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FedEx suffers from loss of Amazon and loss of direction

By Thomas Cullen / / December 19th, 2019

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FedEx’s fortunes continue to deteriorate despite the buoyancy of e-retailing demand.

The Memphis-based company’s latest results for the second quarter of financial year 2020 saw revenue edge down by US$500m to $17.3bn as compared to the same period in financial year 2019, however profits saw a more dramatic fall, halving to $554m.

Explaining the fall in profits, FedEx commented that the “operating results declined due to weak global economic conditions, increased FedEx Ground costs from expanded service offerings, the loss of business from a large customer, a continuing mix shift to lower-yielding services and a more competitive pricing environment.”

A key problem has been Amazon. Reports in the Wall Street Journal newspaper suggest that the e-retail giant has been “blocking its third-party sellers from using FedEx Corp.’s ground delivery network for Prime shipments, citing a decline in performance heading into the final stretch of the holiday shopping season.” The papers claim to have seen internal emails at Amazon that state that the performance of the FedEx ‘Ground’ and ‘Home’ services were inadequate. It is hard to assess the accuracy of these assertions but the second quarter results certainly imply that Amazon has reduced its use of FedEx’s services substantially.

That said, it was not just the loss of Amazon’s business that has caused FedEx problems. The performance of FedEx Express suffered from lower demand generally with revenue down 4% on lower volumes, however this was compounded by the retirement and impairment of aircraft assets including those within the old TNT fleet. Clearly FedEx is shrinking the capacity of its network. Overall FedEx is wrestling with its cost base, something made more complex with the continuing need to invest in its e-retail consumer orientated services in the ‘Ground’ division.

These results give the impression that FedEx has become unbalanced. Amazon may be a threat to all express carriers, but others appear to have coped with it better. On the investors conference call FedEx’s CFO, Alan Graf, commented that he “could see a way out” of FedEx’s predicament. The company need to articulate what that way out is.

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