Another Record Quarter as FedEx Bears Down on Profitable Growth

June 25, 2021


Once again, FedEx reaped the benefits of e-commerce growth and improving business-to-business (B2B) demand as it reported a record quarter for the period ending May 31. Total revenue for the quarter increased 30% to $22.5 billion. By division, Express revenue increased 32% to $11.2 billion, Ground revenue increased 27% to $8.1 billion, and Freight revenue increased 38% to $2.2 billion.

However, in terms of operating income, Ground led the way for the quarter. Increasing by 64%, Ground's operating income represented the largest portion of the company's total operating income at $1.1 billion. In addition, Express's operating income increased 118% to $73.7 million while Freight operating income increased 173% to $360 million.

Ground continues to impress investors. Average daily volumes increased 9%, while revenue per package increased 14.4% for the quarter.

It was further noted that FedEx Freight provided 70 million linehaul miles and delivered 1.75 million packages for Ground during the fiscal year 2021 (June 1, 2020 – May 31, 2021). Indeed, the collaboration between the three divisions is growing to improve delivery efficiencies.

FedEx's seven-day operations are currently considered a competitive advantage of FedEx over its main competitor, UPS. Saturday coverage reaches 98% of the US population, while Sunday coverage reaches 95%. Packages delivered on Sundays during the quarter increased 56% from the same quarter last year.

Despite the seven-day delivery service, FedEx is struggling with capacity and labor. "We are facing challenges with labor availability, which have contributed to recent service levels…The inability to hire team members, particularly package handlers, has driven wage rates higher and creates inefficiency in our networks as we use overtime to cover open shifts and route volume around known constraints", Rajesh Subramaniam, FedEx President and Chief Operating Officer, told investors. "As such, we're taking bold actions across the business to address service issues and prepare for sustained volume increases, including continued investments in people, capacity, and technology to optimize our networks."

Subramaniam also noted that the company is increasing its capacity. "This summer, we are intently focused on improving network and delivery operations before the volume surge in the fall."

Sixteen new automated facilities and the implementation of nearly 100 expansion projects at existing operations and technological enhancements are expected to be completed before the holiday season.

The additional capacity will be a welcome benefit to shippers, particularly as FedEx expects another "shipathon" this holiday season.

Density improvements within FedEx's Ground division continue to also contribute to the group's profitability. Like UPS, FedEx is enhancing its route optimization technology which helped increase the average number of stops the service providers made per hour by 3.6% year-over-year. In addition, along with the revised service provider e-commerce rate structure, these efficiencies contributed to a 3% reduction in cost per stop compared to the same quarter last year. Further collaboration to improve efficiency continued across the divisions is also contributing as FedEx expands its last-mile optimization program.

Residential volumes are expected to grow faster than commercial volumes. However, FedEx will continue to utilize surcharges and prioritize capacity for commercial and small, and medium customer segments.

"We will continue to confidently renegotiate our large customer segment contracts to increase profitability. This means balancing product, day of the week, and lane mix at the customer level, while ensuring appropriate surcharges and rate increases cover rising labor costs," Brie Carere, FedEx Chief Marketing, and Communications Officer told investors. "Almost half of our total large segment volume had pricing agreement implementations in the past 12 months, leaving upside for the fiscal year 2022."

Glimmers of capacity availability ahead of the holiday season emerged from FedEx's earnings announcement yesterday. However, shippers will undoubtedly pay the cost.

 


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing and service for our clients. We deliver your competitive edge.

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

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Another Record Quarter as FedEx Bears Down on Profitable Growth

June 25, 2021


Once again, FedEx reaped the benefits of e-commerce growth and improving business-to-business (B2B) demand as it reported a record quarter for the period ending May 31. Total revenue for the quarter increased 30% to $22.5 billion. By division, Express revenue increased 32% to $11.2 billion, Ground revenue increased 27% to $8.1 billion, and Freight revenue increased 38% to $2.2 billion. However, in terms of operating income, Ground led the way for the quarter. Increasing by 64%, Ground's operating income represented the largest portion of the company's total operating income at $1.1 billion. In addition, Express's operating income increased 118% to $73.7 million while Freight operating income increased 173% to $360 million. Ground continues to impress investors. Average daily volumes increased 9%, while revenue per package increased 14.4% for the quarter. It was further noted that FedEx Freight provided 70 million linehaul miles and delivered 1.75 million packages for Ground during the fiscal year 2021 (June 1, 2020 – May 31, 2021). Indeed, the collaboration between the three divisions is growing to improve delivery efficiencies. FedEx's seven-day operations are currently considered a competitive advantage of FedEx over its main competitor, UPS. Saturday coverage reaches 98% of the US population, while Sunday coverage reaches 95%. Packages delivered on Sundays during the quarter increased 56% from the same quarter last year. Despite the seven-day delivery service, FedEx is struggling with capacity and labor. "We are facing challenges with labor availability, which have contributed to recent service levels…The inability to hire team members, particularly package handlers, has driven wage rates higher and creates inefficiency in our networks as we use overtime to cover open shifts and route volume around known constraints", Rajesh Subramaniam, FedEx President and Chief Operating Officer, told investors. "As such, we're taking bold actions across the business to address service issues and prepare for sustained volume increases, including continued investments in people, capacity, and technology to optimize our networks." Subramaniam also noted that the company is increasing its capacity. "This summer, we are intently focused on improving network and delivery operations before the volume surge in the fall." Sixteen new automated facilities and the implementation of nearly 100 expansion projects at existing operations and technological enhancements are expected to be completed before the holiday season. The additional capacity will be a welcome benefit to shippers, particularly as FedEx expects another "shipathon" this holiday season. Density improvements within FedEx's Ground division continue to also contribute to the group's profitability. Like UPS, FedEx is enhancing its route optimization technology which helped increase the average number of stops the service providers made per hour by 3.6% year-over-year. In addition, along with the revised service provider e-commerce rate structure, these efficiencies contributed to a 3% reduction in cost per stop compared to the same quarter last year. Further collaboration to improve efficiency continued across the divisions is also contributing as FedEx expands its last-mile optimization program. Residential volumes are expected to grow faster than commercial volumes. However, FedEx will continue to utilize surcharges and prioritize capacity for commercial and small, and medium customer segments. "We will continue to confidently renegotiate our large customer segment contracts to increase profitability. This means balancing product, day of the week, and lane mix at the customer level, while ensuring appropriate surcharges and rate increases cover rising labor costs," Brie Carere, FedEx Chief Marketing, and Communications Officer told investors. "Almost half of our total large segment volume had pricing agreement implementations in the past 12 months, leaving upside for the fiscal year 2022." Glimmers of capacity availability ahead of the holiday season emerged from FedEx's earnings announcement yesterday. However, shippers will undoubtedly pay the cost.  


ABOUT SPEND MANAGEMENT EXPERTS Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing and service for our clients. We deliver your competitive edge. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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