Dive Brief:
- Plummeting delivery demand will pressure FedEx's per-package revenue for the remainder of its fiscal year, which ends May 31, executives said on the company's Q2 earnings call Tuesday.
- Per-package revenue, or yield, increased at FedEx Express (8%) and Ground (13%) YoY. But weaker demand, particularly at Express, drove a 3% overall decline in revenue.
- FedEx is bracing for volume softness to persist in the fiscal year's second half. The company expects yields to grow domestically over that same period, although less so than in the first half, Chief Customer Officer Brie Carere said. Internationally, yields tied to Asia shipments are projected to decrease.
Dive Insight:
Consistent yield growth reflects FedEx's pursuit of more profitable shipments and higher shipping rates. But as delivery activity falls and FedEx has capacity to burn, the balance of power appears to be shifting back in shippers' favor.
Volume declines accelerated across all of FedEx's major product categories in Q2. Carere noted in an October interview with Supply Chain Dive that the company was preparing for a moderate peak season with space to onboard new customers, in stark contrast to previous years of limited space and surging demand.
On Tuesday's call, Carere said shippers are becoming more interested in deferred shipping services — which are generally cheaper at the expense of speed — in the current inflationary environment. The company is "working really hard to get the cost and the margins right in that product," she added.
FedEx and rival UPS still hold significant influence over the parcel delivery market, despite demand easing. The companies announced higher general rate hikes of 6.9% for 2023, which they attributed in part to inflation. Parcel spend consultants have noted that added surcharges result in an even costlier increase for shippers.
"As far as how we're going to handle the negotiations, we're going to do it professionally and with grace," Carere said. "We want to bring customers on that want to do business with us for the long term."
Even though rates can be negotiated down, FedEx expects "a continued high capture rate" from the 6.9% increase and will continue to leverage surcharges, Carere added. The company is able to draw in more revenue per shipment when it is able to differentiate its offering from competitors and provide better service, she said.
FedEx Ground service levels have rebounded to pre-pandemic levels while service levels continue to improve at Express, said FedEx President and CEO Raj Subramaniam. According to ShipMatrix data, FedEx's on-time delivery rate for the busy Nov. 24 to Nov. 30 stretch was 95.3%, versus 83.9% for the same period in 2021. UPS' on-time performance was 96.6%.
