FedEx: Capacity constraints present opportunity to pounce on forwarder volumes

Across all major trade lanes, bellyhold capacity remains suppressed as a result of the COVID-19 pandemic, and freighters now provide more than two-thirds of the available air cargo capacity. With an overwhelming share of freighter capacity controlled directly by express companies, “This is an opportunity to disintermediate traditional freight forwarders’ commercial relationships,” said Brie Carere, executive vice president, chief marketing and communications officer of FedEx, during an earnings call to discuss the company’s Q1 earnings for the period ended June 30. FedEx estimates that freighter capacity accounts for 66% of airfreight capacity on the trans-Atlantic lane, 83% on the trans-Pacific lane and 80% between Europe and Asia. Pre-COVID, the trans-Atlantic lane was dominated by capacities proffered by passenger carriers with freighters providing only 33% of the lane’s total air capacity. Pre-crisis, freighters handled 59% of trans-Pacific and 50% of Europe-to-Asia volumes, according to FedEx. Given the hiatus of bellyhold capacities across many lanes, FedEx is targeting volumes that may have previously been transported as forwarder consolidations on scheduled passenger flights. “We’ve experienced elevated demand, enabling both the expansion of existing customer relationships and the development of new customer relationships,” said Carere. Many freight forwarders did indeed declare force-majeure and tear up pre-existing contracts with many airlines. Passenger airlines have returned to the market significant capacity by operating more than 50,000 cargo-only flights since the onset of the pandemic, with many of those flights chartered by forwarders . Although global trade is expected to be negative compared to last year, profound changes in consumer behavior accelerated e-commerce growth in both FedEx’s home market and on cross-border lanes. Each of the company’s segments reported double-digit increases in operating income for the first quarter of fiscal 2021, led by Express, which saw operating income jump 149% YoY to $710 million. Total average daily package volume for international and domestic express packages increased by 5% to 6.2 million. Time-sensitive international priority package volumes were up 31% YoY for the quarter. “Europe’s demand continues to be driven by the growth of e-commerce,” said Carere. FedEx now expects e-commerce parcel volumes to hit 100 million packages per day in the United States by 2023, a milestone that had originally been forecast to occur in 2026. Average daily package volume transported by FedEx Ground increased 31% to 11.6 million. The unit’s operating income increased 30% to $834 million. While the company expects to “squeeze capacity” out of its existing network at various peak periods in the lead up to the holiday season, it is also implementing “several peak season surcharges,” said Carere. Air capacity management will follow a similar course. “With air capacity at a premium, we are positioning our assets toward our most profitable customers to enhance our revenue quality,” said Raj Subramaniam, president and COO of FedEx. FedEx reported overall net income of $1.25 billion in Q1, up 67% from $745 million the year prior on Q1 revenue up 13% YoY $19.3 billion.

FedEx: Capacity constraints present opportunity to pounce on forwarder volumes

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