Emery Worldwide Airlines, Inc.
Emery Worldwide Airlines, Inc.
Wholly Owned subsidiary of CNF Transportation Inc.
Incorporated: 1946 as Emery Air Freight, Inc.
Sales: $2.27 billion (1997)
SICs: 4213 Trucking; 4513 Air Courier Services; 4522 Air Transportation, Nonscheduled; 4731 Arrangement of Transportation of Freight and Cargo; 4225 General Warehousing and Storage; 8742 Management Consulting Services
Emery Worldwide Airlines, Inc., commonly known as Emery Worldwide, is an integrated air freight carrier that provides services to 229 countries, carrying mainly business-to-business commercial parcel, package, and freight shipments over five pounds for next-day or second-day arrival. Other important Emery business units in the late 1990s were ocean freight transportation, logistics management, and customs brokerage. A pioneering company in air freight forwarding and for decades an acknowledged industry leader, Emery returned from a downward slide in the late 1980s to profitability and renewed prominence in the 1990s.
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. Such businesses included 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 were no longer 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 “Give Air Freight Its Chance” in May of 1949 and “Why Sneer at Air Freight?” in December of 1950. 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 to include eight European offices, including one office in London and two in Canada. The company 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 soon thereafter.
Domination of the Market in the 1960s
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 those, only 50 were active. 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 its 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 everywhere in 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 high-speed, 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 decided that competition with surface rates was out of the question.
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 a 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 United States. 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, and 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. acted as executive vice-president of Emery. He had become president upon his father’s death; veteran Emery operations director James J. McNulty remained chairman. The company’s revenues were pushing $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.”
Changes in the 1970s
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-Marshall-Boonville Stage Line, which nightly carried machinery, auto parts, and the like in vintage World War II DC-3s along the Omaha-Chicago route.
Our goal is to exceed our customers’ expectations by ensuring quality and excellence in every aspect of our business. We do this by providing complete global logistics services, multi-modal transportation, and customs brokerage for our customers. By placing emphasis on employee satisfaction, we will ensure our success in market leadership, shareholder value, and most importantly, customer satisfaction.
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. 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., John Emery Sr,’s former company, went out of business in 1975, leaving the field open to Emery and a newcomer, Federal Express Corporation.
Competition with Federal Express in the 1980s
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 had proved ominous for Emery, however, as the two firms dueled in the new business of small-package delivery. Investments were necessary in order to compete.
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 do this, in part, by the passenger airlines’s reluctance and/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 transportation 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 only half of the air freight in 10 years would be made up of emergency service.
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.
Losses in the Late 1980s
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 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—company, and the relationship 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. Unable to handle the added load, the Dayton location had to be remodeled. 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 called Consolidated Freightways, Inc.; and a separate 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. Instead, Emery ended up paying much of the Purolator-induced debt by selling Purolator’s auto-parts business. The company was madly 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.
Takeover by Consolidated Freightways
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. “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 which Emery’s operations 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, consisting mostly of the small freight which Berger had declared unwelcome. Emery’s operating loss—$40 million by the year’s 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 write-off.
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 37¾ 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.
Stemming Losses in the Early 1990s
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. Moffitt directed his efforts at Emery, which was dragging Consolidated down with losses that averaged $97 million a year. Moffitt and Curry decided to pull Emery from direct competition with Federal Express. Emery had traditionally 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 of 45 pounds in 1990. The company more than doubled its fleet of DC-8 jet airplanes during the year, adding 17 for a total of 30; all but two of them were leased.
In addition to this shift to overnight delivery of mid- and heavyweight freight, Emery needed to cut costs. Moffitt and Curry directed managers to reduce expenses in whatever way necessary. Over the next year and a half, Emery’s costs were reduced by $200 million by laying off 2,000 employees, giving up terminal space, and making other such cuts.
The company also expended money in order to make money. It instituted a new incentive program for salespeople that offered substantial bonuses for signing on new clients. Sales increased 37 percent over the first two years of the program. A profit-sharing program was also begun to motivate employees to work for the company’s turnaround. In 1994 nonunion workers and management divided approximately $20 million in profit.
Emery still lost money in 1991, but only $83 million compared to $127 million in 1990. A contract with the U.S. Postal Service to fly express and priority mail to 32 U.S. cities helped the company’s bottom line, and increased stockholders’ and customers’ confidence. Additional contracts with the government to ship Desert-Storm-related supplies for the military also pushed up Emery’s revenues. Other nongovernmental contracts followed, such as a “primary carrier” contract with General Motors.
In the first quarter of 1992, Emery lost less than it had during the same period the previous year, and this achievement came without the onetime $10 million gain from Desert Storm work. In September 1992 Emery reported its first monthly profit since being acquired by Consolidated. 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. With Emery, Consolidated could reach 88 countries. As part of this international plan, Emery created a logistics subsidiary, Emery Global Logistics, in 1992. The subsidiary’s custom logistics solutions provided customers with warehousing, inventory management, order fulfillment, and distribution.
Turnaround Assured in Mid-1990s
Cutting costs and refocusing on mid- and heavyweight freight brought Emery firmly back into the black. In 1993 the company reported $1.3 billion in revenues. More important, profits for the year reached $16.6 million, the first annual profit for Emery in seven years. The turnaround seemed secure when Emery won a ten-year contract from the U.S. Postal Service to operate its Express Mail air transportation system, a contract valued at $1 billion.
By 1994, the company’s operating profits had risen to $77 million. In addition, the company had captured 24 percent of the over-70-pound freight market, placing it in front of its nearest competitor by 11 points. From this secure position, Emery raised its rates 7.2 percent in October 1994.
In 1995 the company launched Emery Expedite! to provide quick-response, door-to-door service using trucks, aircraft charters, and next-flight-out air transport. The following year parent Consolidated Freightways divested its long-haul motor carrier unit. As part of the spin-off, the parent company was renamed CNF Transportation Inc.
In 1997 an extended strike at United Parcel Service threw Emery into a turmoil. Emery’s shipping counts tripled during the strike and the company added approximately 100 temporary workers and nine flights to meet this new demand. Because of the high cost of temporarily leasing additional aircraft and trucks, Emery did not necessarily profit from the rush of business. However, the strike did offer Emery the opportunity to permanently expand its customer base, by winning away disgruntled UPS customers.
Emery’s goal of increasing international business had made good progress by 1997. In 1993 international business contributed about 20 percent of Emery’s revenues. By 1997 that figure had risen to 43 percent. The company planned to increase that to 50 percent in 1998.
Profits continued to rise at the rejuvenated Emery: operating income rose in 1997 to 109.3 million on revenues of $2.27 billion. The good times looked to continue, in part because Emery won another important contract from the U.S. Postal Service. A $1.7 billion contract to run the USPS Priority Mail service on the east coast was awarded to Emery in 1997.
Airlines; Ocean Services; Customs Brokers; Global Logistics; Emery Expedite!
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—updated by Susan Windisch Brown