FedEx announced its first quarter earnings today and presented a downbeat view of economy and in particular its Express segment. The financial information presented continued to ilustrate that healthiest parts of FedEx’s business depend on its relationship with the Postal Servcie as a supplier or as a customer.
FedEx as a Postal Service Supplier
FedEx generates $1.373 billion in air freight revenue in FY 2010 from hauling mail by air in both daytime and nighttime air networks. This represented:
- 69% of FedEx Express’s domestic air-freight revenue;
- 6.49% of FedEx Express’s total revenue; and
- 3.95% of FedEx’s corporate revenue.
As the largest chunk of the Postal Service’s use of FedEx’s air freight service is during hours that planes would normally be sitting idle, the impact of the Postal Service’s business on FedEx’s profits may actually be larger than the its share of revenue.
FedEx as a Postal Service Customer
FedEx SmartPost now represents 27.5% of FedEx Ground’s shipments. As such, 27.5% of all shipments that FedEx picks up from its corporate clients are now delivered by the Postal Service. This is an increase of 3.5% from the 2010 proportion.
Traditionally, FedEx’s use of the Postal Service peaks during its third quarter (December through February) as the business-to-consumer share of FedEx Ground’s business peaks during that quarter. Last year the Postal Service delivered 30.6% of FedEx ground shipments during that quarter. Given current trends, Fed Ex could rely on the Postal Service to delivery one-third of its FedEx Ground volume this quarter.
FedEx and the Future of the Postal Service
During its conference call, FedEx repeated mentioned the importance of FedEx SmartPost and Postal Service delivery on its growth of FedEx Ground’s volumes, FedEx Ground’s margins, and FedEx Ground’s market share.
Two questions were asked about how the Postal Service’s financial problems and its need for FedEx Express’s air freight services will affect FedEx. The responses will be posted when the transcript comes out.
The transcript is now out!
The most interesting quotes relevant to the U.S. parcel and postal markets can be found in the post: FedEx Comments on Postal Service’s Problems
Very simple business model for Fedex and UPS. Overcharge the USPS for air freight services, and Underpay for USPS Pick-up and Final Delivery= Vast Majority of Profits. All you need to accomplish this is to find Postal Stooges to negotiate Contracts. Anybody know one, Anyone,Anyone!!! So if you follow the money (as usual) you find the answer. What a cruel joke these clowns in the Postal Service AND Congress have portrayed on the Employees of the USPS. The ignorant American public seems to be swallowing this BS hook, line and sinker.
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