The Supply Chain Behind Overnight Shipping

 

Overnight shipping is an absolute masterpiece of logistics that happens every single night. It may not be cheap, but you can get a package shipped from Miami, Florida on a Monday night to Anchorage, Alaska, by 8:30 AM on Tuesday. In fact, you can even ship a package, from Edinburgh, Scotland on a Tuesday and have the package arrive in Anchorage, Alaska by 9am on Wednesday. The speed and efficiency of these worldwide delivery networks is mind-blowing and it all happens while we sleep. The three major consumer courier companies are FedEx, DHL, and UPS and each is as impressive as the last. 

 

FedEx has more planes than Emirates, Etihad, and Qatar Airways combined; DHL delivers to every country in the world including North Korea; and UPS flies to more than double as many destinations as the largest passenger airline. Each has a global network that allows for lightning fast shipping at relatively low prices. Behind all this speed are enormous air networks that connect the entire world daily. Each of these three operates hundreds of flights nightly, but FedEx is the best example since their operations make them the largest cargo airline in the world. They have 650 planes flying to 400 destinations carrying 6 million packages every single day and the vast majority of these flights operate to or from one of their hub airports.

 

 FedEx’s hub airports are spread out all across the world and serve as sorting points where packages are transferred from one plane to another. They have hubs in Singapore, Guangzhou, Shanghai, Seoul, Osaka, Anchorage, Oakland, Dallas, Indianapolis, Greensboro, Miami, Newark, Toronto, Paris, Cologne, Milan, and Dubai, but the most important hub is the one in Memphis, Tennessee because that’s their SuperHub. Memphis is not a huge city—only about 650,000 people live there—but the reason FedEx centers their worldwide operations in this city is because of its location. Memphis is not actually in the geographic center of the US, but it is central. Only about 200 miles away in Wright County, Missouri is the mean population center of the US. This is the average location of every resident in the US meaning that the FedEx SuperHub in Memphis is the best location to reach the most people in the shortest amount of time.

 

For similar reasons, UPS has their equivalent global hub, Worldport, nearby in Louisville, Kentucky. The scale of FedEx and UPS operations in these relatively small cities is staggering. This is because the size of the commercial terminal at Memphis Airport is smaller compared to the size of FedEx’s Superhub. It is impossible to fly to the west coast non-stop on a commercial airline from Louisville and yet UPS flies from this small city to five different continents. 

 

FedEx’s operations in Memphis makes this airport the second busiest cargo airport in the world above those of enormous cities like Tokyo, Paris, Dubai, Shanghai, and falling short only to Hong Kong. The FedEx superhub has about 150 planes that fly in from all around the world between 10pm and 1am every night. Upon arrival, the planes are unloaded and the packages are put into the hub’s automated sorting system and in 15 minutes, each package arrives at a staging area for the next flight and are loaded into containers. Planes take off again at 2am and continue until 4am which means that everywhere in the US, FedEx planes arrive by 6am. FedEx runs flights in small propeller aircraft from the destinations of their larger jet to get to small towns fast. For example Presque Isle, Maine is far too small of a town so every morning, once the larger planes from Memphis arrive in Manchester, New Hampshire and Portland, Maine, packages bound for Presque Isle are sorted into smaller prop planes that continue north. This system allows even small towns like Presque Isle to get their packages by 9am as every spoke in the system essentially functions as a mini-hub. 

 

Packages are transferred from planes, to smaller planes, to trucks to reach their destination as fast as possible. Note that not every FedEx package runs through Memphis, that would be incredibly inefficient because for example if a customer wanted to ship a package from Phoenix, Arizona to Seattle, Washington, a routing through Memphis would total over 3,000 miles and a six hour flight, while the distance between Seattle and Phoenix is only 1,100 miles. The package would still make it overnight, but FedEx would be wasting fuel carrying that package an extra 1,900 miles, and that’s why they have secondary hubs. Secondary hubs, such as Oakland have flights to destinations that are already served by flights to Memphis, but the destinations from Oakland are high demand destinations that will ship enough packages solely to the west coast to fill entire planes to Oakland. Some destinations, such as Albuquerque, New Mexico, ship enough packages to fill entire planes to Memphis, but not enough to fill flights to Oakland with west coast bound packages, so a package shipped from here to the west coast would likely take a rather inefficient routing backtracking to Memphis.

 

FedEx’s most ingenious hub is in Anchorage, Alaska. Anchorage, with fewer than 300,000 residents, is home to the fourth busiest cargo airport in the world. That is if you draw a straight line from FedEx’s Memphis hub to the one in Osaka, taking into account the earth’s curvature, it goes directly over Anchorage, Alaska. This airport is just the perfect stop-over point for flights from the US to Asia. Dozens of cargo airlines operate in Anchorage but most of them just use the airport as a refueling and crew swap spot. Modern airplanes can fly non-stop from the United States to Asia, but doing so requires taking more fuel which means less cargo. It’s cheaper to stop in Anchorage, but FedEx and UPS use the stop for sorting. If FedEx wants to maintain current shipping times without the Anchorage hub, then they would have to run non-stop flights from each of their Asian hubs to each of their American hubs, but they don’t have the demand to fill this many planes. Instead, they run flights from their Asian hubs to Anchorage then flights from Anchorage many of their American hubs. At the  Anchorage hub, packages from Asia are processed through customs and sorted to be put on the plane bound closest to their destination, which helps cut down on shipping time and cost. 

 

Shipping is an incredibly price-sensitive business. Courier companies rely on enormous contracts with retailers and every cent matters, when some of these retailers are shipping millions of packages per day. In a lot of ways, the express shipping model is inherently expensive because the couriers use their most expensive asset—planes. Some FedEx hubs, such as Memphis, do sort packages during the day, but the majority of their business happens overnight. FedEx’s flight from Memphis to Oklahoma City, for example, leaves at 4am and arrives at 5:20am, but then the plane waits around until 10:10pm to fly back to Memphis, That mean for over 17 hours the plane is sitting in Oklahoma City and the plane is flying for about two hours per day. Meanwhile, commercial airlines regularly fly their planes for more than 12 hours per day and that’s six times higher aircraft utilization. FedEx would never be profitable if they bought all new multi-hundred million dollar aircraft to use for mere hours per day, hence they do not invest in them instead FedEx and other cargo airlines use old aircraft that are at the end of their lives.

 

You can never see Airbus a300’s flying for passenger airlines anymore, yet FedEx, UPS, and DHL collectively own hundreds of them because they’re cheap. Since they didn’t spend much purchasing these aircraft, they don’t have to worry about using them enough to offset cost. UPS does have some brand new 747-800 aircraft, which are highly efficient, but these planes are specifically scheduled on the longest routes so that the high purchase price can be recuperated through lower fuel costs. For older aircraft, fuel costs might be higher since the planes are less efficient, but on an overall it’s profitable since it allows FedEx to leave their planes sitting for a few hours each day. Some passenger airlines, such as Allegiant Airlines in the US, use the same strategy of purchasing cheaper planes to allow them to fly fewer hours per day profitably and it's now a tested and proven business strategy. 

 

Express shipping is one of those businesses that requires enormous networks, which is why we don’t see small shipping companies. It’s almost impossible to get started in this business unless you can make your own demand. Amazon, which ships more than a million packages per day, is getting into the delivery business. They’ve established a fleet of 32 aircraft and are building out their logistics network. When dispatching so many packages, Amazon is operating at a scale where they can profit by taking the shipping companies out of the equation. FedEx, UPS, and DHL, are continuously focusing on further increasing the efficiency of their networks since in this business time is money.