Dive Brief:
- FedEx expects the current airfreight environment will allow it to keep its elevated pricing on Express for the next 12 months, executives said on the company's earnings call Thursday.
- "We know, however, that these prices are not sustainable in the longer term and we will flex our networks appropriately as commercial capacity returns into the market," FedEx COO Raj Subramaniam said.
- The logistics company plans to increase the capacity of its Express network over the next year. The company parked seven planes more than a year ago, citing weak demand for airfreight. But now, FedEx will invest in maintenance costs for these planes, and it doesn't plan to have any parked by next peak season, CFO Mike Lenz said.
Dive Insight:
FedEx Express has experienced higher demand over the last year as a result of the pandemic. Strained capacity due to the loss of passenger flights pushed airfreight shippers to utilize freighters.
About 50% of air cargo flew in the belly of passenger flights before the pandemic. Without that space, freighters like FedEx Express' have seen more shippers interested in their service. Express' revenue rose 21% YoY to reach nearly $10.8 billion in FedEx's Q3, according to financial filings.
Cargo demand has returned to its pre-pandemic volume, but passenger traffic for January was down 72% compared to the same month in 2019, which means belly capacity is still missing from the market.
Air cargo capacity in February was down 5% YoY and down 8% compared to 2019, according to the latest figures from Clive. FedEx expects the capacity to remain tight through 2021, FedEx Chief Marking and Communications Officer Brie Carere said.
"With these projections, demand trends will continue to favor freighters and integrators," Carere said. "We are confident in our ability to maintain elevated yields for at least 12 months. With e-commerce driving significant growth internationally, we will increasingly utilize peak surcharges in our international business."
FedEx also announced plans to launch a new International Priority Express service for European customers shipping within the continent. It will provide two new overnight services. It is also rolling out FedEx International Connect Plus, which is specifically targeted at e-commerce shippers and offers service connecting Asia, Europe and the U.S., as well as within Europe.
Despite strong demand, Express still had difficulties in the last quarter as a winter storm disrupted supply chains across the U.S.
"The snow amounts in Memphis had not been seen in over 50 years — prior to the founding of FedEx — and when coupled with a record time nine consecutive days below freezing, had a significant impact on our operations," Lenz said.
The storm resulted in an estimated $350 million estimated impact with $240 million attributed to Express, $85 million to Ground and $25 million at Freight, he told analysts.
