Dive Brief:

• FedEx forecasts it will spend $7.2 billion in the new fiscal year — compared to an expected $4.9 billion in fiscal 2021 and $5.9 billion in fiscal 2020 — to expand its capacity, according to FedEx officials speaking during their Q4 earnings call on June 24.
• FedEx officials are eyeing a need for expanded parcel, Ground and Freight services. The spending will include FedEx's first foray into "through the door service" with FedEx Freight Direct, for the delivery of big and bulky items.
• A pressing need for expansion is the FedEx Freight segment, which saw record growth in its LTL operations. FedEx Freight, the LTL market leader, had to impose "temporary targeted volume" reductions in early June, said Lance Moll, president and CEO of FedEx Freight. The suspensions have since stopped.

Dive Insight:

UPS and FedEx, the two global parcel giants, have taken decidedly different paths regarding North American freight in the last few months. FedEx has decided to get deeper involved in LTL, even delivering bulky items ordered through e-commerce right through the doors of consumers.

As UPS sold off its Freight segment to TFI this year, FedEx has doubled down on its commitment to FedEx Freight. FedEx Freight is the North American LTL market leader, according to Transport Topics' rankings of LTL firms.

"Our commitment and value of our Freight business ... is absolute," Mike Lenz, FedEx executive vice president and CFO, told analysts on the June call.

FedEx officials said the company would increase capital spending well beyond 2021 and 2020 levels. FedEx acknowledged that its LTL segment was stretched thin of late, as consumers and businesses come back more fully online after 2020's pandemic-related shutdowns.

Meanwhile, UPS Freight, once the fifth-largest LTL carrier, has now been fully acquired by TFI International of Montreal. UPS sold its LTL division to TFI in January and completed the deal in May. TFI ended up acquiring 197 LTL facilities, 147 of which UPS owned. TFI renamed the LTL carrier "TForce."

When discussing the sale of its Freight division to TFI, UPS CEO Carol Tomé said the expansion of UPS into LTL freight-hauling was never a comfortable fit. UPS bought Overnite Transportation for $1.3 billion in 2005. That followed FedEx expanding into the LTL business in 2002 with the purchase of Viking Freight and American Freightways, which both became the FedEx Freight brand.

The two companies had decidedly different experiences running their own LTL firms. During a Feb. 2 conference call with analysts, Tomé said "UPS Freight [was] a capital-intensive low returning business. We do not need to own this business to provide an LTL solution for our customers."

But during the June 24 FedEx call, Lenz said its Freight segment grew in Q4 with 38% revenue growth YoY, "and their highest quarterly operating margin ever at 16.1%. They also topped $1 billion in operating income for the full year for the first time."