BAX Global, long a leading airfreight and logistics company in the U.S., is in the process of merging its operations with Schenker Logistics, a global logistics provider based in Germany. Both companies are part of DB Logistics, the transportation and logistics division of Deutsche Bahn AG. The combined operation delivers a powerful 1-2-3 punch, with Schenker/BAX becoming No. 1 in European land transportation, No. 2 in worldwide air freight and No. 3 in worldwide ocean freight. Steve Grier, vice president of transportation at BAX Global, talked to GL&SCS about the merger and other issues impacting BAX and the airfreight industry.

Q: Bring us up to date with the merger of operations with Schenker.

Grier: This has been an exciting time. Like any major change, it is full of emotions and opportunities, but it's important to note that the integration of our two organizations has been a slow, measured process. It hasn't been slammed together, which I think sets us apart from what you may have seen in the past with other organizations. We have taken it very slowly and done those things that made sense for both companies. And we have done them without interrupting operations or service to our customers, which is the thing foremost in our minds. Within both organizations, we have continued to focus on customer satisfaction and that has been really key.

As we bring the two organizations together, of course we have enjoyed certain efficiencies. Not only do we have increased buying power between the two organizations, but we have been able to put more volume on the BAX Global North American fixed fleet. We have taken a very measured look at the volumes that Schenker has available and the capacity that BAX has available and we have matched up a lot of opportunities where it has made sense. Where it hasn't made sense, we haven't done it.

Q: How has this impacted the operations at your Toledo hub, where you are located?

Grier: We have seen additional volume, not only at the Toledo hub but through all our regional ground hubs as well. We have felt the added Schenker volume throughout the country and throughout our network.

Toledo is the location where we have implemented international connections, linking the BAX USA hub-and-spoke system to Schenker's European hub-and-spoke system based in Hahn, Germany. We have joined those two hubs, Toledo and Hahn, with a weekly aircraft. We tested the connection with a DC-8 aircraft last year and got a lot of kinks out of the system. Then, in early June, we initiated a 747-400F cargo aircraft between the two hubs, which is very, very good lift. That airplane starts out in Dubai, goes into Hahn and then comes into Toledo, then back to Hahn. This is a pretty exciting connection for our customers because now our customers have full access to the Schenker hub-and-spoke system in Europe, and European customers have full access to our U.S. system.

Q: Are you using all leased or charted aircraft?

Grier: Yes, all of our planes are dedicated, contracted equipment. We run 18 airplanes through Toledo nightly, Monday through Thursday. Thirty trucks connect into that aircraft system. With this operation we primarily are satisfying the demand of our customers for overnight service. In addition to domestic freight, we also provide service to Mexico and Canada with that fleet of aircraft.

The only additional international flight that we are operating (other than the weekly Toledo-Hahn, Germany, flight) is our weekend service to Australia. This Direct DownUnder service is something BAX has been offering for more than 10 years now. We serve this market also with a 747-400F. We consolidate all of the Australian and New Zealand business and ship it on this aircraft, which comes into Toledo on Saturday afternoons.

This is one of the best possible connections that a customer can get into Australia. We are clearing that cargo and actually making deliveries on Monday morning.

And this is a good example of where Schenker has tapped into BAX Global's service offerings for their customers. Now, working together, we are looking at connecting Toledo to other international markets, which is pretty exciting for the company and for our employees.

Q: What geographic area is generating the biggest growth for air cargo?

Grier: That's pretty difficult to say. When we get the freight it often is hard to tell where it is coming from. Of course, we all know things are booming in China and in India.

Domestically, we continue to see strong demand out of Southern California, which probably reflects business coming in from offshore. We see continuing strong demand out of the Mexico border region, so there definitely is an international flavor to the factors driving demand.

Q: Do you have enough capacity at this point?

Grier: The single most precious commodity we have is capacity and matching capacity to demand is very complex. Obviously, we always are working to get the best utilization we can out of the capacity we have. One of the key issues in the marketplace is really the ability to flex capacity. For cargo operations such as ours, it always is easier to add capacity than to take it away. In the domestic market, adding capacity still is pretty easy to do as demand grows. We just have to find the right balance and be careful not to add too much until we are sure the demand is there, because that will impact our overall utilization.

On the open market, I think it is becoming a little more difficult to use the commercial carriers because of some of the security restrictions that are out there. That may be pointing more customers toward the fixed, dedicated networks like ours.

Q: How are you managing the increases in fuel cost?

Grier: We have implemented certain fuel conservation programs in terms of how we operate the aircraft. Beyond that, it's a situation where we are really trying to recover the cost of those increases. For the last five years or so we have had a pretty consistent way to calculate our fuel surcharge to our customers. We have remained very consistent on how we have applied that and I think it has worked fairly well for our company. It has allowed us to stay more or less in sync with costs as they rise and fall. We adjust it up and down monthly for our account base.

But overall the fuel situation is a challenging area for the entire industry. The concern is that it might get to a point where it will be just too expensive to move cargo by air.

In terms of productivity in general, we run an interesting wholesale program, where we wholesale our space to other forwarders in the marketplace. That program, which we call the BAX Forwarder Network is four years old. I think it represents an interesting shift that we have seen in the domestic market where some of our traditional forwarder competitors are now major clients. A good chunk of volume on the network comes from customers who also are our competitors, so there really is a blurring of lines in the business as compared to maybe five or 10 years ago.

The nice thing about the wholesale program is that it helps us fill up space on our aircraft and balance out the network. There are lanes that traditionally are hard to fill. El Paso and the area around the Mexico border are big outbound but not so much inbound, for example. And because of the aircraft industry up in Seattle, it is much heavier inbound as opposed to coming out of that area. There are a number of lanes like that. So now we can offer that space to our competition, who are not also our customers, and get help filling up the network in areas where traditionally we have struggled. This has made our network more stable and predictable overall.

Q: What service issues are most on your customers' minds these days?

Grier: What I notice is that customers seem to be continuing to look for a single-source carrier that has the ability to use technology to make it easier to do business. They are looking for ways to improve productivity and ensure the safety and security of their goods. Security is a big topic these days. And customers are looking for a partner that can customize solutions for their requirements.

The good news is that technology is able to do a lot of that fairly easily if you understand the customer's needs.

Q: What are some of the things BAX Global has done to meet these requests?

Grier: We have done a number of things to deliver more value and productivity. One is adding this Toledo-Hahn, Germany, flight that I mentioned, which allows us a broader reach and more solutions for our customers.

Also, we have been updating some of our major facilities throughout the country. Last year we overhauled our Los Angeles terminal and we have just completed our Chicago terminal. We are planning to build a completely new campus in Dallas. These are all major field hubs, so these facilities come with all of the nice security enhancements that people are looking for today. And we are combining our domestic and our international services in the same complex so we can provide that seamless, single carrier capability that customers are looking for. This represents some pretty big investments that we have been making over the 18 months to two years.

Q: What do you think is the biggest challenge facing the air cargo industry?

Grier: I think security is at the top of that list-continuing to stay current and compliant with the changing demands of security. This is something we are concerned about. We feel it is very important and we have various task forces within the company keeping track of this and making sure we are doing what we need to do. We also are fairly active in various industry groups working in this area and we provide input to agencies like the TSA (Transportation Security Agency). I think it is good that they are asking for input.

The second challenge I would mention is the whole fuel issue and being cautious not to get the price so high that people will choose to stop using premium services. The other thing is just continual changes our industry goes through and that we all have to adjust to-but just what those changes will be in the future, I can't say. We just have to be flexible enough to adjust to whatever comes.