

7. Blue Dart works out to be costlier in our yearly contracts.

8. We also had some delivery problems with Blue Dart.

Customer # 3

1. Consignments reach reliably with DHL. The others are not so reliable.

2. It takes only three days to most places.

Customer # 4

1. DHL goes to many remote countries.

2. My banks send my docs through DHL; it is easier for me also to send them through DHL.

3. DHL better in terms of service and timings.

4. We are able to get information about our consignments through DHL quickly.

Customer # 5

1. We find no appreciable difference among the various agencies. Hence we choose that with the lowest

rate. We enter into long term contracts (say, for an year or six months).

Customer # 6

1. DHL gives good rates. We have negotiated with others also in the past, but our experience is that

DHL’s rates are the best.

Source: Internal Documents