Labor costs lower first fiscal quarter results for FedEx

The first fiscal quarter profits for Memphis-based global freight forwarding and logistics services, FedEx’s barometer, released yesterday reflect the impacts of the tight labor market on its business volume.

Quarterly revenues, at $ 22 billion, grew 14% annually and operating income, at $ 1.398 billion, fell 12% annually. Diluted earnings per share – at $ 4.09 – was down 13%, below Wall Street expectations of $ 4.89.

FedEx officials explained that quarterly operating results were negatively affected by an estimated annual cost increase of $ 450 million related to a tight labor market that impacted labor availability. implementation and resulted in inefficiencies in the network, higher wage rates and increased purchased transport expenses. The company added that this was partially offset by higher parcel and freight yields, an increase in international express export shipments and a favorable net impact on fuel. The company also explained that while the volume of commercial land and domestic express parcels in the United States is increasing every year, continued supply chain disruptions have slowed the demand for domestic parcels in the United States compared to a forecast. earlier.]

“Executing our strategies continues to drive demand for our services, despite the disruptive impact of the pandemic on workforce availability and global supply chains,” said Frederick W. Smith, chairman and chief executive officer of FedEx Corp., in a statement. “I am very proud of our team members around the world who continue to transport life-saving vaccines and deliver emergency supplies to people affected by natural disasters like Hurricane Ida and the recent earthquakes. “

FedEx Express’s quarterly revenue, at $ 10.966 billion, grew 14% annually, with operating profit down 20%, to $ 567 million. FedEx Ground revenue increased 9% to $ 7.677 billion, with operating income down 20% to $ 671 million. Revenue from FedEx Freight, its LTL segment, rose 23% to $ 2.251 billion, with operating profit up 42% to $ 390 million.

Total quarterly package revenue, at $ 8.505 billion, grew 15% annually. And total packaging revenue in the United States, at $ 3.883 billion, recorded an annual gain of 15%, with total international export packaging revenue up 20% to $ 3.508 billion, and International domestic revenue up 2% to $ 1.114 billion.

Total daily US domestic package volume increased 7% to 3.178 million and US package revenue, to $ 18.79, increased 7%. Total daily international export packages at 1.034 million grew 8% per year, with revenue per package up 11%, to $ 52.18.

“Executing our strategies continues to generate strong demand for our differentiated services despite the disruptive impact of the pandemic, workforce availability, industry capacity and global supply chains.” , FedEx Chairman and COO Raj Subramaniam said during the results call. “When you look at our first quarter results, our performance was highlighted by double-digit increases in performance across all of our transportation businesses, driven by limited capacity, high demand and the revenue management strategy. The impact of constrained labor markets remains the biggest issue facing our business, as it is with many other businesses around the world, and was the main driver of our below expectation results in the first quarter. ”

Addressing the 2021 peak season, Subramaniam said FedEx is meticulously planning it in a variety of ways, including working closely with customers to create solutions for them to be successful.

And he added that he expects FedEx to have significantly higher ground capacity this peak season due to its investments in FedEx Ground infrastructure. These investments include the addition of more than a dozen new automated facilities and several other upgrades to sorting equipment and various key technology projects are also expected to be completed this fall, including modernization of multiple sorting systems, transportation management and security, what he said will help increase the capacity of FedEx Ground’s network, as well as its flexibility and resiliency.

“This brings the total capacity increase to over one million average daily volume from the last peak,” he said.

Ahead of this earnings release, FedEx announced a rate increase that is expected to take effect on January 3, 2020, with FedEx Express, FedEx Ground, and FedEx Home Delivery rates increasing by 5.9%, and FedEx Freight rates increasing by 5.9%. an average of 5.9% to 7.9%. And on November 1, 2021, he announced that an increase in the fuel surcharge would be applied to FedEx Express (for US domestic parcel and freight services), FedEx Ground, and FedEx Freight.

FedEx EVP, Chief Marketing and Communications Officer Brie Carrere said during the call that continued limited capacity in US domestic and international markets has led to a very favorable pricing environment.

“We are focused on protecting and growing volume in high yielding business segments, including land-based business segments and small and medium segments,” she said. “We have an additional opportunity to improve the yields of large customers through contract renewals and to provide large customers with the ability to acquire additional capacity at current market rates. These increases will help us continue to balance capacity with demand and mitigate the impact on the increase. [labor] the costs that Raj just described.

Jerry Hempstead, president of Hempstead Consulting, said it would be unwise for a shipper to budget for a 5.9% increase in parcel costs for 2022 based on FedEx GRI’s announcement.

“In most cases the impact will be much greater than that,” he said. “This is the biggest increase in recent memory. There will also be changes to most supplements on January 3, but there will be a change to the additional processing supplement on January 24 to reflect the direction UPS has already taken in determining the supplement based on the destination area.

Additionally, he noted that the increases are not linear, as not all zone rates and cells increase by 5.9%.

“As an example, the traditional 5-pound, zone 5 benchmark packaging will change by more than 5.9%,” he observed. “A priority night package goes from $ 94.29 to $ 100.04. on the surface, this appears to be an increase of 6.1%. But if you add the fuel surcharge change, the comparison would be $ 75.82 and go to $ 81.73. That’s an increase of $ 5.91 or 7.80%. Fuel drops from the current 9% to 0.755 if the price of fuel remains constant. Keep in mind that the fuel does not change in January, it increases on November 1. Let’s look at a ground trade of the area 5.5 pounds. On the surface, the rate goes from $ 13.70 to $ 14.73. It is 7.52%. But the impact of the fuel pushes the rate from $ 15.00 to $ 16.39 or an increase of $ 1.39 or 9.24%. More [shippers] will benefit from significant discounts, but will be subject to a minimum charge. Most of the minimum charge discounts are fixed dollar amounts, so the sender will take 100% of the increase. “

About the Author

Jeff Berman, Group News Editor Jeff Berman is Group News Editor for Logistics management, Modern material handling, and Supply chain management review. Jeff works and lives in Cape Elizabeth, Maine where he covers all aspects of the supply chain, logistics, freight transportation and material handling industries on a daily basis. Contact Jeff Berman

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