Wednesday, April 17, 2013

'Purple' in the Red?

Bumpy landing for FedEx air freight business causes company's profits to nosedive.

Actually, Purple (FedEx Corporation) is still in the black, but with less green being generated, they're definitely not in the pink - unlike Brown (UPS), which announced record profits in January.

In March, FedEx announced that profits had slumped by 31 percent for the latest quarter. They cut their earnings outlook for the year, and are cutting flight capacity between the U.S. and Asia. FedEx stock took a cut too, dropping 6.9 percent in a day, falling to under $100 on the NYSE.

Ironically, revenue for the quarter actually rose 11 percent. The drop in profitability reflects a substantial shift in customers' shipping choices, with fewer businesses and consumers willing to pay the premium for swift - and profitable, to FedEx - overnight or two-day express shipping.

FedEx has mirrored UPS - surprise, surprise - in moving aggressively into LTL and other ground shipping. FedEx has grown their ground business at the expense of Brown for years, increasing from seven to 30 percent market share, but still lagging behind Brown. Only 30 percent of Purple's business is now priority overnight shipping, an all-time low, accounting for the falling profits.

FedEx, which operates the world's largest cargo airline with (cross yourself) 666 planes flying to 375 airports worldwide, along with 90,000 trucks, expects to ground and perhaps sell some of its older equipment, including 727s and MD-10s.

FedeEx is generally considered a leading indicator for business trends, and the shift away from air express to less costly but slower modes of transport could have broad implications for shippers. While it is not likely that product managers and housewives have suddenly developed Zen-like patience in waiting for deliveries, they are increasingly unwilling to pay the premium for overnight service.

Which could lead to a new slogan for FedEx: "When it absolutely, positively has to be there - oh, next week sometime."

Kirk Shearer
800-989-0054 x103

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