Consultant’s Insight: FedEx Express disappoints again

Market conditions impacted FedEx ’s latest earnings for the period ending Nov. 30. Total revenue declined 2.6% year over year to $22.2 billion while reported operating income increased 8.5% YoY to $1.28 billion and adjusted operating income increased 17.4% YoY to $1.42 billion. [caption id="attachment_76185" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo Next columnist[/caption] “FedEx has delivered an unprecedented two consecutive quarters of operating income growth and margin expansion even with lower revenue, clear evidence of the progress we are making on our transformation as we navigate an uncertain demand environment,” FedEx President and Chief Executive Raj Subramaniam said in a Dec. 19 statement. But the problem child continues to be Express. Express r evenue for the quarter declined 5.6% YoY to $10.25 billion, while operating income came in considerably lower at $137 million compared to $341 million in the same period last year — a drop of 59.8% YoY. The division is facing headwinds on all fronts. U.S. average daily volumes declined 3.5% due to lower volumes from the U.S. Postal Service and “softer market conditions” while a slowdown of industrial production worldwide has impacted FedEx’s international shipping business, according to Subramaniam. In addition, “the demand surcharges out of Asia are significantly lower year over year. We’ve also seen the product mix-shift from priority to economy traffic,” Subramaniam told analysts Dec. 19. Indeed, export average daily volumes are up 2.4% YoY, but the increase is in FedEx’s lower cost service, International Economy, up 30.9% compared to an 8.6% decline in International Priority. Color-coded air network In a nod toward the shift in parcel characteristics and its ongoing cost cuts, FedEx introduced its Tricolor strategy. “With the rapid growth of e-commerce and as volume mix continues to shift to deferred, we recognize the need to reconfigure our network to focus on both speed and density,” Subramaniam said. “This fundamental network redesign, called Tricolor design, is momentous in our history and includes several key elements.” These colorful elements are: FedEx’s Purple Tail fleet, its owned assets, will be the backbone of its International Priority service. Using the existing hub-and-spoke model, it will be used for high-priority, high-margin volumes. The Orange Network will mainly be for deferred packages, operating off-cycle, and will give FedEx time to build density and feed into its surface networks. This network “will provide us a differentiated capability to drive profitable, less capital-intensive growth in the sizable global deferred parcel and airfreight markets,” Subramaniam said. The White Network will be FedEx’s third-party service partners, which will be used on imbalanced trade lanes. Peak season update The holiday peak season has been relatively similar to last year’s and is in line with the company’s expectations, according to Chief Customer Officer Brie Carere . “This holiday season, we estimate over 365 million packages will be delivered with a picture showing proof of delivery,” Carere told analysts Dec. 19. In addition, FedEx is benefiting from additional volumes won from the closure of less-than-truckload provider Yellow and packages diverted from UPS when the competitor was negotiating a new contract with the International Brotherhood of Teamsters . “We are tracking all accounts we won, specifically because of their concerns on the labor negotiations. The vast majority of those had an early termination clause. And to my knowledge, we have not lost a single one of those accounts,” Carere said. “Now, of course, we do trade accounts with UPS, and we have accounted for the trades between the two of us over the last quarter, and we’re still up more than 400,000 average daily packages in the U.S.” While Ground and Freight volume gains are a bright point, FedEx’s largest division, Express, remains a concern as 2024 approaches. Besides cost-cutting and other network changes related to its DRIVE initiative, an effort to trim expenses by improving operational efficiency: FedEx pilots remain without a contract ; Mechanics and related classifications at FedEx Express announced today that they have launched an organizing drive to join the Teamsters; and FedEx Express’ contract with its largest customer, the U.S. Postal Service, is up for renewal in September 2024.

Consultant’s Insight: FedEx Express disappoints again

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