FedEx profits soar as e-commerce volumes take off

FedEx saw fiscal second-quarter revenues and profits improve as e-commerce growth fueled record volumes.

The express giant, which operates 680 aircraft, employs 600,000 people and has 200,000 vehicles, saw fiscal second-quarter revenues increase by 19% year on year to $20.6bn, operating income was up by 165% on a year earlier to $1.5bn and net income grew by 119.6% to $1.2bn.

Operating results for the period — ending November 30 — increased due to e-commerce fueled volume growth in FedEx International Priority and US domestic residential package services and pricing increases, based on peak surcharges, across all transportation segments.

This was partially offset by costs to support strong demand and to expand services, variable compensation expense, and Covid-19-related costs.

Its ground business handled an average of 12.3m packages per day during the quarter compared with 9.6m a year ago.

Its international priority freight service saw volumes grow by 19%.

FedEx president and chief operating officer of FedEx Corp Raj Subramaniam said: “We are in the midst of an extraordinary peak season  as we handle record-breaking volumes and deliver strong service for our customers.

“While our regular peak season falls in November and December, our preparations were months in the making this year.

“In many ways, we have been operating at peak like levels since March due to service and e-commerce volume.

“We planned meticulously throughout this year, including collaborating with our customers on innovative solutions, enhancing capacity through new and repurpose facilities and leveraging the flexibility of our network to ensure we are well-positioned to deliver during our busiest holiday shipping season to date.”

FedEx said that in the first nine months of 2020, US e-commerce sales grew 33% year on year while traditional retail sales excluding auto, gas, food service and goods services grew a little more than 1%.

E-commerce package volumes are expected to more than triple to 111m packages per day by 2026, up from 35m in 2019.

In order to meet the increased demand, the company made several investments, such as expanding delivery to seven days a week, which had an impact of margins at its US Ground division.

On the air cargo market, FedEx said that as of October, the global air cargo market capacity was down 23% year on year due to the significant reduction in passenger aircraft flying. Air cargo demand is expected to recover to pre-Covid levels faster than passenger capacity for key intercontinental lanes, creating an opportunity for FedEx.

Chief marketing and communications officer Brie Carere said: “Currently Asia to US and Asia to Europe passenger capacity is expected to recover to pre-Covid levels by 2023 and Europe to US is expected to recover by 2024.

“Our goal is to profitably take market share and keep it beyond the capacity shortage internationally. As such, we are prioritising business from small and medium customers, and reprioritising any volume from resellers, ensuring we protect the business that will stay with FedEx for the long term.

“We are balancing near-term profitability while strategically growing our customer base internationally.

“And with constrained capacity, we have adjusted transit times and embargoed our deferred services. We will continue to lean into international e-commerce as it remains a significant international market opportunity.

“It will also enable improved flight density to further increase revenue per flight. E-commerce will, however, drive lighter international parcels. So, yields per pound will become an increasingly important metric.”