UPS and FedEx Air Hubs:
Comparing Louisville and Memphis Cargo Hub Operations by Alex Cosmas and Bastien Martini
The economies of scale afforded to passenger airlines by the use of a hub-and-spoke model are also enjoyed, sometimes to an even greater extent, by cargo carriers. The world’s two largest integrated carriers, UPS and FedEx, run their central air hubs in Louisville (SDF) and Memphis (MEM), respectively. We present a case study of the air hub operations at SDF and MEM. The land-side and air-side operations are contrasted between SDF and MEM, and generalizations are drawn regarding issues prevalent to cargo versus passenger hubs.
I. Air Cargo in History
The beginning of the last century saw the dawn of flight. Since the Wright brothers’ first flight, the transfer of goods through air mail and air freight has grown tremendously. The first cargo flight ever took place between Dayton and Columbus, Ohio in November 1910, when a department store shipped a bolt of silk. Even though the shipment was of small size, the flight stayed in the records because it was achieved in less time than possible by train.
Some time elapsed before the first commercial cargo airline was created. In the 1920s passenger carriers created entities to carry freight, but it remained a very low fraction of their business. In fact, the first all-cargo airline was created after World War II, but bankruptcies and accidents in the early 1950s made most of the carriers quit the business and in 1954, only two carriers remained:
Slick Airways and Flying Tigers. Until cargo deregulation in 1977, the air cargo industry faced slow growth and remained a small percentage of air traffic.
Since 1978, the freight business has changed tremendously. One man, Fred Smith, believed that mixing passengers traffic with freight traffic was not the future because he believed route patterns for passengers and cargo were different. He created FedEx in 1973 and started earning profits by his third year. FedEx’s historic rival, United Parcel Service (UPS), was created in 1907 as a bicycle-based delivery service. In 1953, UPS expanded its business by chartering an air service named UPS Blue Label Air, and by 1988 UPS began operating its own airline.
II. Air Cargo Industry Overview
Today’s cargo industry consists of three market segments: express or “time definite” packages
(weighing less than 100 lb.), heavyweight freight shipments (packages greater than 100 lb.) and mail transport. Integrated cargo companies such as FedEx and UPS serve all three categories, but there is an abundance of carriers that provide service to only one market segment. In addition, airfreight is carried by both passenger airlines and all-cargo airlines. Passenger airlines carry freight in the belly of passenger flights, and often operate dedicated freight aircraft. All-cargo airlines are either classified as “Integrated Express Carriers” which provide door-to-door package deliveries, or
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“Non-Integrated Freight Carriers” which offer heavyweight freight shipments through freight forwarders, etc. Scheduled and express freight constitute the largest proportion of air cargo shipments, with charter freight and mail a much smaller proportion.
Figure 1 – Air Freight Revenue Ton-Miles by Carrier Type, 1994-2002 (Source: DOT Form 41)
The air cargo industry has become a major player of the air industry since deregulation. Even though this sector has always experienced growth before deregulation, 1978 has triggered a wide range of possibilities for the industry, as seen in Figure 1. Notwithstanding the early years after deregulation when the industry got accustomed with new practice, air freight has experienced an average annual growth of nearly 8% between 1982 and 2000. Due to globalization, the FAA has forecasted this trend to continue as seen in Table 1.
Table 1 – ICAO Outlook for Air Transport to the Year 2015 and ICAO Passenger & Freight Statistics, various years 1992 – 1995 1995 – 2000 2000 – 2005 2002 – 2015
Passenger 5.2% 6.2% 4.1% 4.4%
Freight 9.9% 7.3% 3.8% 5.5%
It is also interesting to note the difference between passenger and all-cargo growth over the last 10 years. While both classes of airlines carried similar levels of freight in 1994 (expressed in tonmiles), all-cargo airlines have experienced larger growth than passenger in every year since 1994
(see Figure 2). Freight is still forecasted to experience a higher growth rate than passenger airlines over the next ten years, as seen in Table 1.
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Figure 2 – Air Freight Revenue Ton-Miles by Carrier Type, 1994-2002 (Data Source: FAA Aerospace Forecasts, various years)
Despite its rapid growth, air freight still accounts for less than half a percent of the overall freight ton-miles transported in the U.S. Waterborne, intercity trucks and rail account for nearly 99.5% of freight tonnage shipped domestically.1 However, this data reflects the fact that ships, trains, and trucks are used to ship bulk freight and heavy packages over long distances whereas aircraft are used for relatively lightweight, rapid shipments. But according to the Organizations for Economic
Cooperation and Development (OECD), the value of air cargo accounts for more than 33% of the world trade in merchandise, while its weight is only 2% of all the cargo moved world-wide.
Figure 3 – Modal Share of Domestic Ton-Miles, 1990 and 2001 (Source: Bureau of Transportation Statistics,
National Transportation Statistics 2004)
In a world where time is of increasing value, the share of air cargo share is steadily increasing.
While it accounted for only 0.3% of the cargo market share in 1990, air cargo accounted for 0.4% in
2001 and is forecasted to grow at 5.2% per year according to BTS (see Table 2), faster than any other mode of freight shipping and an average expansion of world GDP at 3%. The world’s two largest integrated carriers stand to shoulder much of this growth, and therefore their air hub operations must be flexible enough to accommodate the increased demand.

1 Data Source: Bureau of Transportation Statistics, National Transportation Statistics 2004
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Table 2 – Comparison of Domestic Freight Demand Forecasts (Source: historic data from BTS, National
Transportation Statistics 2003; forecasts from sources described in report text) a: Forecast for intercity truck only.
III. Door-to-Door Package Service
Every weekday UPS picks up and delivers 14.8 packages to over 80 percent of the globe. A good portion of these packages are delivered within 48 hours after pickup. Both UPS and FedEx use an advanced sort system to separate and organize volumes of packages into small, manageable piles sorted by delivery location. The typical UPS or FedEx package follows a similar process from pickup to delivery:2
1) Users take packages to a UPS Store or FedEx Kinko’s where the package is weighed and labeled. Alternatively, users can print out smart labels from ups.com and fedex.com and schedule a pickup when a delivery truck is in the area or drop the package in a local drop box. These smart labels contain tracking codes that are tracked throughout the delivery cycle, and account for over 90% of package labels that travel via FedEx and UPS.
2) At designated times, all of the accumulated packages from a given location travel, usually by truck, to a local or regional sorting facility. If packages are destined further than 200 miles, they travel by air. Otherwise they travel by truck to the local receiving sorting facility. 3) Packages that travel by air are placed into cargo containers that often weigh more than one ton. Because the sort facilities are lined with ball bearing flooring as seen in Figure 4, UPS and FedEx employees can move these containers with minimal effort. The containers allow employees to work remotely with package sorting and then move packages in bulk into the aircraft belly. The packages then head to Louisville or Memphis for further sorting.
Figure 4 – Floors are lined with ball bearings to ease the movement of cargo containers

2 Supplemented with information from “How UPS Works” at www.howstuffworks.com
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4) At the main sorting facility, humans touch each package only twice – once to unload and once to load the package to/from the aircraft. During unload, employees scan the package labels and place them on one of three conveyors with the labels facing in any direction except down towards the belt. An array of lasers scans barcodes on all sides of package while measuring the specific dimensions of the package. Weight sensors calculate the center of gravity to better judge the number of pucks and minimum force needed to push packages from one conveyor to another:
a. Smalls: mostly letters and other documents, each of which gets its own tray on a conveyor belt
b. Mid-size packages: 6-sided boxes up to a certain weight and dimension get their own conveyor belt
c. Irregs: irregularly-shapes packages are placed on flat cars and strapped down for the sharp turns and curves around the conveyor system.
5) After approximately 15 minutes, the package travels through the UPS or FedEx hub to its intended destination pile. Similarly-destined packages are placed on cargo containers which are then placed onto aircraft which travel to another regional sorting facility.
6) When unloaded, the package is scanned yet again to tell employees which package car it should be taken to, as well as which space on a given shelf the package should be placed to optimize drivers’ time.
7) The UPS or FedEx driver uses route-planning software allows him or her to conserve time and fuel to execute the most precise delivery route. A remote delivery device is used to scan a package and receive a signature upon delivery. The whole process has taken less than 24 hours! Figure 5 – Packages are placed on specific shelves in the delivery truck to optimize drivers’ time.
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IV. United Parcel Service and Federal Express
More than two-thirds of the U.S. air cargo market is controlled by the U.S.’ two largest cargo airlines: FedEx and UPS, with the latter controlling nearly 50% of the market alone. The international air cargo market, valued at $4.6B by Standard & Poor’s Net Advantage is more evenly segmented between U.S. cargo carriers, although FedEx, UPS and DHL have the largest individual carrier market shares, as shown in Figure 6.
Figure 6 – U.S. Carrier Market Share of Domestic (left) and International (right) Air Cargo Markets (Source:
Henry Fund Research, University of Iowa Tippie School of Management)
Because the cost of flying one ton of cargo decreases as aircraft size increases (since fixed costs are spread across greater tonnage), larger freighters are quickly replacing smaller cargo aircraft. This has resulted in a capacity increase of more than 4% per year despite a relatively constant fleet size.
This growth in aircraft size is of great importance in airport hub operations, which need to be flexible enough to accommodate larger aircraft.
United Parcel Service has its headquarters in Atlanta, Georgia and its airline hub and largest sorting facility called “Worldport” in Louisville, Kentucky. UPS is the world’s largest package delivery company and a leader in supply chain management.
Federal Express is based in Memphis, Tennessee and provides a wide range of business services in addition to its shipping operation. FedEx entered the Chinese market in the 1980’s and is therefore better poised to take advantage of China’s being the fastest growing air cargo market in the world.
Table 3 – UPS and FedEx Corporate Statistics (Source: www.fedex.com and www.ups.com)
UPS FedEx
Market
Capitalization $80.6B $33.4B
2006 Revenue $39.5B $32.3B
Daily U.S. Air
Volume (packages and documents)
2.3 million 2.0 million
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Daily Int. Air
Volume (packages and documents)
1.8 million 1.3 million
Fleet Size 273 owned, 326 chartered 370 aircrafts + 297 small aircrafts (253
Cessna Caravan + 8 Fokker + 42 ATR)
Airports Served Domestic – 424; International – 389 Domestic – 664; International – 375
Air Hubs • United States: Louisville, Ky. (Main
US Air Hub);
Philadelphia, Pa.; Dallas, Texas;
Ontario, Calif.; Rockford, Ill.;
Columbia, S.C.; Hartford, Conn.
• Europe: Cologne/Bonn, Germany
• Asia Pacific: Taipei, Taiwan;
Pampanga, Philippines; Hong Kong;
Singapore
• Latin America and Caribbean:
Miami, Fla., USA
• Canada: Hamilton, Ontario
• United States: Memphis, Tn. (Main
US Air Hub); Indianapolis, In; Fort
Worth, Tx; Newark, N.J.; Anchorage,
Ak; Oakland, Ca.
• Europe: CDG, Paris, France
• Asia Pacific: Subic Bay, Olongapo
City, Philippines
• Latin America and Caribbean:
Miami, Fla., USA
• Canada: Toronto Pearson, Ontario
V. Prerequisites for designating an airport as a Cargo Hub
Table 4 summarizes the major differences between passenger and cargo air services, each of which contribute to differences in land-side and air-side operations between the two.
Table 4 – Comparison of Passenger and Cargo Air Services (Source: Yeong Heok Lee of Hankuk Aviation
University, South Korea)
Passenger Air Services Cargo Air Services
• Round Trip Service
• Unspecified Public Travelers
• No further Ramp Services
• Cabin Services
• Daytime departure/arrival
• Sensitive to time, routes and stops
• Airport-to-airport service
• Annual growth rate(passenger): 4.5%
• One Way Service
• Limited Shippers
• Need Ramp Services: loading/unloading, breakdown, storage, customs, etc.
• No Cabin Services
• Night departure/arrival
• Less sensitive to time, routes and stops
• Door-to-door and Intermodal service
• Annual growth rate(ton): 5.4%
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Weather
The most important factor for designating