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Supply Chain Industry Updates

Something We’d All Like: ‘Pretty Damn Good’ Quarterly Performance

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  • FedEx announced strong earnings performance for the quarter just ended.
  • E-commerce drove the growth.
  • However, FedEx is not releasing an earnings estimate for the fiscal year because, well, this is 2020.

To the surprise of exactly no one, FedEx announced strong quarterly earnings boosted by the boom in e-commerce this year.

The Memphis-based company said earnings in the quarter just ended were $19.3 billion, compared to $17 billion for the same quarter in 2019. Net income for the quarter was $1.25 billion, up just a tad from $745 million the previous year.

Brie Carere, EVP and chief marketing and communications officer, told media and analysts this week that FedEx benefited from two history-making trends. One was the “dramatic reduction of air cargo capacity as a result of the significant loss of commercial airline capacity” in 2020. This is where having your own fleet of around 680 planes comes in handy.

“FedEx Express is incredibly well positioned to benefit from a constrained air capacity market.” Carere understated. “We’ve experienced elevated demand, enabling both the expansion of existing customer relationships and the development of new customer relationships.” 

A second trend — the acceleration of e-commerce — had an even more profound affect on the company. “Pre-COVID, we projected that the U.S. domestic market would hit 100 million packages per day by calendar year 2026,” she noted. “We now project that the U.S. domestic parcel market will hit this mark by calendar year 2023, pulling volume projections forward by 3 years from the previous expectations. E-commerce fueled substantially by this pandemic is driving the extraordinary growth. In fact, 96% of the U.S. growth is expected to come from e-commerce.”

“We are collaborating with our largest e-commerce customers to leverage capacity and to develop creative solutions to smooth out demand spikes during the peak season.”

Carere noted FedEx was implementing peak surcharges to help cover the demands on its service. “These peak surcharges will help us manage increased demand, while maintaining strong levels of service for our entire base of customers,” she explained. “We are collaborating with our largest e-commerce customers to leverage capacity and to develop creative solutions to smooth out demand spikes during the peak season.” (As a side note, recently announced rate hikes by FedEx and other major parcel carriers has created an opening for some competitors.)

Henry J. Maier,  president and CEO of FedEx Ground, noted his division experienced its highest quarterly revenue and operating income quarter in its history. In addition to the e-commerce boom, Maier credited his company’s adoption of “world-class technology. We’re about a week away from having completely rolled out our advanced route optimization software to all the drivers. I should point out to you that this was developed using safe, agile methods and was rolled out across our network in the middle of a 100-year pandemic in 13 months. That’s pretty damn good if you ask me.”

Expecting the good times to continue at least into the new quarter, FedEx earlier this month announced it would hire an additional 70,000 people to see it through the upcoming holiday season. However, the company said it is not releasing a fiscal year estimate. “While business demand improved in the first quarter, continued uncertainties cloud our ability to forecast full-year earnings,” explained Alan B. Graf, Jr., retiring FedEx Corp. EVP and CFO, in a statement released this week. “However, we expect to continue to benefit from our strong position in the U.S. and international package and freight markets, yield improvement opportunities and cost management initiatives.”

A full transcript of this week’s FedEx earnings call can be found here.

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