FedEx Express will downsize its capacity flying to and from Asia from next month, and “aggressively” rethink its deferred shipping process, in an effort to boost its profitability.
The company revealed that it is stepping up its efficiency drive as it continues to struggle with international express customers opting to use less expensive, less profitable services.
A general weakness in the international air freight markets has compounded problems in the Memphis-based integrator’s latest financial results, which came in below expectations for the third quarter.
Figures issued today showed that FedEx Corp revenue grew 4% to $11bn for the quarter ended 28th February. Operating income fell 28% year-on-year to $589m, while net income dropped 31% to $361m for the quarter.
FedEx saw its margins coming under pressure thanks to the shift of customers towards less profitable economy services, with operating margins falling more than two percentage points to 5.4%.
International revenues came in $100m below expectations during the quarter, FedEx said.
Frederick W Smith, the Fedex Corp chairman, president and CEO, said the third quarter had been “very challenging”.
He said: “In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks. We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track.”
FedEx Express revenues were up 2% compared to the same quarter last year thanks to acquisitions, to $6.7bn, but operating income slumped by 66% year-on-year to $118m as express margins were squeezed from 5.3% down to 1.8%.
FedEx saw 12% year-on-year volume growth in its cheaper FedEx International Economy service, while the premium FedEx International Priority volumes grew only 2%. The shift to economy saw revenue per package down 3%.
Fedex has already been in the process of adjusting its air fleet and downsizing its workforce at the FedEx Express and FedEx Services divisions, with a staff buyout programme currently projected to cost between $450m and $550m this year.
Thousands more staff were alerted to their eligibility for the voluntary buyouts last month as FedEx Express chases a $1.6bn improvement in its profitability by 2016.
Alan B Graf Jr, the FedEx Corp executive vice president and CFO, said the company expected the trend towards international economy products to continue.
“We have other actions under way beyond those already included in our profit improvement programme,” he said, adding that the grounding of additional aircraft was one of the additional options to respond to overcapacity, but this action might also lead to additional impairment costs.
Ground and Freight
In the rest of FedEx, the company’s Ground unit benefited from e-commerce growth with revenues up 11% to $2.75bn as daily volume grew 10%.
The lightweight nature of e-commerce parcels meant revenue per package increased only 1%, largely thanks to a rate increase and higher residential surcharges.
FedEx SmartPost, the e-commerce service run with the US Postal Service providing last mile delivery, saw its revenues increase 26% in the quarter, though revenue per package slipped 1% because of higher postage rates.
Within the FedEx Freight unit, revenues were stable on $1.24bn and operations remained in the black, with operating income improving to $4m from $1m a year ago, as margins sneaked up a fraction to 0.3%.
Less-than-truckload average daily shipment volumes increased 1%, but yield increased only 2% with customers seeking the FedEx Freight Economy service.
Source: Post&Parcel/FedEx Corp