Emery Air Freight Corporation

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Emery Air Freight Corporation

3350 W. Bayshore Rd.
P.O. Box 10110
Palo Alto, California 94303
(415) 855-9100
Fax: (415) 855-9246

Wholly owned subsidiary of Consolidated Freightways, Inc.
Incorporated: 1946
Employees: 7,043
Sales: $1.3 billion
Stock Exchanges: New York Pacific London

Emery Air Freight Corporation, commonly known as Emery Worldwide, is an integrated air freight carrier that operates in 88 countries, carrying mainly business-to-business commercial parcel, package, and freight shipments over five pounds for next-day or second-day arrival. A pioneering company in air freight forwarding and for decades an acknowledged industry leader, Emery has struggled since the mid-1980s, losing money and its independence, but Emery remains a viable and avowedly important part of the corporate strategy of its parent company, Consolidated Freightways, Inc.

Emery Air Freight was founded in 1946 as a freight-forwarding operation by Navy veteran John Colvin Emery, Sr., who rejoined civilian life with experience in military air transport service. He would have returned to the Railway Express Agency (REA), where he had worked since 1937, if REA had shown interest in his air freight-forwarding ideas. But REA was not interested, so he began his own operation with three employees, two used trucks, $125,000 in borrowed money, and one customer—the Federal Reserve Bank of New York. The first year Emery moved 50 tons of air freight for $30,000. John C. Emery, Jr. served as Emery Air Freight’s sales vice president from the company’s inception until 1956. Prior to joining the family business, he had spent one year with United Airlines and one year at National Airline.

Forwarders connected shippers with airlines, tracked shipments’ progress from airport to airport, and then moved the cargo from final airport to final ground destination, using trucks or any other ground transportation deemed necessary. John, Sr. entered a niche market as part of the burgeoning air freight industry which many armed forces veterans such as himself were creating, including all-freight airlines like Slick Airways and the Flying Tiger Line or forwarders of Emery Air Freight’s caliber, which transported cargo to other freight lines as well as to regular passenger lines. The industry’s potential was great, but obstacles loomed at every turn for the newcomers. For instance, when Slick, the nation’s largest freight carrier in the late 1940s, and 18 other all-cargo carriers achieved common-carrier status in 1947, they no longer were permitted to give forwarders a rate break on the consolidated less-than-planeload shipment, one of the forwarders’ bread-and-butter items.

The forwarders were a parvenu lot, as was the air freight industry as a whole, prompting the trade magazine Aviation Week to publish articles entitled “Why Sneer at Air Freight?” in December of 1950 and “Give Air Freight Its Chance” in May of 1949. References were made to air freighters’ uphill battle against the passenger lines, for whom freight carriers were competitors and forwarders were barely tolerated middle men.

By 1951 half the forwarders were losing money, but among those who were succeeding, Emery was setting the pace. In a 1954 report citing wide variances in the scope of freight forwarding services, the national air-transport regulatory body, the Civil Aeronautics Board (CAB), commended Emery as the only United States air freight forwarder operating nationwide. Emery had 30 branches in 18 states, plus another in the District of Columbia. Emery neither owned nor operated aircraft, and leased its automotive equipment. The company was moving 14,000 tons each year and grossing $7.2 million annually.

The advantage was speed at a premium price or even savings when air shipment reduced inventory. Emery could field an occasional call to get around surface shipment bottlenecks to keep a Detroit assembly line running, or regular calls to keep down inventory of parts to be assembled.

As the 1950s closed, any early industry disappointments had been forgotten and air cargo was scoring “impressive gains,” according to Business Week. Though the company remained based in New York City, Emery’s operations spread abroad with eight European offices, including one office in London and two offices in Canada; Emery had 29 U.S. offices by 1960. Gross revenues had reached $13.6 million in 1959, up $3 million from 1958’s gross.

The jet age was approaching, meaning air freight would carry considerably more than small items like fresh fruit, vegetables, and flowers. The jets brought much greater capacity, but even then cargo was considered by the passenger lines as something to fill unused baggage space. American Airlines was the first passenger airline to go beyond that mindset by investing in “flying warehouses,” or planes without windows designated for cargo-carrying purposes; other airlines followed suit.

By 1965 Emery Air Freight was “the tallest midget” among air freight-forwarders, John Emery, Sr. told Business Week. One hundred of those midgets were licensed by the CAB, and of these only 50 were active, most of them “one-man outfits [serving] only limited points in a sometimes casual manner,” a Business Week correspondent noted.

Forwarders now ferried freight by truck from shipper to airline, functioning as a carrier to the shipper and as a shipper to the airline. Airlines resented the need for a middle man, but air freight was growing faster than passenger service and forwarders could capitalize without investing in trucks, terminals, or aircraft; Emery leased trucks, built a terminal, and booked space on passenger airlines.

Investors were impressed. In 1965 Emery’s stock was almost 40 times greater than its earnings. The nearest competitor was the Air Express division of John Emery’s former employer, Railway Express, but Emery’s $38.5 million in revenues for 1964 exceeded those of the four nearest competitors combined. Emery had a strong international presence with agents all over the world except South America. One of the passenger airlines’s best customers—second only to the U.S. government—Emery could demand space otherwise unavailable.

Not everyone in the company had endorsed the highspeed, high-cost service which had become Emery’s specialty, as opposed to the high-volume, low-margin approach generally typical of freight forwarding, but John Emery, Sr. had. Competition with surface rates was out of the question he argued.

Emery’s revenues hit $46 million in 1965, and net profit rose nearly 50 percent to $2.7 million. Emery averaged 20 percent yearly growth in volume and had experienced an amazing 38 percent growth in profits since the early 1950s. The firm was forwarding 10 percent of the $600-million air freight volume—all without owning one single plane—and hauling more than 1.5 million shipments a year totaling well over 100 million pounds for 20,000 customers.

In 1961, the year Emery relocated headquarters to a leased office building in Wilton, Connecticut, Emery acquired ground facilities at Bradley Air Field in Hartford, Connecticut. Emery had 50 U.S. offices and, in addition to Europe, was reaching the Middle East, Japan, the Philippines, Hong Kong, South Africa, Australia, and New Zealand from points in the U.S. Likewise, Emery’s service connected the United States, Canada, Japan, Australia, New Zealand, and South Africa from points in Europe. Emery owned airport terminal buildings in New York City, Chicago, Detroit, and was building one in Los Angeles. The company used working capital to construct terminals and only built upon leased land. John, Sr. resigned in 1961; he died eight years later.

In the interim period from 1963 to 1969 John, Jr. was executive vice-president of Emery. He became president upon his father’s death; veteran Emery operations director James J. McNulty stayed chairman. The company’s revenues were crowding $100 million. Emery had 2,000 employees in 96 offices around the world and served some 350 cities with airports and ten times as many within airport “trading centers” according to Moody’s Transportation Manual.

In the early 1970s, not long after John Emery, Sr.’s death, the air freight world began to change considerably. Passenger airlines, hit by rising fuel costs, cut back on freight-only schedules. At first Emery rode high as usual with revenues of $142 million in 1972 and $175 million in 1973. Emery’s bicycle fleet, riding the teeming streets of big cities, was beefed up. Emery also employed a strategy of using alternate carriers—primarily chartered planes. This “air taxi” service became important for Emery, which depended on such obscure operations as the Des Moines-based Sedalia-Mar-shall-Boonville Stage Line which nightly carried machinery, auto parts, and the like in vintage World War II DC-3s along the Omaha-Chicago route.

Emery improvised to counter the slipping economy by drumming up more business for late-night shipping. The company supported freight rate increases for the major airlines. John C. Emery, Jr. testified before the Civil Aeronautics Board for United Airlines, Emery Air Freight’s biggest supplier. Emery knew a market existed for overnight service—which businesses used to maintain tight inventory control in the poor economic climate—higher priced or not, and John Emery’s company could afford the higher rates as his business was booming.

The number of U.S. offices grew to 77 in 1975 and Emery had 112 offices worldwide; the company was providing service almost everywhere. John, Jr. became chief executive officer of Emery that year as revenues and profits rose steadily. REA Express Inc., the company John Emery, Sr. had been unable to talk into starting a major air freight operation in 1946, went out of business in 1975, leaving the field open to Emery and a newcomer, Federal Express Corporation.

In 1978, two years after Federal Express became profitable under the leadership of its president, Arthur C. Bass, Emery started a small-package business. The creation of Emery Express required making major investments in equipment, a move that violated the debt-avoidance formulas of the company’s early history. The coming of Federal Express proved ominous for Emery as the two firms dueled in the new business of small-package delivery.

Under newly appointed board chairman John Emery, Jr., Emery moved from freight forwarding with other parties’ planes in the 1970s to freight transportation in the 1980s using its own. Emery was forced to this in part by the passenger airlines’s reluctance or inability to carry freight as was done in the 1970s. Emery was literally using fly-by-night taxi services, but in order to compete with Federal Express the corporation needed more access to air transporatation than was available—the airlines were no longer an option.

In 1981 Emery, rechristened Emery Worldwide, bought 24 Boeing 727 freighters and leased 40 other planes, taking on a long-term debt of $130 million—more than 60 percent of the company’s total capital. Emery mimicked the Federal Express national-hub system, constructing a “superhub” in Dayton, Ohio, to which all intercity packages were directed for sorting and reshipment no matter their size or U.S. point of origin. These costly adaptations were temporarily successful. Profits rose 145 percent in 1983 to a record $25 million and yielded record revenues of $683 million.

In 1985 Emery opened a European hub in the Netherlands, leasing cargo planes to fly there nonstop from Dayton. The company was, therefore, competing in two markets—the small-package market in which Federal Express was the clear leader and the heavyweight market in which Emery had traditionally performed well. The heavier-weight market grew sharply as companies began to emulate the Japanese “just-in-time” inventory system. Air freight, once considered just an emergency service, became an everyday procedure. John Emery, Jr. predicted in The Economist that air freight would be only half emergency service in 10 years. But the “steep climb” of air express, as air freight was now called in deference to its faster-growing segment, was reaching altitudes that proved dizzying for some. By mid-1986 Purolator Courier Corporation, the fourth-largest ground-only company among U.S. carriers, was losing money badly. Emery, third behind Federal Express and United Parcel Service (UPS), was suffering losses too—but not as damaging.

The problem was, in part, a maturing market. An estimated 95 percent of U.S. cities and towns had air express service. At least eight companies, not including the U.S. Postal Service, were competing for what in a few years had become a limited market. Federal Express and UPS were cash-rich, but Emery, whose income plummeted in 1986 from nearly $40 million to $18 million, was doing worse than expected. Fortune even revealed that John Emery, Jr. had been calling major customers to say, “I’m John Emery and I care.” By 1988 Emery Air Freight was in financial trouble.

Seeking a way out of carrying both large and small items by air and conducting less than half its business as overnight delivery, Emery turned to a small-package specialist, Purolator, a company also having difficulties. Emery bought Purolator for $323 million in April of 1987 to handle small-package capacities, but the purchase was too late. A limping company had bought a sick, if not mortally wounded one, for synergistic ends; but the complementarity did not thrive. Emery had simply failed to capitalize on previous heavy investments in overnight capabilities and was losing out to Federal Express.

Seeking to integrate Purolator’s operations, Emery closed Purolator’s Indianapolis hub and rerouted Purolator’s more than 50,000 packages a day to Dayton, which unable to handle the added load, had to be remodelled. Months after the acquisition Emery and Purolator were still competing with each other on many routes. Operating costs rose sharply for the now-parent Emery. Talk of a takeover erupted, but even that seemed inopportune because Emery stock, though depressed, was not low enough.

The upshot was an apparent “palace revolt” staged by Emery directors in late December of 1988, in which John C. Emery, Jr. was removed as chief executive and replaced by an Emery director—retired Xerox Corp. executive William F. Souders. Emery’s stock price doubled in one month as takeover artists bought up shares. Among suspected bidders were Federal Express, Emery’s archrival; a California-based trucking company, Consolidated Freightways, Inc.; and a group headed by former Federal Express president Arthur C. Bass.

But Emery was not selling. Indeed Emery may have bought Purolator precisely to fend off a takeover industry sources informed Business Week. Instead Emery ended up paying much of the Purolator-induced debt by selling Purolator’s auto-parts business. Emery was cutting costs and prices to stay in business. Emery also hinted at filing for voluntary bankruptcy. Both Arthur Bass and Consolidated Freightways, Inc., apparently gave up plans for buying Emery.

Consolidated then changed its mind, however. The California company bought Emery on April 3, 1989, for $478 million. Consolidated’s chief executive, Lary Scott, had a history of going against the dictates of conventional wisdom, as exemplified when he built the first national long-haul freight delivery system in the mid-1970s and when he set up a series of regional truckers specializing in next-day delivery in the early 1980s. Under his leadership and that of the company’s chairman, Raymond F. O’Brien, Consolidated had become the top hauler of less-than-truckload, or under 10,000 pounds of freight in the United States. Both Consolidated’s revenues and profits had doubled in the 1980s.

With Emery, however, Scott faced a losing proposition which to many looked hopeless. $32 million in losses were incurred the two quarters following Consolidated’s acquisition. The venture gave Consolidated instant capability in the international arena though. “This global thing is not a fad,” Scott insisted in Business Week, as he looked to European and Asian traffic.

Scott placed at the head of Emery Worldwide a 19-year Consolidated veteran, Donald Berger, the head of Consolidated’s CF AirFreight, with whose operations Emery’s were merged. Berger withdrew Emery from competition with Federal Express, virtually limiting the company’s business to industrial freight averaging over 300 pounds. Major new contracts with the U.S. Postal Service and IBM gave Berger and Scott confidence. But the announced intent to specialize in heavy freight gave a mixed signal to customers whom Emery could not afford to lose. In the third quarter of 1989, Emery withstood a 20 percent loss in shipping volume, mostly the small freight which Berger had declared unwelcome. Emery’s operating loss, $40 million by year end, decimated Consolidated’s earnings, which sank from $113 million to $12 million. In addition, Emery’s billing mistakes overstated revenues forcing a $19-million writeoff.

On July 30, 1990, Scott, yet another casualty in the ongoing effort to revive Emery’s success, resigned as CEO of Consolidated Freightways, Inc. after 23 years with the company, including two years with Emery in tow. Business Week reported that Consolidated was “in sorry shape, thanks to Emery,” which had suffered $100 million in operating losses within six months. Corporate parent Consolidated had lost $37.5 million in the same period and stock had dropped from 37 3/4 to almost 15 in a slide that had reduced its market capitalization by almost $800 million.

Chairman Raymond O’Brien, 68 years old and a former Consolidated CEO, returned to the helm; a 69-year-old Consolidated director was assigned the presidency. Talk arose of selling Emery. Five weeks after Scott’s departure, Arthur Bass, the former Federal Express president who had once wanted to buy Emery, was hired to head the sinking flagship, but he lasted only five months.

Bass was replaced in March of 1991 by W. Roger Curry as part of a new Consolidated management team headed by new president and CEO, retired former chief financial officer, Donald E. Moffitt. Emery emphasized heavy freight delivery, business to business on the same- or second-day. In renewed pursuit of this old goal, Emery’s average shipment weight rose to 124 pounds in 1991 from an average 45 pounds in 1990. The company more than doubled ownership of DC-8 jet airplanes during the year, adding 17 for a total of 30; all but two of them were leased.

Emery still lost money in 1991, but only $83 million compared to $127 million in 1990. Contracts helped the U.S. Postal Service fly express and priority mail to 32 U.S. cities and aided Desert Storm-related government business in shipping supplies for the military.

In the first quarter of 1992, Emery lost less than in the previous year’s first quarter, and this without the onetime $10 million gain from Desert Storm work. Emery remained part of a Consolidated strategy to go international. Consolidated’s customers were operating globally; and without Emery, Consolidated could not serve them fully Moffitt explained in the company’s First Quarter Report distributed in 1992. With Emery, Consolidated could reach 88 countries. Emery was perhaps finally in a position to realize goals set years earlier.