FedEx Express Frees Up Capacity by Dumping Amazon

June 12, 2019


Despite representing less than 1.3% of its revenue, FedEx announced last week that it was not renewing its contract with Amazon. Citing its desire to “focus on serving the broader e-commerce market,” FedEx’s press release noted that “there is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026.”

Rumors of what really happened abound, and FedEx Express is struggling, not with volumes but financially. For the period ending February 28 (third quarter), revenue for the FedEx Express division slipped 1.1% but operating income increased 16.7%. The nice increase in operating income looks to have been achieved primarily by lowered expenses including purchased transportation, lowered fuel costs and lower salaries and employee benefits.

FedEx Express’ average daily volumes have remained positive for at least the last three quarters. For the third quarter, volumes increased 2.1% however, the yield declined 2.4% year-over-year.

Looking at the yield by service, the biggest decline was in U.S. Deferred, down 6% for the third quarter. Yield for this service declined 0.3% during the second quarter and was positive at 3.9% for FedEx’s first quarter, the period ending August 31 2018. In terms of volumes, however, the opposite occurred and volumes increased 4.5% during first quarter, 15.3% for the second quarter and 19.2% for the third quarter. This lower cost service option is appealing for e-commerce providers in particular, as they typically run on tight margins and need to keep costs down.

There’s no denying that FedEx Express needs to improve the yield for their deferred service. Their U.S. Overnight service yields are positive but these are more costly services and experienced volume declines during the third quarter.

Assuming Amazon utilized FedEx Express’ deferred service, its possible FedEx balked at any request from Amazon for a more preferential rate due to higher volumes it was providing FedEx. Then again, Amazon could have balked at any attempt of a FedEx Express rate increase.

UPS is facing a similar situation; higher volumes and lower yields. It’s a symptom of the overall express market which is seeing growing volumes and demand for faster delivery times and at the lowest cost possible from shippers. How it plays out remains to be seen. Options exist such as the use of the belly of passenger airlines as well as other modes of transport. Contact us to learn more.

Share this article:

Blog Posts

  • Categories

Tags

FedEx Express Frees Up Capacity by Dumping Amazon

June 12, 2019


Despite representing less than 1.3% of its revenue, FedEx announced last week that it was not renewing its contract with Amazon. Citing its desire to “focus on serving the broader e-commerce market,” FedEx’s press release noted that “there is significant demand and opportunity for growth in e-commerce which is expected to grow from 50 million to 100 million packages a day in the U.S. by 2026.”

Rumors of what really happened abound, and FedEx Express is struggling, not with volumes but financially. For the period ending February 28 (third quarter), revenue for the FedEx Express division slipped 1.1% but operating income increased 16.7%. The nice increase in operating income looks to have been achieved primarily by lowered expenses including purchased transportation, lowered fuel costs and lower salaries and employee benefits.

FedEx Express’ average daily volumes have remained positive for at least the last three quarters. For the third quarter, volumes increased 2.1% however, the yield declined 2.4% year-over-year.

Looking at the yield by service, the biggest decline was in U.S. Deferred, down 6% for the third quarter. Yield for this service declined 0.3% during the second quarter and was positive at 3.9% for FedEx’s first quarter, the period ending August 31 2018. In terms of volumes, however, the opposite occurred and volumes increased 4.5% during first quarter, 15.3% for the second quarter and 19.2% for the third quarter. This lower cost service option is appealing for e-commerce providers in particular, as they typically run on tight margins and need to keep costs down.

There’s no denying that FedEx Express needs to improve the yield for their deferred service. Their U.S. Overnight service yields are positive but these are more costly services and experienced volume declines during the third quarter.

Assuming Amazon utilized FedEx Express’ deferred service, its possible FedEx balked at any request from Amazon for a more preferential rate due to higher volumes it was providing FedEx. Then again, Amazon could have balked at any attempt of a FedEx Express rate increase.

UPS is facing a similar situation; higher volumes and lower yields. It’s a symptom of the overall express market which is seeing growing volumes and demand for faster delivery times and at the lowest cost possible from shippers. How it plays out remains to be seen. Options exist such as the use of the belly of passenger airlines as well as other modes of transport. Contact us to learn more.

Share this article:

Blog Posts

  • Categories

Tags