Air Express International Corporation Business Information, Profile, and History

History of Air Express International Corporation

A diverse transportation and logistics concern, Connecticut-based Air Express International Corporation (AEI) faced the brink of bankruptcy in the mid-1980s and emerged with unique strengths. In fact, AEI has become one of only two U.S. companies known worldwide for freight forwarding.

In 1935, Chester Mayer noticed that PanAmerican Airlines was having troubles expediting its air freight. At that time, most freight was still shipped by truck, so air shipments tended to be fairly small. Nonetheless, many airlines found it difficult to keep track of their freight, and Mayer saw an opportunity. He created AEI to help PanAm manage its air freight services. AEI quickly expanded its services to act as an agent for other airlines as well. Before long, the company had locations in New York, Los Angeles, and Chicago.

Despite the fact that the airline industry was growing, surface transportation remained the most popular way to ship freight until World War II. During that time, the military's need for swifter deliveries led to a boom in air transportation. AEI stepped in to become the contractor for the U.S. military throughout World War II. This role laid the foundation--in terms of experience and adaptability--for the company's later expansion to become the logistics provider of choice in a rapidly changing market.

With the war's end, AEI concentrated on extending its expertise to new markets, both at home and abroad. It opened offices in Paris and London by 1953, and it also became an exclusive agent in Argentina. This strategy proved to be an important factor in the company's later success. In fact, about 60 percent of AEI's revenues were generated outside of the United States by 1994.

In 1960, the company's operations expanded into the South Pacific and the Far East. By 1968, AEI also began doing business in Africa. Also in that year, AEI merged with Wings & Wheels, an international company with impressive financial strength. AEI continued to grow in the United States and Canada during the 1970s, and it opened offices in South America in 1979 and in the Middle East in the early 1980s.

Through the years, AEI faced keen competition in the air freight forwarding industry. In order to carve a niche for itself, the company introduced innovations such as scheduled charter services across the Atlantic and the first door-to-door package service. By the 1980s, however, the highly competitive environment began putting a strain on the company. For example, companies like Federal Express, United Parcel Service, and Airborne Express emerged to challenge AEI in small package and overnight door-to-door delivery.

Another significant problem for AEI involved a large-scale federal investigation of extortion charges against the Teamsters Union. Payoffs to Teamsters Union members at Kennedy International Airport in New York came to light, sullying the reputation of AEI and many other transportation companies. AEI also became the target of a takeover attempt by Consolidated Freightways Inc. The company's 1985 annual report admitted that it was "incurring substantial losses, suffering from cash flow problems, operating [its] airplanes unprofitably, had low employee morale and was in search of a strategic direction" at this time.

Salvation came from Hendrik Hartong, who--with his investment company, Brynwood Partners--gave AEI a $5 million cash infusion. Hartong became chairman and CEO, and he made Guenter Rohrmann president. An AEI veteran, Rohrmann had been vice-president of international operations. Together, the men took a hard look at the company and decided to scale back its involvement in the highly competitive overnight small-package service segment and concentrate on the less colorful heavy cargo forwarding business. They sold off AEI's two airplanes--that act alone cut yearly fixed costs by more than $1 million--and turned instead to leasing space on commercial carriers' planes to ship customer freight. This transformed Federal Express from a competitor into a supplier, as AEI began leasing space on FedEx planes.

An even bolder and more innovative step was the development and installation of a costly automated communications system. Rohrmann recognized that this gamble could make or break AEI. The freight forwarding business involved shepherding quantities of heavy cargo from one place to another via leased space on trucks, planes, or ships, often in combination, through various stops and nations. In the mid-1980s, the industry was often viewed as a black hole, or "dump the freight in, hope it comes out," as an AEI executive put it. With all the potential snafus inherent in shipping freight internationally, the creation of a computer system that could track shipments from point of origin to destination, using a single invoice number, could give the company responsible an obvious edge. Customers could instantly monitor the status of their freight from anywhere in the world. AEI committed itself to this task, with Rohrmann confidently staking his own salary against the investment.

In 1993, the company's $50 million LOGIS system was considered the best in the industry. Rohrmann received his salary intact, as AEI zoomed to the head of the freight-forwarding industry. After losing money in 1987 and 1988, AEI turned itself around by working with high-weight, high-volume business clients&mdash⁄ipping items such as heavy machinery and electronic components. This type of sale generated a larger margin than overnight letter-sized deliveries, and by 1989 business was growing at a compounded annual rate of 20 percent. That same year, Rohrmann replaced Hartong as CEO. AEI's nearest competitor was the San Francisco-based Harper Group, Inc., which set out to develop its own information system.

During its turnaround, AEI worked at keeping its fixed costs low and declined business that did not offer solid margins. It also invested wisely. In 1987, for example, AEI became one of the first U.S. forwarders to forge a pan-European freight network by acquiring Pandair, based in Holland. AEI also maintained its technological edge by achieving the first mainframe-to-mainframe electronic data interchange (EDI) with an airline in 1990.

By 1992, AEI was enjoying solid growth, with record revenues and earnings. Rather than resting on its laurels, however, the company began to shop around in the sea freight industry. Its reasoning was that customers prefer to rely on a single forwarder for all their shipping needs--whether by air or sea. Some of the tasks involved in shipping by sea include warehousing the freight after it arrives in a port and taking care of ground distribution. Since AEI was already well-poised in a consolidating market by virtue of its computerized tracking capabilities and worldwide presence, the next step was logical.

In 1993, the company purchased Votainer International, one of the world's oldest and largest worldwide Non-Vessel Operating Common Carrier concerns. Headquartered in Rotterdam, Votainer had offices in 12 countries with annual revenues of more than $100 million. AEI thus acquired an instant network of global offices and ocean freight experts. The $15 million purchase took a bite out of AEI's earnings for that year, but innovations were steady. For example, AEI linked its New York gateway with the U.S. Custom Service's Automated Manifest System in 1993. This link-up allowed AEI to speed up customs clearance--by starting the process before items even arrived at Kennedy International Airport--and reduce transit times by up to 24 hours. AEI also acquired two air freight companies in the United Kingdom, as well as Banner International in New Zealand and Pace Express Pty. Ltd. in Australia. These companies, which had combined annual revenues of $50 million, were blended into AEI's existing operations.

By the end of 1994, sea-freight forwarding accounted for about 12 percent of AEI's revenues. Business was booming in Asia, where manufacturers were active air-freight forwarders. Also in 1994, AEI became the first major U.S. transportation company to obtain ISO 9002 status. This designation, part of the ISO 9000 quality standards series set by the International Organization of Standardization, was highly valued by European clients. Since AEI was absorbing Votainer's losses for two years, the company projected a return to profitability by the second half of 1995. In May of 1995, AEI acquired Radix Group, Inc., a leader in customs brokerage services. Radix had a network of 23 domestic offices, gross revenues of $65 million, and air freight and ocean freight forwarding services of its own. AEI fared well during the worldwide recession of the early 1990s and expected to see continued growth as the transportation sector rebounded.

Principal Subsidiaries: AEI Occan Services Corp.; Air Charter Express International Limited; Air Express International Agency, Inc.; Air Express International USA, Inc.; Couriaire Express International, Inc.; Roadstar Corporation; Surface freight Corp.; Wings & Wheels Express, Inc.; Air Express International Finland Oy (Finland); Maruzen Air Express International Limited (Japan); AEI Ocean Services Sdn. Bhd. (Malaysia); Air Express International Holding B.V. (The Netherlands); Air Express International (U.K.) Ltd.; Air Express International GmbH (Germany); Air Express International (Canada) Limited.