FedEx Corp.’s peak season is in full swing, and the shipping carrier likes what it sees so far.
FedEx highlighted the addition of about 8,200 locations to its FedEx Onsite network, many of those through an agreement with Walgreens Co., No. 39 in the Internet Retailer 2017 Top 500, to offer pickup and drop-off services of FedEx packages. The program has more than 10,000 locations, including Walgreens, Kroger Co. (No. 88), Albertsons (No. 157), FedEx Office and other participating locations, Raj Subramaniam, chief marketing and communications officer, said on the carrier’s fiscal Q2 earnings call this week.
“And for those procrastinators, here’s a saving grace: Pickup is now available on Christmas Day in the vast majority of more than 7,500 Walgreens locations,” he said. “Our presence has never been stronger during peak than it is today.”
Delivering online orders to retailers’ stores and other non-residential sites also cuts the carrier’s expenses. “We don’t break out the operational cost for pickup and delivery or percentage of volume for FedEx Onsite or FedEx Office. But as you can imagine, delivering multiple packages to a retail location is far cheaper than delivering a single package to a home,” Subramaniam said.
After the holidays, returns will kick in, and those FedEx Office and pickup and dropoff points will be key to handling that high volume as well. “E-commerce continues to drive a high return rate, and consumer preferences to return online purchases to physical locations will be satisfied by leveraging FedEx Office and other retail access points,” Henry Maier, president and CEO of FedEx Ground, told analysts on the earnings call, according to a Seeking Alpha transcript.
In the second quarter of fiscal 2018 ended Nov. 30, which includes the big online shopping days of Cyber Monday and Black Friday, average daily package volume for FedEx Ground grew 7.1% to 8.576 million from 8.005 million in Q2 fiscal 2017.
Revenue per package for the Ground unit, where the bulk of e-commerce orders are handled, increased 5.0% to $8.35 from $7.95 in the year-ago quarter. FedEx is the shipping carrier for 318 retailers in the Internet Retailer 2017 Top 1000.
FedEx projects a record peak season, though it has not said what it expects package volume to be. The carrier is experiencing increased demand for larger, heavier packages and heavy demand on Mondays, Subramaniam said. FedEx in September 2016 noted that retailers’ holiday promotions and a shift in consumer buying habits were creating higher package volumes for Monday delivery, and that trend is continuing.
“Obviously, peak is not over, but we have seen very good traction with the small and medium customers, and we will continue to monitor and measure the informal pricing decisions for next year’s peak season,” Subramaniam said.
FedEx this year charged additional fees during peak season, which runs Black Friday (the day after Thanksgiving) through Dec. 31, on items that are oversized or require special handling. Rival UPS Inc. implemented broad peak season surcharges that kicked in from Nov. 19-Dec. 2 and returned Dec. 17-23, ranging from 27-97 cents per package. Both carriers are raising rates an average of 4.9% in 2018, with FedEx’s increase starting Jan. 1 and new UPS rates taking effect Dec. 24.
CEO Fred Smith credited long-term planning and collaboration with its retail customers for the “outstanding” peak season FedEx is having so far. “We will begin literally the day after New Year’s planning for next peak season. And we have very close relationships with our major customers,” he said.
“We are quite confident that we can handle vastly larger amounts of e-commerce packages in the future at profitable rates because of the investments we’ve made,” Smith said. “We have two major hubs coming online next year and a couple more after that. These are substantial improvements to our ability to handle this type of traffic on a profitable, long-term basis.”
For the fiscal second quarter of 2018 ended Nov. 30, FedEx also reported:
- Total revenue of $16.31 billion up 9.2% from $14.93 billion in the same period last year.
- FedEx Ground revenue of $4.93 billion, up 11.5% from $4.42 billion.
- Revenue from its FedEx Express segment of $9.35 billion, up 8.2% from $8.64 billion.
- Net income of $775.0 million compared with $700.0 million.
For the first six months of fiscal 2018, FedEx reported:
- Total revenue of $31.61 billion, up 6.8% from $29.59 billion in the same period last year.
- FedEx Ground revenue of $9.57 billion, up 9.9% from $8.71 billion.
- Revenue from FedEx Express of $18.01 billion, up 5.3% from $17.10 billion.
- Net income of $1.37 billion compared with $1.42 billion.
- Average daily package volume (Ground) of 8.1 million, up 5.2% from 7.7 million.
- Revenue per package (Ground) of $8.41, up 4.9% from $8.02.