FedEx plans to expand its Oakland hub prompted by increased commerce with China, the fastest-growing market for express courier delivery.

Delivering solid growth
FedEx plans to expand its Oakland hub

David Armstrong, Chronicle Staff Writer

Wednesday, August 10, 2005

When he looks out his office window, avid Oakland Raiders fan Robin Van Galder can see the goalposts where placekicker Sebastian Janikowski practices his field goals. His sights, however, are set on more distant goals.

Van Galder manages FedEx Corp.'s growing air cargo hub at Oakland International Airport. FedEx is poring over plans to expand the Oakland operation, prompted by increased commerce with China, the fastest-growing market for express courier delivery.

FedEx's Oakland hub, which it has operated for nearly 20 years, has its own air terminal, maintenance bays and parcel-sorting facility and is typically crawling with FedEx aircraft and trucks.

The Oakland hub is expected to play a key role in FedEx's growth in Asia. "Our international volume is growing much faster than the domestic side,'' Van Galder said, without providing figures. "We're looking four or five years out. ''

When the outline for Oakland's expansion is completed by corporate planners in Memphis, FedEx is likely to raze some peripheral buildings, he said, and make greater use of the broad, flat expanse of bay fill that surrounds its 350,000-square-foot facility. The expected completion date is Christmas 2008, he said.

Separately, some updating and upgrading has already begun.

On Tuesday, FedEx activated a rooftop solar energy system, which provides up to 30 percent of the Oakland hub's power, supplying enough electricity for 900 homes.

Installed by PowerLight Corp. of Berkeley, and using about 5,800 blue photovoltaic panels laid down across the rooftops of two FedEx buildings, the solar capacity should reduce pollution and make the hub more environmentally friendly, said Mitch Jackson, managing director of environmental programs for FedEx.

The 904-kilowatt system is the largest corporate solar power system in California and the second-largest in the United States, officials for both companies said.

All this is, in turn, being powered by growing business demand in China, which FedEx's Oakland facility serves with 23 flights a week. In March, there will be 26. Flights coming to this country from China clear U.S. Customs in Anchorage, then continue to destinations such as Oakland, one of FedEx's four U.S. hubs.

Like other cargo and passenger airlines, FedEx has been hit with high jet fuel costs. The carrier has imposed a 12.5 percent fuel surcharge through Sept. 4 on flights in and to the United States. The surcharge is subject to change every month, based on the price of jet fuel, according to the company's Web site.

FedEx entered China in 1995, the first U.S. air-express carrier to do so, but it will soon face competition from its rival United Parcel Service, which will commence flights to 23 Chinese cities next month. UPS also plans to open an air cargo hub in Shanghai, China's business capital, in 2007.

FedEx will follow in December 2008, opening a $150 million hub in the southern Chinese city of Guangzhou. FedEx is closing its hub in Subic Bay, the Philippines, to get closer to the action in China.

China's rapid growth

"Last year, China recorded a 35 to 36 percent growth in trade, and its economy has been growing at 8 and 9 percent for years,'' said Gene Hwang, FedEx's chief economist, on a recent visit to San Francisco.

China's growth is so dramatic, Hwang said, that Beijing is buying "40 percent of the world production of cement and using 50 percent of the world's construction cranes.''

Moreover, Hwang said, Chinese per-capita income is nearing $2,500 to $3, 000 per year, at which point consumers are able to afford appliances and cars. The rise of a Chinese middle class is helping to increase the demand for express delivery of parcels.

Hwang expects China and the United States to be the leading nations in world trade for the next quarter-century. Thus, stepping up operations between the two powers is key to FedEx's growth, he said.

The Oakland hub, which typically handles more than 250,000 packages a day, is already a busy place. Strolling out of his office, with a signed No. 12 jersey from Raiders great Ken Stabler framed and mounted on the wall, Van Galder led the way through a steadily humming facility that employs 1,700 full- and part-time workers and operates nearly 20 hours a day.

The parcel-sorting process is a noisy symphony of movement. Supervisors clamber on an overhead latticework of catwalks, scaffolding and stairs. Speaking into walkie-talkies, they survey earplug-wearing workers on the plant floor below. Fast-moving workers duck into walk-in silver metal containers and emerge with packages that they hoist onto a conveyer belt for sorting.

The conveyor belt moves at a deceptively slow 7 mph. There are so many packages, especially at Christmas, that sometimes the belt has to be briefly halted to allow workers to catch up. It's a tough, physical job, so FedEx provides classes on stretching and proper lifting for workers on the line.

After the terrorist attacks of Sept. 11, the pace at the hub slowed, Van Galder said. "Like everyone else, we took a hit,'' he said, "but volume now is past that of three and four years ago.''

The hub is security-minded, but FedEx doesn't like to discuss details. Van Galder does say that people with access to the facility are screened more carefully than they were before Sept. 11. Uniformed guards see to it that workers and visitors empty their pockets and walk through a screening machine, just like the ones travelers use at airports.

Closer scrutiny

Moreover, cargo planes that used to sit on the tarmac with their doors thrown open are now locked except when they are being loaded and unloaded. FedEx checks the manifests and background of shippers and looks for any deviations from normal patterns. The company has the capability to X-ray packages, but it doesn't X-ray every one, he said.

Security experts, noting that the billions spent on screening airline passengers and luggage far outstrip the funding for cargo, have expressed concerns that both seaborne and airborne cargo could be weak points in the nation's defenses.

FedEx executives say that the company's growth in Asia and elsewhere will continue at a rapid clip. It saw a healthy rise in revenue and profit last year mostly because of overseas operations and acquisitions.

Buying other companies appears to be part of FedEx's corporate DNA. Just last year, FedEx bought Kinko's and promptly installed FedEx drop-off boxes in the 1,400-plus Kinko's stores.


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FedEx Corp.

Business: Parcel shipping by air and ground, e-commerce. Ships 3.3 million packages a day in 220 countries and territories.

Headquarters: Memphis

Employees: 250,000

CEO: Frederick Smith, founder, chairman and president

2004 revenue: $29.4 billion, up 19 percent from 2003.

2004 net income: $1.45 billion, up 73 percent from 2003.

Bay Area presence: Hub at Oakland International Airport was opened in 1987 and has 1,700 employees.

Plans: Expansion of Oakland hub and construction of $150 million Asia hub in Guangzhou, China, both to be completed in December 2008.

Outlook: Air freight in Asia expected to grow 8.5 percent a year through 2023. Air freight from China to the United States expected to grow 9.6 percent a year through 2025, just ahead of traffic to Europe, which is expected to grow 9.3 percent in same period..

Source: FedEx Corp.

E-mail David Armstrong at davidarmstrong@sfchronicle.com.