FedEx Q3 Revenue Strong Thanks to Higher Rates and Surcharges
Overall, FedEx had a good fiscal third quarter (ending February 28), noting that December 2021 was its most profitable December in its history.
Total revenue was up 10% year-over-year while the operating margin (as reported) was 5.6% versus 4.7% same period last year or 6.2% versus 4.9% same period the previous year, adjusted.
The company is primarily benefiting from higher rates and surcharges versus higher volumes.
From June 1 to February 28, average daily volumes for FedEx Express are down 5.9% year-over-year, while FedEx Ground's average daily volumes are up only 1.2% year-over-year.
FedEx Chief Marketing and Communications Officer Brie Carere noted on the company's analyst call, "We executed on our peak pricing strategy in the month of December, delivering more than $250 million in peak surcharge revenue."
It seems FedEx is embracing UPS' strategy of 'Better, not Bigger' strategy focusing on profit versus volume but with a twist.
Typically neither FedEx nor UPS discuss the parcel competition in great detail, and both usually decline to answer questions specifically targeted at each other.
However, Carere opened the door and briefly talked to analysts about how FedEx is taking market share away from their 'primary competitor.'
"When we compare ourselves to our primary competitor, we still have share upside in both B2B and e-commerce," Carere said.
Carere continued, "We're doing some things very differently. We are acquiring them directly. What do I mean? We're not going en masse through platforms. We're being very selective with the platform partners we are choosing because we want to have that direct relationship with the small customer. We have a fantastic loyalty program that no one else in the market has. We are strategically using earned discounts to bundle our parcel in our LTL portfolio, which of course, our primary competitor can no longer do."
UPS sold UPS Freight, its' LTL subsidiary, to TFI International last year.
"The agreement allows UPS to be even more laser-focused on the core parts of our business that drive the greatest value for our customers," UPS CEO Carol Tomé said in the press release.
Whether or not that was the right decision for UPS remains to be seen, but FedEx is working to connect its dots (networks) as best it can gain traction and market share from UPS and others.
This connection is important. UPS has a single network, a benefit particularly in today’s environment, whereas FedEx operates three distinct networks for Freight, Ground, and Express - expensive to maintain and expensive to integrate.
"Our expanded collaboration across operating companies will utilize our air and ground networks smarter and more calculated," FedEx COO Raj Subramaniam told analysts.
Examples Subramaniam provided included FedEx Freight trucks traveling more than seven million miles while operating on behalf of FedEx Ground this fiscal year. FedEx Freight provided FedEx Ground with intermodal containers, dispatched more than 36,000 times. "We'll continue to comprehensively look at all our assets and our network to put the right package in the right network and the right cost to serve," Subramaniam said.
Connecting the dots includes technology/ automation solutions, and the company executives highlighted a few:
Enhanced sortation technology will increase upstream efficiencies, enabling managers to balance better and planned sortation operations, increasing the available capacity.
Modernizing the planning and staffing of dock operations and the systems, training, and technology that maximizes the productivity of every sort.
Enhancing the tracking service based on advanced machine learning and an artificial intelligence model developed by FedEx DataWorks. The service delivers better-estimated delivery date accuracy, including early or delayed shipments updates through all tracking channels.
The rollout of FedEx Ship Manager, an online shipping application, has been to more than 153 countries. In January, it was introduced to customers in the US and Canada. FedEx Ship Manager is the primary shipping application for FedEx's small and medium customer segment.
FedEx maintained its profit outlook for the fiscal year and cut its capital spending plans by $200 million to $7 billion for the full year.
Look for thoughts on FedEx Express/International in my Air Cargo World column later today.
-Cathy
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