The shipping company also must contend with disruptions driven by the rise of online shopping and Amazon, which is building out its own delivery network. FedEx and Amazon ended most of their business ties this year.

FedEx  Corp. has struggled to delivery consumers’ items on time this holiday season—at least compared to its competition—and those struggles have led Amazon to ban third-party merchants from using its services, as well as investors to become skeptical about where the company is headed.

Plus, the shortened holiday window has put pressure on package delivery companies in general. Since Thanksgiving, both UPS and FedEx are doing worse in on-time arrival, while the USPS is improving markedly, according to data from last-mile delivery software vendor Convey. The biggest decline was at FedEx, with an on-time delivery of 68.3%, compared with 77.5% in 2018. UPS decreased to 80% this holiday, compared with 86% in 2018, while USPS jumped to 86% this year, up from 76% in 2018.

Convey’s data is based on tens of millions of packages shipped from more than 500,000 U.S. locations across the company’s client base. Analysis excludes Amazon shipments. The vendor has 130 retail clients in many merchandise categories, including retailers Home Depot (No. 7 in the 2019 Digital Commerce 360 Top 1000), Neiman Marcus (No. 50), Eddie Bauer (No. 161) and Jet.com (No. 24 in the ranking of 2019 Digital Commerce 360 Online Marketplaces).

These issues may be due, in large part, to overall shipping volume from Thanksgiving day through Dec. 15 being up 21.5% compared with the same time period last year, according to Convey.

However, delivery company feedback this year is better than last, with only 53% reporting a negative experience compared with 57% in 2018, according to Convey. And fewer consumers have reported “package was delivered but missing,” which consisted of 11% of negative feedback this year, compared with 16% in 2018. Instead, consumers are focused on delivery delays; 71% of negative feedback is due to a delay or specific carrier complaint, compared with 64% in 2018.

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FedEx’s fiscal Q2 results

FedEx’s sales slipped 2.8% to $17.3 billion. The shipping company also cut its profit forecast for the second straight quarter, as weak international demand hurt sales and the courier ramped up investment to handle soaring ecommerce deliveries.

The results for the company’s fiscal second quarter were “breathtakingly bad,” with weakness in both the ground-delivery unit and air-cargo business, said Deutsche Bank AG analyst Amit Mehrotra. Adjusted earnings will be no more than $11.50 a share in the fiscal year ending in May, down from the previous expectation of as much as $13, FedEx said in a statement Tuesday.

“Earnings appear to be in free fall, with seemingly little clarity being provided by management as to the duration of the current downturn and drivers of recovery,” Mehrotra said. “We’d characterize these numbers as weaker than even the most bearish estimates.”

FedEx’s outlook is piling pressure on CEO Fred Smith as the company contends with disruptions driven by the rise of online shopping and Amazon.com Inc. FedEx and Amazon, which is building out its own delivery network, ended most of their business ties this year. That’s weighing on FedEx’s sales, which are also suffering from weaker pricing, trade tensions and the timing of Thanksgiving in the U.S.

“Ecommerce has been squeezing profit margins at both FedEx and UPS. That’s because home deliveries are typically less profitable than drop-offs at businesses, where drivers can often leave multiple packages with a single stop,” says -Lee Klaskow, freight analyst for Bloomberg Intelligence.

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After adjusting for pension costs and integration expenses for the TNT Express operation in Europe, FedEx’s operating profit last quarter plummeted to 3.9% of sales from 7.5% a year earlier. That badly trailed the long-term goal of 10% operating margins. Adjusted earnings fell to $2.51 a share, missing the $2.78 average of estimates compiled by Bloomberg.

Trip Miller, a managing partner at Gullane Capital Partners and FedEx investor, said he would stick with the company as it remakes its business for the next decade. “When you go through a transition like FedEx is you can kind of throw all the numbers out the window,” Miller said. “They’re not going to be pretty.”

Smith called the results an anomaly because of the shortened holiday-shipping activity last quarter and the higher costs to change operations at the ground unit. On the call with analysts, he vowed that margins at the division—which fell to 6.4% last quarter from 11.5% a year earlier—would rebound to the teens by the quarter ending in May.

“We remain highly confident in our strategies, which we believe will begin to bear fruit by our fourth fiscal quarter” he said.

Amazon feud

FedEx was already reeling this week as its feud with Amazon intensified in the middle of the busy holiday delivery season. Citing poor service, Amazon banned third-party merchants from using FedEx’s services.

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While FedEx said Amazon’s latest salvo would only affect a very modest amount of business, it acknowledged that the end of most of its business with the e-commerce giant dented sales.

Trade tensions also crimped demand from key industrial customers, FedEx said, even as the standoff between the U.S. and China has eased somewhat. FedEx has parked planes, reduced flight hours by 8% and stopped hiring pilots to match air-cargo capacity with slower international demand.

Revenue took another blow from the late timing of Thanksgiving. That gave rise to an unusually late start to the peak holiday shipping season, which got into full swing after FedEx’s fiscal second quarter ended Nov. 30. And FedEx said it underestimated the cost of moving to seven-day service.

“We’re at the bottom and we’re going to come up off the mat,” Chief Financial Officer Alan Graf said on a conference call to discuss earnings.

 

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