FedEx Express struggles for traction as the rest of the group grows


FedEx crept forward over the third quarter, with the latest numbers showing the Group’s revenue for the quarter up 9% to US$16.5bn but operating income effectively flat at $1bn with a slight deterioration in margins, down from 6.7% to 6.1%. 

At the core Express business, underlying revenue benefitted from higher rates and higher fuel surcharges, although FedEx describes the cyberattack on TNT in June as having a lingering affect. More disappointing was the low level of growth in volumes. For the quarter on a year-on-year basis, volumes were down 1% in total, with international and domestic US traffic falling slightly. In weight terms however, freight pounds increased by 3%. In addition, wages were higher as were ‘peak-related’ sub-contractors. The result was a fall of 24% in operating income to $424m.

FedEx Ground is more exposed to internet shopping and it shows in the volume numbers. Demand measured in terms of the number of packages moved increased by 6% which, aided by higher rates, resulted in an increase in revenue of 11%. Operating income was up 23% at $634m. However, it is noticeable that despite heavy investment in new capacity, FedEx is still affected by increased outsourcing costs at peak periods.

FedEx Freight benefitted from growth in the wider US economy, delivering a 14% increase in revenue year-on-year and a 34% jump in operating income to $55m for the quarter. This latter number represents a stiffening of margins from 2.7% to 3.2%, something which FedEx ascribes to better asset deployment. The only rising cost was higher wages for drivers.

The numbers for FedEx Ground and Freight are satisfactory, showing the company’s ability to benefit from both e-retailing and wider domestic demand in the US. The concern should be around FedEx Express. In a period that has seen a substantial increase in global trade amplified by e-retailing, why has it grown so slowly?

Source: Transport Intelligence, March 22, 2018

Author: Thomas Cullen

GSCi

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