FedEx Growth Continues to Rely on USPS

In its 1st quarter 2013 earnings report FedEx reported that it handled over 108 million FedEx SmartPost parcels delivered by the Postal Service.  FedEx SmartPost volume grew by 17.6% on a year-to-year basis as compared to a 4.7% growth for shipments that FedEx delivers through its FedEx Ground and FedEx Home networks.

Currently FedEx SmartPost generates 29.9% of the shipment volume tendered to FedEx Ground.  The USPS share of  FedEx Ground’s deliveries has increased by 2.4% over the past year and 6.3 since 2010.

FedEx SmartPost’s double digit growth rate suggests that the market for USPS delivered parcels is extremely strong.   During this quarter, United Parcel Service was in at least its 8th month of actively marketing its competing product UPS Surepost.

FedEx Smartpost Average Revenue

The average revenue per parcel for FedEx Smartpost was $1.75.   This was down from $1.76 a year ago.   FedEx in its press release indicated that the decline in revenue per package was primarily due to higher postage rates.  Competition from UPS, DHL and other consolidators may have also had an impact that influenced the decline in the year-to-year average package revenue.

FedEx Earnings Report Provides Guidance on How Service is Marketed

By blaming the decline in year-to-year revenue per parcel primarily on increased postage rates, FedEx provides some guidance on how the product in marketed.  FedEx Ground only reports revenue for services provided by FedEx and does not include the cost of postage for handling the final delivery.   For postage increases to have an impact on FedEx SmartPost revenue, then FedEx SmartPost must have to sell its services using prices that represent the total of FedEx’s charges and postage for USPS delivery.   FedEx is implying that competition and/or customer contracts has forced it to accept less revenue for its part of  the end-to-end service in order to keep the price of delivery including USPS delivery at levels identified in its existing customer contracts or to meet competition for new contracts.

FedEx SmartPost Attracting Customers that Used To Use FedEx Express

In its conference call, FedEx noted that one large cell phone customers has shifted business from FedEx Express’s deferred product to FedEx Ground and FedEx SmartPost.  The volume shifted was large enough to explain some of the decline of 29 million parcels that the FedEx Express deferred product experienced from a year ago.

FedEx did not indicate whether the customer was a carrier or an hardware manufacturer.  More than likely it was one of the four large wireless carriers, all of whom are quite concerned about operating margins given what they are spending on subsidizing new handset devices

Given the difference in the tracking capabilities  of FedEx Ground and FedEx SmartPost and in particular ParcelSelect, one would assume that the Postal Service is delivering those items that may not require a carrier to get a signature from the recipient.  FedEx’s conference call mention of FedEx SmartPost would suggest that this is a significant share of this customer’s traffic.   Clearly if Parcel Select had a signature delivery option that easily integrated with FedEx’s tracking system it would handle even more.

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3 Responses to “FedEx Growth Continues to Rely on USPS”

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  1. Ed Mckee says:

    Are you back up? Are you sticking around?

    • Alan Robinson says:

      I am sticking around but just got so busy, I have not had time to post. Have half a dozen posts half written though

  2. OG says:

    CRAFT UNIT
    What if USPS establishes an inner-craft operation solely responsible for the delivery of parcels and packages requiring direct customer contact? ‘Small’ parcels (Parcel Post, Smart Post etc.) and Certified Mail, etc. would still be delivered by letter carriers, while other items requiring a personal delivery attempt such as ‘Large’ packages, signature deliveries, Express Mail etc.) would be handled by the new Personal Express unit. These would provide good opportunities for the USPS to gain and retain market share while enhancing the delivery service experience. Why not offer time-appointment deliveries and local same day drop-offs at the same time?

    THE STRETCH
    The idea of establishing an inner-craft operation to enhance service may sound (nowadays) to be counter-intuitive to postal execs in terms of cost effectiveness. Could this venture be staffed by postal retirees under the terms of the National Defense Authorization Act of 2010. That would be a home-run for USPS in increasing attrition rates while also retaining experienced personnel and providing customer-focused, efficient and affordable means of delivery. But on a second thought: with PMG Donahoe at the bat – I wouldn’t put a penny on it.

    NDAA Did Not Fix PAEA
    Rumor has it that Congress has been aware of the destructive pre-funding mandate and yet, almost 6 years later refuses (or is unable, defunct etc.) to take proper and justified action. Whether by congressional action or executive order, the Postal Service should be excused immediately from being required to make additional payments as per PAEA and be reimbursed all overfunded accounts over a 40-year period. That would be out-a-her-eee!

    OG

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