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.