FedEx adds surcharges to more packages
March 17, 2016 02:28 PM
With many web retailers shipping larger items these days, FedEx Corp. will soon lower the size threshold at which it charges a handling surcharge.
FedEx executive vice president Mike Glenn told analysts on the shipping giant’s fiscal third quarter earnings call the threshold will be lowered from 60 to 48 inches starting June 1.
“We are seeing a significant increase in non-traditional items now being purchased online, mattresses to new swing sets and big-screen TVs just to name a few,” he told analysts, according to a transcript from Seeking Alpha. “We welcome this opportunity but it is important that we price these items accordingly to account for the operational complexities, such as manual sortation to person delivery, et cetera.”
FedEx executives also brushed off speculation that Amazon.com Inc. starting its own fulfillment network would have a significant impact on FedEx’s revenues. Amazon, No. 1 in the Internet Retailer 2015 Top 500 Guide, bought a fleet of truck trailers in December and is reportedly is considering leasing freighter jets to gain more control over the movement of freight between its warehouses and delivery of its own orders.
Glenn told analysts that FedEx is aware of all of this and has been in touch with Amazon regarding its increasing shipping needs. He intimated that losing some of Amazon’s business, however, would not have a catastrophic impact on FedEx’s fortunes.
“It is important to note that no one FedEx customer represents more than approximately 3% of total revenue,” he said. “Additionally, other than the Postal Service, no single customer represents more than approximately 3% of revenue for FedEx Express, FedEx Ground, or FedEx Freight. We manage these relationships carefully to ensure we don't become overly dependent on any one customer.”
Glenn said FedEx also remains competitive in same-day delivery of parcels, an area in which Amazon has been rapidly expanding.
Amazon’s Prime Now same-day, two hours or less delivery service is available in 24 U.S. markets, reaching roughly 34% of Americans. Glenn said FedEx currently offers its own same-day delivery service in 23 markets nationwide.
“FedEx Same-Day City plays an important role on our e-commerce suite of services and customers are responding well to the uniformed professionalism of our business model,” he said. “Having said that it still represents a very small percentage of our overall portfolio, but we are able to scale when demand dictates.”
E-commerce helped FedEx’s financial results in the third quarter.
FedEx reported total revenues of $12.654 billion for the quarter ended Feb. 29, up 8.0% from $11.716 billion from last year, growth Glenn attributed on the call to a “historic” holiday season in which FedEx delivered 325 million packages.
Throughout the season, he told analysts he noticed a trend.
“Referring to a specific peak day is quickly becoming a thing of the past,” he said. “As evidenced this year, there were multiple days where volumes exceeded 25 million packages as consumer buying habits are changing. We believe online shoppers will have increasing incentives to order earlier in the holiday season.”
For the third quarter ended Feb. 29, FedEx reported:
- Revenue from its FedEx Express segment of $6.557 billion, down 1.5% from $6.656 billion last year.
- FedEx Ground revenues of $4.408 billion, up 29.9% from $3.393 billion last year.
- Net income of $507 million, down 19.3% from $628 million last year.
For the first nine months of fiscal 2016, FedEx reported:
- Total revenues of $37.386 billion, up 5.8% from $35.339 billion last year.
- Revenue from its FedEx Express segment of $19.736 billion, down 3.9% from $20.542 billion last year.
- FedEx Ground revenues of $12.288 billion, up 30.5% from $9.416 billion last year.
- Net income of $1.890 billion, down 2.8% from $1.944 billion last year.