FedEx is to unveil a significant reorganisation of its international express operations next monthin response to a shift in demand from international priority to deferred services that is driving
down yields and margins.Reporting its first-quarter results today, FedEx said it had seen a 2 per cent decline ininternational priority (IP) express parcel volumes, but a 13 per cent increase in deferred ‘international economy’ (IE) volumes in the three months to 31 August. FedEx international exportaverage daily package volumes overall grew by 1 per cent, driven by increases in FedEx IE volumesfrom Europe and Asia.
International export revenue per package fell 4 per cent due to the unfavorable impact ofexchange rate changes and lower fuel surcharges. International priority ‘freight pounds’ increased2 per cent, while ‘revenue per pound’ decreased 4 per cent due to the unfavorable impact ofexchange rate changes and lower fuel surcharges.
Chairman, president and CEO Fred Smith told investment analysts and journalists that FedExand other door-to-door international express operators had continued to take market share fromtraditional air freight, which had seen an overall drop in volumes, including due to modal shift tosea freight. While he was pleased to capture the increased market share, there was a need to adjustthe network to take account of the lower demand for higher-yield IP services.
“We intend to take out a significant amount of cost from the international express system,”said Smith. “The issue is the line-haul portion, because it costs the same amount to put up thecapacity if we are flying it IP or IE. We are not going to do anything drastic, but I think youwill be surprised by the magnitude.”
He said details would be revealed to analysts in early October, but added: “You will seeFedEx being cautious about putting on any incremental capacity; it will be about putting trafficinto the right network.”
The lower demand for priority services at FedEx Express more than offset improved FedExFreight results and continued strong performance at FedEx Ground. Group revenue was up 3 per centto US$10.79 billion, with operating income up 1 per cent to $742 million. Operating margin of 6.9per cent was down from 7.0 per cent the previous year, with net income of $459 million, down 1 percent from last year’s $464 million.
Speaking about overall first-quarter group results, Smith said: “Weakness in the globaleconomy constrained revenue growth at FedEx Express during our first quarter and affected ourearnings. Meanwhile, our FedEx Ground and FedEx Freight segments performed well, with bothimproving their year-over- year operating margins. We are taking further actions to reduce costsand adjust our networks to match current and anticipated shipment volumes.”
