An Awesome Quarter for FedEx While Shippers Feel the Burn

September 18, 2020


FedEx’s fiscal first quarter earnings for the period ending August 31 stunned the market. FedEx posted $19.3 billion in revenue up from $17 billion the same quarter the year before. Net income was an adjusted $1.28 billion, up 60% from fiscal 2020’s first quarter. But it was all about the Ground division as it posted a 31% increase in average daily volumes and a 2% increase in revenue per package to $9.33 during the quarter.

It’s All About E-Commerce

As noted on FedEx’s earnings call, before COVID FedEx projected that the U.S. domestic market would hit 100 million packages per day by calendar year 2026. Now, however, the company projects that the U.S. domestic parcel market will hit this mark by calendar year 2023, pulling volume projections forward by three years from the previous expectation.

Indeed, Raj Subramaniam, President and COO of FedEx, emphasized the initiatives that FedEx has undertaken over the past couple of years to address the growth of e-commerce including:

  • Expanding U.S. Ground residential delivery to every day of the week
  • Integrating smart post package volume into the Ground network
  • Investing in technologies that enable real-time decisions
  • Accelerating the expansion of retail convenience networks with Dollar General, Walgreens, and FedEx office locations

Surcharges Benefit Bottom Line

In June, FedEx implemented temporary peak season surcharges on Residential Deliveries, SmartPost packages and Oversize delivery. These surcharges are still in effect and will be supplanted by holiday peak season surcharges beginning in October and lasting through mid-January.

According to Brie Carere, Executive Vice President, Chief Marketing and Communications Officer of FedEx, surcharges are “an important part of our revenue quality… We are rewarding customers that can integrate their supply chain that are open to longer term contracts…and we are having kind of a balanced conversation between base yields, surcharges and capacity management.”

For many shippers, the holiday season will be an expensive one. Carere stressed that FedEx remains focused on revenue quality.  Additionally, she said that the holiday season peak surcharges will be implemented to cover the company’s increased cost of delivering shipments and those customers who are consuming the largest proportion of capacity in the FedEx network are charged accordingly.

2021: Higher Shipping Costs Continue

Shipping cost pains will continue in 2021. FedEx announced their annual average rate increase of 4.9% a day before their earnings announcement. It should be noted that FedEx has announced an annual average rate increase of 4.9% since 2014. It’s the increase in surcharges where shippers feel the pain.

For example, year-over-year and 3-year increases for some of the more popular surcharges:

  • Residential Surcharge for Home Delivery: 8.7% YoY and 20.83% increase in 3 years
  • Delivery Area Surcharge – Extended – Ground- Commercial: 7.25% You and 45.1% increase in 3 years
  • Additional Handling – Weight: 6.25% YoY increase and 112.5% increase in 3 years

There are plenty more surcharges that are increasing beginning Jan 4, 2021 including one for Address Correction. It’s increasing 5.88% YoY and has increased 20% in 3 years. In our opinion, there is no reason for FedEx, or UPS for that matter, to continue with this surcharge.

Besides the usual surcharges, FedEx is also introducing a 6% late fee to U.S. FedEx Express and FedEx Ground customers who don’t pay their invoice within their agreed upon payment terms. There will also be changes to how Additional Handling and the Fuel Surcharge are assessed for FedEx Express and FedEx Ground packages. In addition, FedEx Freight will penalize shippers living in large cities such as New York and Chicago with its High Cost Service Area Surcharge.

Our CEO John Haber add his thoughts in the latest episode of HABERGISTICS.


Episode 13:
FedEx Announcement

We can help

Do you need some help understanding what all the increases mean to your bottom line? Give us a ring or contact us at 404-902-5390.


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

 

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An Awesome Quarter for FedEx While Shippers Feel the Burn

September 18, 2020


FedEx’s fiscal first quarter earnings for the period ending August 31 stunned the market. FedEx posted $19.3 billion in revenue up from $17 billion the same quarter the year before. Net income was an adjusted $1.28 billion, up 60% from fiscal 2020’s first quarter. But it was all about the Ground division as it posted a 31% increase in average daily volumes and a 2% increase in revenue per package to $9.33 during the quarter.

It’s All About E-Commerce

As noted on FedEx’s earnings call, before COVID FedEx projected that the U.S. domestic market would hit 100 million packages per day by calendar year 2026. Now, however, the company projects that the U.S. domestic parcel market will hit this mark by calendar year 2023, pulling volume projections forward by three years from the previous expectation. Indeed, Raj Subramaniam, President and COO of FedEx, emphasized the initiatives that FedEx has undertaken over the past couple of years to address the growth of e-commerce including:
  • Expanding U.S. Ground residential delivery to every day of the week
  • Integrating smart post package volume into the Ground network
  • Investing in technologies that enable real-time decisions
  • Accelerating the expansion of retail convenience networks with Dollar General, Walgreens, and FedEx office locations

Surcharges Benefit Bottom Line

In June, FedEx implemented temporary peak season surcharges on Residential Deliveries, SmartPost packages and Oversize delivery. These surcharges are still in effect and will be supplanted by holiday peak season surcharges beginning in October and lasting through mid-January. According to Brie Carere, Executive Vice President, Chief Marketing and Communications Officer of FedEx, surcharges are “an important part of our revenue quality… We are rewarding customers that can integrate their supply chain that are open to longer term contracts…and we are having kind of a balanced conversation between base yields, surcharges and capacity management.” For many shippers, the holiday season will be an expensive one. Carere stressed that FedEx remains focused on revenue quality.  Additionally, she said that the holiday season peak surcharges will be implemented to cover the company’s increased cost of delivering shipments and those customers who are consuming the largest proportion of capacity in the FedEx network are charged accordingly.

2021: Higher Shipping Costs Continue

Shipping cost pains will continue in 2021. FedEx announced their annual average rate increase of 4.9% a day before their earnings announcement. It should be noted that FedEx has announced an annual average rate increase of 4.9% since 2014. It’s the increase in surcharges where shippers feel the pain. For example, year-over-year and 3-year increases for some of the more popular surcharges:
  • Residential Surcharge for Home Delivery: 8.7% YoY and 20.83% increase in 3 years
  • Delivery Area Surcharge – Extended – Ground- Commercial: 7.25% You and 45.1% increase in 3 years
  • Additional Handling – Weight: 6.25% YoY increase and 112.5% increase in 3 years
There are plenty more surcharges that are increasing beginning Jan 4, 2021 including one for Address Correction. It’s increasing 5.88% YoY and has increased 20% in 3 years. In our opinion, there is no reason for FedEx, or UPS for that matter, to continue with this surcharge. Besides the usual surcharges, FedEx is also introducing a 6% late fee to U.S. FedEx Express and FedEx Ground customers who don’t pay their invoice within their agreed upon payment terms. There will also be changes to how Additional Handling and the Fuel Surcharge are assessed for FedEx Express and FedEx Ground packages. In addition, FedEx Freight will penalize shippers living in large cities such as New York and Chicago with its High Cost Service Area Surcharge. Our CEO John Haber add his thoughts in the latest episode of HABERGISTICS.
Episode 13: FedEx Announcement

We can help

Do you need some help understanding what all the increases mean to your bottom line? Give us a ring or contact us at 404-902-5390.

ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts provides strategic guidance to optimize your supply chain. Using cost modeling technology and market intelligence, we help companies with their transportation, distribution and fulfillment spend. Often large shippers can reduce their spend across the supply chain by 20% or more. We specialize in reducing distribution costs, increasing efficiencies, dynamic reporting, greater budgeting and forecasting accuracy and optimizing supply chain execution. We leverage our proprietary models to identify savings and build negotiation strategies based on data and business cases. As industry experts, our fresh approach provides clients with straightforward details on exactly how savings are derived. Spend Management Experts is your competitive edge, delivered. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.  

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