Earlier this week Memphis-based transportation and logistics bellwether FedEx released rate changes along various fronts, as well as its fiscal first quarter earnings release.
For the holiday season, FedEx said that 2019 will mark the third consecutive year it will not apply residential surcharges, with a few exceptions, including shipments that are oversized unauthorized, or require additional handling.
FedEx also announced rate hikes for its FedEx Express, FedEx Ground and FedEx Freight subsidiaries, which will go into effect on January 6, 2020, including:
And it noted that FedEx Express, FedEx Ground and FedEx Freight surcharge changes will also take place effective January 20, 2020, including:
applicable services, criteria and pricing for FedEx Express and FedEx Ground packages that require additional handling or are oversized will change;
there will be changes to applicable surcharges for FedEx Express and FedEx Ground fuel surcharge assessment; and applicable criteria for the FedEx Freight Capacity Load minimum charge will change. The list of Delivery Area Surcharge ZIP Codes for FedEx Express, FedEx Ground and FedEx SmartPost will also be changed effective January 6, 2020, and details of all changes to rates and surcharges are available at: http://fedex.com/rates2020.
An analysis from Matt Bohn, senior consultant, professional services, for San Diego-based parcel consultancy Shipware LLC explained that there is often a discrepancy between the announced general rate increase and the effect that the increase has on individual shippers.
“If you’re a shipper that routinely ships large packages, long-zone express, three-day express, or ships to remote areas, it is likely that you will be subject to an increase much larger than the stated 4.9%,” noted Bohn.
Bohn also pointed out that FedEx is continuing to emphasize penalizing large packages in its networks, especially in the form of additional handling, dimensions and weight and oversize to see large increases. For additional handling, Bohn said dimensions will increase 11.1% to $15, and additional handling weight will increase 20% to $25. And he also said that oversize packages are now broken out by service type with express and commercial ground packages to increase 11.1% to $100, and home delivery will head up 33.3% to $120.
FQ1 earnings release: FedEx also announced fiscal first quarter earnings this week. Total revenue, at $17.058 billion, was flat, and operating income, at $977 million, dipped 9%.
“Our performance continues to be negatively impacted by a weakening global macro environment driven by increasing trade tensions and policy uncertainty,” said Frederick W. Smith, FedEx Corp. chairman and chief executive officer, in a statement. “Despite these challenges, we are positioning FedEx to leverage future growth opportunities as we continue the integration of TNT Express, enhance FedEx Ground residential delivery capabilities and modernize the FedEx Express air fleet and hub operations.”
FedEx attributed the decline in its operating results mainly to weakening global economic conditions, increased costs to expand service offerings and continued mix shift to lower-yielding services. It also observed that the impact of one fewer operating day and the loss of business from a large customer [presumably Amazon] also negatively impacted results, while noting that these factors were partially offset by lower variable incentive compensation expenses, revenue growth at FedEx Ground and increased yields at FedEx Freight.
FedEx added it is lowering its fiscal 2020 forecast and is reducing its revenue outlook, due to “increased trade tensions and additional weakening of global economic conditions,” going back to its initial 2020 forecast it made in June.
Jerry Hempstead, president of Hempstead Consulting, said that this announcement was another in a recent series, in which FedEx announced either an earnings miss or lowered the forward looking earnings estimate.
“Despite, the declining expectation they are charging ahead with the expense of modernization of their aircraft fleet,” he observed. “I still believe that Memphis has not internalized the fact that when the Notpetya virus shut down the shipments in the TNT network that the customers switched to either UPS or DHL and have not been a hurry to switch back to the new FedEx/TNT combo because they had already gone through the pain of finding and switching to a new carrier and are gun-shy about leaving their new carrier. The question is ‘what’s in it for me by switching to TNT after getting burned?’”
The other factor in the earnings miss is the departure of Amazon from the FedEx customer base, he added.
“It’s always a problem for an integrator when a major customer defects because the network costs remain for the carrier but the revenue walks,” he said. “Replacing the lost revenue is always a difficult proposition. The folks in Memphis blame the trade dispute for much of their financial ills. We shall see later next month if this observation is observed at UPS. UPS may show more positive domestic numbers because of Amazon but the international numbers may show diminished annual growth because they will be measured against quarters when they were beneficiaries of the windfall TNT business lost by FedEx.”