FEDEX Downshifts
08-03-2008, 11:15 AM
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FEDEX Downshifts
FedEx Downshifts
Punishing fuel costs and a shaky economy is forcing
FedEx Express to reexamine its business model
http://www.aircargoworld.com/regions/northam_0808.htm
hile harboring hopes the U.S. economy will turn around and fuel prices will start to level off, FedEx is positioning itself for what company officials say is an altered industry landscape.
Frederick W. Smith, FedEx chairman, president and chief executive officer, said in the wake of the company's first quarterly loss in several years that FedEx is rethinking its foundation express operations and even the way it gears up for international traffic.
"FedEx Express has not bought a unit of capacity for the domestic express business in years and years and years," Smith told investment analysts in a conference call on the company's earnings.
Instead, Smith said, the world's largest air express operator is looking at a new era of air shipping that includes still lighter reliance on aircraft for shorter hauls and a focus on fitting the domestic network into a global supply chain.
That is where increasingly savvy customers, he said, are cutting back on premium services and streamlining.
"The network in the United States has been expanded basically to move inland international traffic," Smith said. "Increasingly in the international market the movement of goods by air will be in smaller lots and door-to-door express movements rather than in the large consolidations that marked the industry structure several years ago."
FedEx has benefited from the broad industry trends in recent years, gaining express parcel business as shippers have broken down larger consignments and taking on ground package and trucking volume in its growing surface divisions as cost-conscious shippers have traded down in mode.
But domestic express volume has been flat at best in recent years and now Smith acknowledges that the ideal target for air express is the international shipper rather than the domestic business.
"We've built a network of regional (operations) and what those regional operations allow us to increasingly do is to fly across the oceans and then drive on the other side," said Smith. "We have not been adding capacity for the domestic express market for many years."
Atypical Losses
There was plenty of evidence of the shift in a financial report that saw FedEx's profit for the full fiscal year cut just about in half and a charge-laden loss in the fourth quarter.
FedEx reported a net loss of $241 million for the three months ending May 31 compared with a profit of $610 million for the last quarter of fiscal 2007. It was the carrier's first quarterly loss in more than a decade and included an $891 million charge for the restructuring FedEx Kinko's business.
The company also reported an operating loss of $163 million that included sharp turns downward in all its business segments.
For the full fiscal year, the $1.13 billon net profit was down 44 percent drop from $2.2 billion the year before. Revenue rose from $35.2 billion in fiscal 2007 to $38 billion in fiscal 2008.
The core express business was a major drag on earnings.
Operating income at FedEx Express declined $187 million, or 31 percent, from last year's fourth quarter, to $426 million.
Domestic express volume fell 3 percent, and the 7 percent plunge in domestic overnight envelope suggested the company's signature market is not what it used to be.
"The overall express market in the first calendar quarter of the year actually declined about 3.5 percent, which is obviously well below GDP," said Alan B. Graf Jr., FedEx chief financial officer and executive vice president.
Even more express shipments are going elsewhere, Graf said.
"We're going to have a 32.5 percent surcharge in July and that's going to create a lot of mode shift," he said. "We didn't have that a year ago. Fuel prices are up 80 percent. … All we can do is manage through this."
But the mode shift is not just limited to express traffic, Smith said.
"What's going to happen in the international marketplace. … is the traditional airport-to-airport freighter services are being reduced and coming down," Smith said. "What's happening is the mode shift in the international arena makes what happens in the domestic express business pale in comparison.
"There's a tremendous movement of the lower value added traffic off of the traditional freighter airplanes onto the water, onto the sea."
He said FedEx's expansion into trucking services positions the company for the changes but his remarks suggest more changes in company strategy could be coming.
"I just came back from Europe last week and again went to a couple of our locations and you can see this taking place right in front of your eyes," Smith said.
Shared Blues
Less than a week after FedEx painted a bleak picture of the economy, UPS delivered a second grim report, slashing its profit forecast for the second quarter up to 15 percent amid rising costs and slowing parcel traffic.
"Slow U.S. economic growth and an unprecedented increase in the cost of fuel have resulted in lower-than-expected U.S. package volume and an accelerating contraction in the use of premium air products," UPS said.
Moreover, although both big express carriers have seen domestic business tumble, the new UPS warning suggests the weak U.S. economy now is dragging down international business.
The dark outlook following UPS's first quarterly loss in its 11-year history as a public company in the first quarter sent the company's stock to its lowest point since it went public.
Punishing fuel costs and a shaky economy is forcing
FedEx Express to reexamine its business model
Michael Fabey
http://www.aircargoworld.com/regions/northam_0808.htm
hile harboring hopes the U.S. economy will turn around and fuel prices will start to level off, FedEx is positioning itself for what company officials say is an altered industry landscape.Frederick W. Smith, FedEx chairman, president and chief executive officer, said in the wake of the company's first quarterly loss in several years that FedEx is rethinking its foundation express operations and even the way it gears up for international traffic.
"FedEx Express has not bought a unit of capacity for the domestic express business in years and years and years," Smith told investment analysts in a conference call on the company's earnings.
Instead, Smith said, the world's largest air express operator is looking at a new era of air shipping that includes still lighter reliance on aircraft for shorter hauls and a focus on fitting the domestic network into a global supply chain.
That is where increasingly savvy customers, he said, are cutting back on premium services and streamlining.
"The network in the United States has been expanded basically to move inland international traffic," Smith said. "Increasingly in the international market the movement of goods by air will be in smaller lots and door-to-door express movements rather than in the large consolidations that marked the industry structure several years ago."
FedEx has benefited from the broad industry trends in recent years, gaining express parcel business as shippers have broken down larger consignments and taking on ground package and trucking volume in its growing surface divisions as cost-conscious shippers have traded down in mode.
But domestic express volume has been flat at best in recent years and now Smith acknowledges that the ideal target for air express is the international shipper rather than the domestic business.
"We've built a network of regional (operations) and what those regional operations allow us to increasingly do is to fly across the oceans and then drive on the other side," said Smith. "We have not been adding capacity for the domestic express market for many years."
Atypical Losses
There was plenty of evidence of the shift in a financial report that saw FedEx's profit for the full fiscal year cut just about in half and a charge-laden loss in the fourth quarter.
FedEx reported a net loss of $241 million for the three months ending May 31 compared with a profit of $610 million for the last quarter of fiscal 2007. It was the carrier's first quarterly loss in more than a decade and included an $891 million charge for the restructuring FedEx Kinko's business.
The company also reported an operating loss of $163 million that included sharp turns downward in all its business segments.
For the full fiscal year, the $1.13 billon net profit was down 44 percent drop from $2.2 billion the year before. Revenue rose from $35.2 billion in fiscal 2007 to $38 billion in fiscal 2008.
The core express business was a major drag on earnings.
Operating income at FedEx Express declined $187 million, or 31 percent, from last year's fourth quarter, to $426 million.
Domestic express volume fell 3 percent, and the 7 percent plunge in domestic overnight envelope suggested the company's signature market is not what it used to be.
"The overall express market in the first calendar quarter of the year actually declined about 3.5 percent, which is obviously well below GDP," said Alan B. Graf Jr., FedEx chief financial officer and executive vice president.
Even more express shipments are going elsewhere, Graf said.
"We're going to have a 32.5 percent surcharge in July and that's going to create a lot of mode shift," he said. "We didn't have that a year ago. Fuel prices are up 80 percent. … All we can do is manage through this."
But the mode shift is not just limited to express traffic, Smith said.
"What's going to happen in the international marketplace. … is the traditional airport-to-airport freighter services are being reduced and coming down," Smith said. "What's happening is the mode shift in the international arena makes what happens in the domestic express business pale in comparison.
"There's a tremendous movement of the lower value added traffic off of the traditional freighter airplanes onto the water, onto the sea."
He said FedEx's expansion into trucking services positions the company for the changes but his remarks suggest more changes in company strategy could be coming.
"I just came back from Europe last week and again went to a couple of our locations and you can see this taking place right in front of your eyes," Smith said.
Shared Blues
Less than a week after FedEx painted a bleak picture of the economy, UPS delivered a second grim report, slashing its profit forecast for the second quarter up to 15 percent amid rising costs and slowing parcel traffic.
"Slow U.S. economic growth and an unprecedented increase in the cost of fuel have resulted in lower-than-expected U.S. package volume and an accelerating contraction in the use of premium air products," UPS said.
Moreover, although both big express carriers have seen domestic business tumble, the new UPS warning suggests the weak U.S. economy now is dragging down international business.
The dark outlook following UPS's first quarterly loss in its 11-year history as a public company in the first quarter sent the company's stock to its lowest point since it went public.
08-03-2008, 04:32 PM
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Posts: 1,433
08-03-2008, 07:27 PM
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Joined APC: Jul 2007
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An Interesting Read...
)I liked the closing the best:
"What's the chance these numbers are real? Virtually zero.
What's the value of the process? Virtually limitless."
It reminded me of one of my favorite business school maxims:
All models are wrong ---- but some are useful!
08-04-2008, 03:34 AM
#4
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Joined APC: Jul 2008
Posts: 1,235
FedEx Downshifts
Punishing fuel costs and a shaky economy is forcing
FedEx Express to reexamine its business model
Welcome To Air Cargo World -- Region -- North America
hile harboring hopes the U.S. economy will turn around and fuel prices will start to level off, FedEx is positioning itself for what company officials say is an altered industry landscape.
Frederick W. Smith, FedEx chairman, president and chief executive officer, said in the wake of the company's first quarterly loss in several years that FedEx is rethinking its foundation express operations and even the way it gears up for international traffic.
"FedEx Express has not bought a unit of capacity for the domestic express business in years and years and years," Smith told investment analysts in a conference call on the company's earnings.
Instead, Smith said, the world's largest air express operator is looking at a new era of air shipping that includes still lighter reliance on aircraft for shorter hauls and a focus on fitting the domestic network into a global supply chain.
That is where increasingly savvy customers, he said, are cutting back on premium services and streamlining.
"The network in the United States has been expanded basically to move inland international traffic," Smith said. "Increasingly in the international market the movement of goods by air will be in smaller lots and door-to-door express movements rather than in the large consolidations that marked the industry structure several years ago."
FedEx has benefited from the broad industry trends in recent years, gaining express parcel business as shippers have broken down larger consignments and taking on ground package and trucking volume in its growing surface divisions as cost-conscious shippers have traded down in mode.
But domestic express volume has been flat at best in recent years and now Smith acknowledges that the ideal target for air express is the international shipper rather than the domestic business.
"We've built a network of regional (operations) and what those regional operations allow us to increasingly do is to fly across the oceans and then drive on the other side," said Smith. "We have not been adding capacity for the domestic express market for many years."
Atypical Losses
There was plenty of evidence of the shift in a financial report that saw FedEx's profit for the full fiscal year cut just about in half and a charge-laden loss in the fourth quarter.
FedEx reported a net loss of $241 million for the three months ending May 31 compared with a profit of $610 million for the last quarter of fiscal 2007. It was the carrier's first quarterly loss in more than a decade and included an $891 million charge for the restructuring FedEx Kinko's business.
The company also reported an operating loss of $163 million that included sharp turns downward in all its business segments.
For the full fiscal year, the $1.13 billon net profit was down 44 percent drop from $2.2 billion the year before. Revenue rose from $35.2 billion in fiscal 2007 to $38 billion in fiscal 2008.
The core express business was a major drag on earnings.
Operating income at FedEx Express declined $187 million, or 31 percent, from last year's fourth quarter, to $426 million.
Domestic express volume fell 3 percent, and the 7 percent plunge in domestic overnight envelope suggested the company's signature market is not what it used to be.
"The overall express market in the first calendar quarter of the year actually declined about 3.5 percent, which is obviously well below GDP," said Alan B. Graf Jr., FedEx chief financial officer and executive vice president.
Even more express shipments are going elsewhere, Graf said.
"We're going to have a 32.5 percent surcharge in July and that's going to create a lot of mode shift," he said. "We didn't have that a year ago. Fuel prices are up 80 percent. … All we can do is manage through this."
But the mode shift is not just limited to express traffic, Smith said.
"What's going to happen in the international marketplace. … is the traditional airport-to-airport freighter services are being reduced and coming down," Smith said. "What's happening is the mode shift in the international arena makes what happens in the domestic express business pale in comparison.
"There's a tremendous movement of the lower value added traffic off of the traditional freighter airplanes onto the water, onto the sea."
He said FedEx's expansion into trucking services positions the company for the changes but his remarks suggest more changes in company strategy could be coming.
"I just came back from Europe last week and again went to a couple of our locations and you can see this taking place right in front of your eyes," Smith said.
Shared Blues
Less than a week after FedEx painted a bleak picture of the economy, UPS delivered a second grim report, slashing its profit forecast for the second quarter up to 15 percent amid rising costs and slowing parcel traffic.
"Slow U.S. economic growth and an unprecedented increase in the cost of fuel have resulted in lower-than-expected U.S. package volume and an accelerating contraction in the use of premium air products," UPS said.
Moreover, although both big express carriers have seen domestic business tumble, the new UPS warning suggests the weak U.S. economy now is dragging down international business.
The dark outlook following UPS's first quarterly loss in its 11-year history as a public company in the first quarter sent the company's stock to its lowest point since it went public.
Punishing fuel costs and a shaky economy is forcing
FedEx Express to reexamine its business model
Michael Fabey
Welcome To Air Cargo World -- Region -- North America
hile harboring hopes the U.S. economy will turn around and fuel prices will start to level off, FedEx is positioning itself for what company officials say is an altered industry landscape.Frederick W. Smith, FedEx chairman, president and chief executive officer, said in the wake of the company's first quarterly loss in several years that FedEx is rethinking its foundation express operations and even the way it gears up for international traffic.
"FedEx Express has not bought a unit of capacity for the domestic express business in years and years and years," Smith told investment analysts in a conference call on the company's earnings.
Instead, Smith said, the world's largest air express operator is looking at a new era of air shipping that includes still lighter reliance on aircraft for shorter hauls and a focus on fitting the domestic network into a global supply chain.
That is where increasingly savvy customers, he said, are cutting back on premium services and streamlining.
"The network in the United States has been expanded basically to move inland international traffic," Smith said. "Increasingly in the international market the movement of goods by air will be in smaller lots and door-to-door express movements rather than in the large consolidations that marked the industry structure several years ago."
FedEx has benefited from the broad industry trends in recent years, gaining express parcel business as shippers have broken down larger consignments and taking on ground package and trucking volume in its growing surface divisions as cost-conscious shippers have traded down in mode.
But domestic express volume has been flat at best in recent years and now Smith acknowledges that the ideal target for air express is the international shipper rather than the domestic business.
"We've built a network of regional (operations) and what those regional operations allow us to increasingly do is to fly across the oceans and then drive on the other side," said Smith. "We have not been adding capacity for the domestic express market for many years."
Atypical Losses
There was plenty of evidence of the shift in a financial report that saw FedEx's profit for the full fiscal year cut just about in half and a charge-laden loss in the fourth quarter.
FedEx reported a net loss of $241 million for the three months ending May 31 compared with a profit of $610 million for the last quarter of fiscal 2007. It was the carrier's first quarterly loss in more than a decade and included an $891 million charge for the restructuring FedEx Kinko's business.
The company also reported an operating loss of $163 million that included sharp turns downward in all its business segments.
For the full fiscal year, the $1.13 billon net profit was down 44 percent drop from $2.2 billion the year before. Revenue rose from $35.2 billion in fiscal 2007 to $38 billion in fiscal 2008.
The core express business was a major drag on earnings.
Operating income at FedEx Express declined $187 million, or 31 percent, from last year's fourth quarter, to $426 million.
Domestic express volume fell 3 percent, and the 7 percent plunge in domestic overnight envelope suggested the company's signature market is not what it used to be.
"The overall express market in the first calendar quarter of the year actually declined about 3.5 percent, which is obviously well below GDP," said Alan B. Graf Jr., FedEx chief financial officer and executive vice president.
Even more express shipments are going elsewhere, Graf said.
"We're going to have a 32.5 percent surcharge in July and that's going to create a lot of mode shift," he said. "We didn't have that a year ago. Fuel prices are up 80 percent. … All we can do is manage through this."
But the mode shift is not just limited to express traffic, Smith said.
"What's going to happen in the international marketplace. … is the traditional airport-to-airport freighter services are being reduced and coming down," Smith said. "What's happening is the mode shift in the international arena makes what happens in the domestic express business pale in comparison.
"There's a tremendous movement of the lower value added traffic off of the traditional freighter airplanes onto the water, onto the sea."
He said FedEx's expansion into trucking services positions the company for the changes but his remarks suggest more changes in company strategy could be coming.
"I just came back from Europe last week and again went to a couple of our locations and you can see this taking place right in front of your eyes," Smith said.
Shared Blues
Less than a week after FedEx painted a bleak picture of the economy, UPS delivered a second grim report, slashing its profit forecast for the second quarter up to 15 percent amid rising costs and slowing parcel traffic.
"Slow U.S. economic growth and an unprecedented increase in the cost of fuel have resulted in lower-than-expected U.S. package volume and an accelerating contraction in the use of premium air products," UPS said.
Moreover, although both big express carriers have seen domestic business tumble, the new UPS warning suggests the weak U.S. economy now is dragging down international business.
The dark outlook following UPS's first quarterly loss in its 11-year history as a public company in the first quarter sent the company's stock to its lowest point since it went public.
This last paragraph is in error. UPS posted a 900 mil Plus profit for this qtr. The company met revised expectations which had been lowered.
08-04-2008, 07:07 AM
#5
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Joined APC: Jun 2007
Position: FDX Captain
Posts: 77
ALSO,
Fedex took a one time charge on renaming Kinko's...so we did turn a profit, and accounting is responsible for the "loss".
We are still making money. I will be surprised to see what they charge off in the next quarter. Even with their bungling of the 757 program inception and bid messes that they can't make their minds up with.
Fedex took a one time charge on renaming Kinko's...so we did turn a profit, and accounting is responsible for the "loss".
We are still making money. I will be surprised to see what they charge off in the next quarter. Even with their bungling of the 757 program inception and bid messes that they can't make their minds up with.
Last edited by FlynLow; 08-04-2008 at 07:08 AM. Reason: typo
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