FedEx sees an unexpected ray of light in a dark tunnel
In the Q4 2023 Earnings Call, FedEx President and CEO Raj Subramaniam shared that "total revenue in the fourth quarter was down 10% year over year as volumes declined with demand remaining soft across the market." However, "it's the first time in history of FedEx Ground where the volumes declined and our operating margin expanded."
The carrier has increased its operating margin by cutting costs while increasing productivity. In the past year, FedEx cut 29,000 jobs, 12% of its flight hours, and retired 18 aircraft. Looking ahead to FY2024, it plans to remove 29 more aircraft from the flying schedule.
Will we see an upturn anytime soon? Subramaniam says the carrier will focus on profit improvement "through an environment that we expect to remain marked by demand challenges, particularly in the first half."
That doesn't sound good. What's the light in the dark tunnel for FedEx?
Despite its downturn in revenue and cost-cutting tactics, FedEx says its DRIVE initiative is working and says talks of a UPS Teamsters strike have opened doors for legacy UPS customers to switch to FedEx.When asked whether the UPS labor negotiations have contributed to FedEx's bottom line, Executive Vice President and Chief Customer Officer Brie Carere said they have not seen any benefit, nor do they plan for it in Fiscal Year 2024. However, she did share that the company is "having a lot of great conversations with legacy UPS customers, and we feel really strong -- we feel really good about the sales pipeline because of the strong value proposition we have versus our primary competitor."
As of today, negotiations between Teamsters and UPS are ongoing, and a UPS strike is still on the table. If their tentative agreement doesn't move forward, those legacy customers may switch to FedEx after all.
FedEx may benefit from the labor negotiations. How can I make this situation a win-win for my business?
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