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FedEx Corporation, 2015 FDX, www FDX, www.fedex.com .fedex.com . w a l t h g i r y p o c e l b a c i l p p a r o . S . U r e d n u d e t t i m r e p s e s u r i a f t p e c x e , r e h s i l b u p e h t m o r f n o i s s i m r e p t u o h t i w m r o f y n a n i d e c u d o r p e r e b t o . n n o y s a r M a e . P d e . v 6 r 1 e 0 s 2 e r @ s t t h h g g i i r r y p l o l C A
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Headquartered in Memphis, Tennessee, Tennessee, and founded in 1971, FedEx is one of the largest express freight delivery delivery companies in the world, having about 57,000 drop-off locations, 700 aircraft, and 62,000 vehicles. FedEx does business in over 220 countries and employs over 220,000 workers. The company is comprised of subsidiaries: FedEx Ground, FedEx Express, FedEx Freight, and FedEx Services. Revenues for fiscal year-end of May 2014 were $45 billion, or about $10 billion less than top competitor United Parcel Service (UPS). In fact, rival UPS is spending $2 billion to expand internationally in Asia, Europe, and the Americas, and is modernizing its U.S. operations to automatically sort packages. UPS expects its revenues to rise 7 percent annually through 2018, so FedEx needs an excellent strategic strategic plan going forward. In April 2015, FedEx offered to acquire Dutch delivery firm TNT Express N.V. (TNTEY) for approximately $8.75 per share, or $4.8 billion (€4.4 billion). However on July 13, 2015, the European Commission (EC) raised concerns about competition being restrained in the event of the deal materializing. As the antitrust watchdog of the European Union, the EC is investigating whether the impending deal, involving two key global players in the field of small package delivery, abides by the EU Merger Regulation. The EC is concerned that the combined entity, if approved, would dominate the market for small packages, thereby stifling competition in the space and causing prices to soar. Copyright by Fred David Books LLC. www.strategyclub.com www.strategyclub.com (Written (Written by Forest R. David)
History FedEx traces its history to 1971, when Frederick Smith (the current CEO) bought a controlling interest in Arkansas Aviation Aviation Sales. The frustration of being unable to effecti effectively vely deliver packages in 2 days created the idea of determining a more effective way to handle freight. Smith named his new company Federal Express in hopes of obtaining a contract with the Federal Reserve Bank and to draw public interest though the term Federal. The contract proposal with the Federal Reserve was denied, but the company officially began operating in 1973 with 14 small aircraft from Memphis, Tennessee, by delivering delivering 186 packages to 25 diff different erent U.S. cities. Federal Express did not officially change its name to FedEx until 1994. FedEx first turned a profit in 1975 and was instrumental in lobbying for the deregulation of air cargo that was passed in 1977. Deregulation allowed FedEx to use larger aircraft, and today, FedEx is the world’s largest all cargo fleet. The firm reached $1 billion in sales in 1983, marking the first ever for a U.S. company to reach this level of revenues without mergers or acquisitions within 10 years of operations. After a series of international acquisitions, FedEx starting offering services to Europe, Asia, and China through a 1995 acquisition. In 2014, about 90 percent of FedEx’s $1.2 billion investments were to boost capacity or infrastructure. As Christmas approached, the company hired about 50,000 seasonal workers, up from 40,000 the prior year. The investment is designed to address the rapid growth of consumer goods ordered online. Peak volume, referring to the busiest day of the year, had climbed dramatically in recent years for FedEx, to 26-plus million packages on one day near Christmas. That busiest day recently jumped 40 percent at rival UPS, to 31 million packages. Last-minute, holiday online free shipping deals have proliferated in recent years.
Internal Issues Organizational Structure FedEx uses a divisionaldivisional-by-product by-product organizational structure, structure, but the firm does not appear to have executives with popular titles such as COO, CTO, CSO, HRM, or R&D. Exhibit 1 provides a probable schematic of the company structure.
t – s n a e d n x s d e i a o E r s a s p r n s i s d a i e x e L L F E P C . w a l
– o t n t a n a n e e s c e s i b C x e d r b i r n E e i n i d r p s e t a d a m a e x r u F J E P L A n a C
t h g i r y p o c e l b a c i l p p a
– m c a i h t f i g n n s e c a i x s d P e d n E i i r s a n v p r i a u d s e x e D C F E P A
r o . S . U r e d n u
– s , t s s , n t k e r e s n p t a i i n a c r x t i , E r B E n e e e f l n n x d p o d A i d a i c E o i b d s r d v a d r u i d e e u n n S D F P E M I a
d e t t i m r e p s e s u
l a n o t i – l O t n s r e a e E s e x e d a k C n i r h E r s c e c p d e t i u d e x r n n M D F E P a I
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n k c – a O i E m r r C e h i t d i a e h d r m F S C n a
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t – d n e O E n y r x d r i i e u E o s C n e a d r d e r e H M F G P n a t – t n e O m E e x h a d C i u E i g i l s l d i g d e e r n o e r W L F F P a
n o i s s i m r e p t u o h t i w
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– t k O n e s e E z s x e d d C i i c r n E v o d p s a r e x e r d n D B F E P a d n – a y e s e v l l r n d t i i a d r u n r e s a t s a c a e n t e i r h n u r c e h i x P e o c e C R E V G C S s n o e i t t P t a a n r c e V l o i e e n m p a v r p o u i h t t o c e – l C m i u c k n r e m v M e e . l x a e d n o T G E M D a C , f e l a a v r i r d i G t e n f c u c e c a a i n – e i n f a . x P h i n f l r A J E V C F O
. t r o p e R l a u n n A 4 1 0 2 s ’ x E d e F n o d e s a B
: e c r u o S
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Vision/Mission FedEx appears not to have a written vision statement. However, the company does provide a written mission statement on the corporate website, as follows:
. w a l t h g i r y p o c e l b a c i l p p a r o . S . U r e d n u d e t t i m r e p s e s u r i a f t p e c x e , r e h s i l b u p e h t m o r f n o i s s i m r e p t u o h t i w m r o f y n a n i d e c u d o r p e r e b t o . n n o y s a r M a e . P d e . v 6 r 1 e 0 s 2 e r @ s t t h h g g i i r r y p l o l C A
FedEx Corporation will produce superior financial returns for its shareowners by providing high value-added logistics, transportation and related business services through focused operating companies. Customer requirements will be met in the highest quality manner appropriate to each market segment served. FedEx will strive to develop mutually rewarding relationships with its employees, partners and suppliers. Safety will be the first consideration in all operations. Corporate activities will be conducted to the highest ethical and professional standards.
Sustainability FedEx operates in a business where large carbon footprints are the norm. Operating a f leet of 700 aircraft, and over 60,000 vehicles, many of which are trucks, results in a large consumption of fuel and added noise pollution. In addition, FedEx is fraught with excess packaging boxes, tape, and other products used to protect items during shipment. Efforts made to reduce carbon emissions are a part of FedEx’s overall strategy and the company reports its fleet miles per gallon has dropped 14 percent since 2005 with a goal of a 20 percent reduction by 2020. The declines are partly from newer more fuel-efficient engines, but also from building more strategically located hubs and dispatch facilities. In addition, working with customers on their own supply chain has helped reduced fuel usage. Also, the company uses recycled paper in most all of their shipping packaging. Most FedEx envelopes are made from 100 percent recycled paper, and boxes contain a minimum of 40 percent recycled content. FedEx also has recycling programs in place for a variety of items, including batteries, printer ink cartridges, lights, paper, oil, tires, plastics, and many other products. Strategy Continuing its global expansion, FedEx opened a new hub in Mexico City in 2014 to help aid in shipments to more than 800 shipping locations across Mexico. The hub should better enable 2-day shipping across Mexico and speed deliver between Mexico and the United States. Currently, Mexico is the third-largest U.S. trade partner, accounting for 13.5 percent of all U.S. trade. Also, the new Mexico City hub is expected to expedite service to Latin America, where revenues are growing rapidly. FedEx also opened a new hub in Osaka, Japan, in 2014 to better facilitate transport of shipments from Asia to the United States. FedEx is also acquiring firms around the world in locations such as the United Kingdom, Poland, China, South Africa, India, Brazil, and many others. It is FedEx’s strategy to establish a strong footprint in these areas for domestic package delivery. Between 2011 and 2014, revenues from “international domestic” operations rose from $650 million to $1.4 billion. Across Europe, FedEx opened 100 new stations across 11 different nations between 2011 and May of 2014. The company raised shipping rates by 4.9 percent on all U.S. domestic and imported mail in January 2015. Segment Data FedEx primary business segments are FedEx Express, FedEx Ground, and FedEx Freight. Revenues and operating profits for each are provided in Exhibit 2. FedEx Express claims to be the largest express transportation company in the world, and FedEx Ground is a principle player in the United States and Canada ground package delivery system. FedEx Freight is a top U.S. provider of less-than-truckload (LTL) freight services. LTL includes shipments on trucks smaller than 18 wheelers with packages generally weighing less than 150 pounds. This provides great cost savings for many customers who do not need the volume of a full-size truck. FedEx Services, not reported in Exhibit 2, oversees marketing, information technology, communications, and other managerial needs. FedEx Express is the main revenue driver of the company although it does not operate as efficiently as FedEx Ground. FedEx Express covers many services focused on timely delivery but also on cost savings if expenses are more important than time. The business segment
Case 5 • Fedex Corporation, 2015
FedEx’s Revenues and Operating Income by Segment (in millions of USD) EXHIBIT 2
$30,000 $25,000 . w a l
$20,000
t h g i r y p o c
$15,000
e l b a c i l p p a
$5,000
$10,000
$0 FedEx Express
r o . S . U
$2,500
r e d n u
$2,000
d e t t i m r e p
m r o f y n a n i d e c u d o r p e r e b t o . n n o y s a r M a e . P d e . v 6 r 1 e 0 s 2 e r @ s t t h h g g i i r r y p l o l C A
2013 Operating income
$0 FedEx Express
, r e h s i l b u p
t u o h t i w
2014 Operating income
$500
t p e c x e
n o i s s i m r e p
FedEx Freight
$1,000
r i a f
m o r f
FedEx Ground
$1,500
s e s u
e h t
2014 Revenues 2013 Revenues
Source: Based
FedEx Ground
FedEx Freight
on company documents.
provides worldwide delivery in anywhere from 1 to 5 business days based on client needs. Total U.S. and international revenues from FedEx Express were $11.6 billion and $8.7 billion, respectively, in 2014. In addition to $8.7 billion in international revenues, FedEx Express also reported $1.4 billion in revenues from “international domestic.” FedEx Express is continuing its acquisition of foreign companies to establish domestic services for those areas. Freight accounted for $4.1 billion of FedEx Express’s 2014 revenues. FedEx Express plans on an increase in expenses in 2015 and 2016 as the segment modernizes its airline and trucking fleet. FedEx Ground offers services to nearly 100 percent of all U.S. residences and most Canadian residences as well. The segment specializes in package delivery. FedEx SmartPost business uses the United States Postal Service (USPS) to deliver smaller packages that are less time sensitive. However, SmartPost only generated $983 million of the $11,617 million the segment reported in 2014. Daily average package volume for FedEx Ground and FedEx SmartPost are $4,588 and $2,186 million, respectively. FedEx Ground receives on average $9.10 per package, whereas SmartPost generates $1.78 of revenue per package. FedEx Freight, like FedEx Express and FedEx Ground, reported improved financial numbers in each of the last three years, as revealed in Exhibit 2. Finance
FedEx reported 2015 revenues of $47.4 billion with net income of over $1 billion (down from over $2 billion in 2014), as revealed in Exhibit 3. The firm paid 35 percent taxes in fiscal year 2015, and has over $3 billion in goodwill on the balance sheet, as indicated in Exhibit 4. FedEx has been in an aggressive share buyback program, buying back 2.7 million shares in fiscal 2013 for an average price of $90.96 and 36.8 million shares in fiscal 2014 (ended in May) for an average price of $131.83. The company’s stock price was trading for over $173 a share in February of 2015. FedEx has cash of $2.9 billion and expects enough liquidly moving forward without needing additional debt.
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EXHIBIT 3
Income Statement (in millions of USD)
repot date
May 31, 2015
May 31, 2014
$47,453
$45,567
Cost of revenue
16,984
17,052
Gross profit
30,469
28,515
Operating expenses
28,602
25,069
1,867
3,446
Revenues
. w a l t h g i r y p o c e l b a c i l p p a r o . S . U r e d n u d e t t i m r e p s e s u r i a f
Operating income Other income/expenses EBIT Interest expense EBT Tax Net income
(5)
3
1,862
3,449
235
160
1,627
3,289
577
1,192
1,050
2,097
Source: Based on FedEx’s 2015 Annual Report, p. 93. EXHIBIT 4
Balance Sheet (in millions of USD)
repot date
Cash Accounts receivable
May 31, 2015
May 31, 2014
$3,763
$2,908
5,719
5,982
Inventories
498
463
t p e c x e
Other current assets
961
330
Total current assets
10,941
9,683
, r e h s i l b u p
Property, plant & equipment
20,875
19,550
e h t m o r f n o i s s i m r e p t u o h t i w m r o f y n a n i d e c u d o r p e r
Goodwill
3,810
—
—
—
Other assets
1,443
1,047
Total assets
37,069
33,070
Current debt
19
1
Accounts payable
5,948
5,311
Total current liabilities
5,957
5,312
Long-term debt
7,249
4,736
Deferred liabilities
2,639
3,078
Other liabilities
6,231
4,667
Total liabilities
22,076
17,793
Common stock
32
32
Retained earnings
16,900
20,429
Treasury stock
(4,897)
(4,133)
2,958
(1,051)
Total equity
14,993
15,277
Total liabilities & equity
37,069
33,070
Intangible assets
Paid in capital and other
e b t o . n n o y s a r M a e . P d e . v 6 r 1 e 0 s 2 e r @ s t t h h g g i i r r y p l o l C A
Source: Based on FedEx’s 2015 Annual Report , p. 91.
Competitors A summary of key statistics for large package delivery firms is provided in Exhibit 5. Note that FedEx has nearly double the earnings per share (EPS) as UPS, despite having half the net income. FedEx competes primarily with UPS and the U.S. Postal Service in the United States, and with UPS and Deutsche Post internationally. The U.S. Mail Delivery Services segment accounts
Case 5 • Fedex Corporation, 2015
EXHIBIT 5
. w a l t h g i r y p o c e l b a c i l p p a
FedEx versus Rival Firms Fe
Ups
U.s. pl svc
# Employees
231,500
213,200
488,000
$ Net Income
$2.1 B
$4.4 B
($5.5 B)
$ Revenue
$45.5 B
$55.4 B
$67.8 B
$196,544
$259,849
$128,9344
$ EPS Ratio
$7.89
$4.02
—
Market Cap.
$49 B
$91 B
—
$ Revenue/Employee
Source: Based on FedEx’s 2014 company
EXHIBIT 6
Percent Market Share of Key Global Players
r o . S . U r e d n u d e t t i m r e p s e s u r i a f t p e c x e , r e h s i l b u p e h t m o r f n o i s s i m r e p t u o h t i w m r o f y n a
documents.
Fe
Ups
oh
6%
13%
*81%
USA Mail Delivery
26%
38%
*46%
Cargo Airplanes (Non USA)
19%
10%
**71%
Mail Delivery (Non USA)
20%
24%
***56%
USA Mailbox Rentals
*United States Postal Service not included in this data. **Air France-KLM SA, Deutsche Lufthansa AG, Emirates account for approximately 16% total with approximately equal market shares. ***Deutsche Post (parent to DHL International) accounts for around 19%. Source:
From various company reports (such as IBIS, headings changed).
for over $90 billion in annual revenues, with a 3 percent projected annual growth rate over the next 5 years. Approximately 55 percent of the $90 billion is derived from ground delivery services, whereas 29 and 8 percent, respectively, are derived from domestic and international air delivery services. Delivery services outside the United States currently are a $200 billion industry with 3 to 4 percent annual growth expected through 2020, taking the overall projected industry revenues to over $250 billion by 2020. Traditionally, FedEx, UPS, US Postal Service, Deutsche Post, TNT International, and large national postal services in other nations were the main drivers of package delivery, along with many smaller local companies. However, with e-commerce growing, new delivery competitors such as Google, eBay, and Amazon are offing delivery services. As of now, many of these delivery services are same day and only in large cities such as Manhattan, Los Angeles, and San Francisco. It is unclear whether Amazon and Alibaba can also become package delivery giants; however, they have eroded into margins of the big transport firms such as UPS and FedEx. With Amazon’s size and package volume, the firm can negotiate attractive shipping prices for its customers. Exhibit 6 reveals market share data for rival firms in the package delivery industry.
n i d e c u d o r p e r e b t o . n n o y s a r M a e . P d e . v 6 r 1 e 0 s 2 e r @ s t t h h g g i i r r y p l o l C A
United Parcel Service (UPS) Headquartered in Atlanta, Georgia, UPS was founded in 1907 and competes in the package delivery business as well as providing logistics and financial services in both the United States and internationally. UPS is broken down into three operating segments: U.S. D omestic Package, International Package, and Supply Chain & Freight. UPS’s Package segments deliver packages to over 220 countries and the Supply Chain & Freight Segment aids businesses in financing, risk mitigation, supply chain design, consulting services, and much more in 195 countries. United Parcel Service has reported total revenues of $58.2 billion in 2015, up from $55.4 billion the prior year. The company’s 2014 net income, however, declined to $3.0 billion from $4.3 billion the prior year. About 75 percent of company revenues are derived from U.S. operations. By segments, U.S. Packaging, International Packaging, and Supply Chain & Freight account for about 62, 22, and 16 percent of total revenues, respectively. Total revenues associated from air package delivery are about $6 billion, or 11 percent, of total revenues, leaving UPS ground the single-largest driver of corporate revenues.
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STRATEGIC MANAGEMENT CASES
UPS operates over 103,000 vehicles and owns 33,000 package containers. Kentucky-based UPS Airlines, a division of UPS, operates the world’s second-largest cargo aircraft fleet with 240 aircraft. UPS Airlines processes 416,000 packages per hour and has hubs in Hong Kong, China, Germany, Canada, and many states. In 2012, UPS was denied permission to acquire competitor TNT Express on monopolistic concerns. UPS is actively expanding internally, and completed a 70 percent expansion of its hub in Cologne, Germany, in November 2012. In addition, UPS has acquired multiple firms in Latin America, Europe, and Asia-Pacific over the last several years. In 2014, UPS announced it is expanding its service that allows customers to pick up packages at convenience stores, dry cleaners, UPS shops, and many other businesses. UPS has found many customers browse online, then shop in stores, because they are unable to sign for packages delivered to their home during working hours. For $5 per package or $40 annual membership, customers can have packages dropped off at a specified pick-up location. The strategy has worked well in Europe, which currently has over 12,000 pick-up locations with plans to expand to over 20,000 in Europe alone by year-end 2015. Receiving a fee to drop off at central locations is a bonanza for UPS. The firm has determined that saving 1 second per driver per day will result in $14.5 million in savings annually. CEO David Abney in Fall 2014 outlined UPS’s commitment to becoming more a global player, especially with respect to China and Vietnam. Abney also indicated Africa will become more of a global player in the future and possibly Mexico will become a larger player as manufacturing plants want to relocate closer to the United States, as fuel prices and labor wages in Asia increase. United States Postal Service (USPS) Beginning with the Pony Express and stagecoaches, the United States Postal Service (USPS) is the oldest postal service in the country, existing for over 235 years. Currently, USPS employs 488,000 workers, making it the third-largest employer in the United States, behind Walmart and the federal government. USPS daily reaches over 150 million residences, businesses, and post office boxes, delivering about 155 billion pieces of mail to 971,000 delivery points. USPS delivers around 40 percent of the world’s total mail volume with its fleet of over 218,000 vehicles. The United States Postal Service is divided into five business segments: (1) First Class Mail, (2) Standard Mail, (3) Packages, (4) International, and (5) Periodicals. Revenues for the segments in 2013 were $28, $17, $12.5, $3, and $1.6 billion, respectively. Total revenues for 2014 were $67.8 billion, about the same as in 2013. Operating expenses were $73 billion in 2014, resulting in a $5.5 billion loss. The USPS lost $4.9 billion in 2013 and $15.9 billion in 2012. The USPS continues to consolidate mail-processing centers and reduce delivery days on Standard Mail offerings. The firm also is aggressively training employees better to reduce waste, making many rural post offices part-time post offices, and offering discounts up to 58 percent to customers who mail 50,000 parcels a year. These cost saving plans are expected to save the USPS around $500 million annually. However, UPS and FedEx have questions regarding how the USPS can offer discounts to customers, when both U PS and FedEx are being forced to raise prices. With respect to USPS’ lower prices, UPS’s management recently stated in that it should “raise a red f lag,” especially since the organization is currently operating at a loss. UPS management went further, accusing USPS of charging higher rates on first-class letters, where customers have little choice or bargaining power on who to do business with. In addition, both UPS and FedEx have accused USPS of offering subsidies to customers to ship with them and even charging less for package deliver than revenues derived. USPS’s proprietary pricing information does not allow FedEx or UPS to get a clear picture of the situation, but both FedEx and UPS are threating antitrust lawsuits against USPS. As a result of USPS’ moves, its package business has grown over 20 percent annually from 2009 to 2014. By law, the USPS must pay its own way, and does not receive tax payer support. The USPS workforce is heavily unionized, being represented by four labor unions: (1) American Postal Workers Union (APWU); (2) National Association of Letter Carriers (NALC); (3) National Rural Letter Carriers Association (NRLCA); and (4) National Postal Mail Handlers Union (NPMHU). All jobs at USPS not in one of the three main categories of employment are covered with the clerks by the APWU. Some union policies are quite restrictive on the postal service. For example, it is standard policy after a letter carrier has served 360 days, he or she may be represented by the NALC for reduced working hours, or for “just cause” any issue determined to
Case 5 • Fedex Corporation, 2015
be unfavorable by the union member. As mail volume continues to decrease, due to the increased use of email, bank draft billing, and the transition from junk mail advertising to Internet, USPS is constantly downsizing operations, replacing many positions with machines and consolidating mail routes. The forced pre-funding requirements for retirement benefits costs the USPS about $5.5 billion annually. . w a l t h g i r y p o c e l b a c i l p p a
Deutsche Post (DPW.DE) Considered the world’s largest courier company, Deutsche Post employs 488,000 workers and reported 2014 revenues of €29.4 billion, or approximately $35 billion USD (up 8.1 percent from the prior year), and profits of €1.38 billion, or approximately $1.65 billion USD (down 9.1 percent from prior year). Headquartered in Bonn, Germany, Deutsche Post serves customers in over 220 countries. The company currently trades under the ticker symbol DPW on the Xetra in Germany. The company most directly competes with FedEx and UPS through DHL Express, a shipping company it acquired in 2005.
r o . S . U
External Issues
r e d n u
Air Freight Demand Demand for air cargo rose over 2 percent from May 2013 to May 2014. High jet fuel prices historically was to blame for many customers switching to trucking and slower means of transportation, favoring lower cost over more timely arrival of products. However, with oil prices falling dramatically in 2014–2015, demand for air freight is rising. Domestic freight accounts for about 20 percent of total air cargo ton-mile revenues, with FedEx Express and UPS accounting for 80 percent of this total. International freight demand was up less than 1 percent between both the United States and Europe as well as the United States and Asia in early 2014, improving from 3 to 4 percent declines in 2013. Even with an improving economy and lower oil prices, freight demand outlook for international packages by air travel is murky due to competition from large ocean shipping companies, new ports, and quicker shipping times.
d e t t i m r e p s e s u r i a f t p e c x e , r e h s i l b u p e h t m o r f n o i s s i m r e p t u o h t i w m r o f y n a n i d e c u d o r p e r e b t o . n n o y s a r M a e . P d e . v 6 r 1 e 0 s 2 e r @ s t t h h g g i i r r y p l o l C A
International Markets International markets continue to be important for future growth in the airfreight industry. In 2014, international markets accounted for over 50 percent of the airfreight ton-miles and have been increasing steadily since then. Domestic volumes are growing around 4 percent a year, whereas volumes in Asia are growing nearly 20 percent a year. Both FedEx and UPS have capitalized on these trends, especially in China, but also in Germany, to help facilitate a growing European market as well. International rates tend to offer a higher margin as well, since many customers internationally disproportionally use next day service, which carries a significant price premium. Less than Truck Load (LTL) FedEx Ground and UPS both compete in the LTL segment that accounts for about 6 percent of the total trucking industry. Annual revenues in the LTL are over $50 billion with both FedEx Ground and UPS accounting for the majority shares. The LTL typical haul consists of 1,000 to 1,500 pounds and is normally used by business-to-business or retail-to-consumer segments, such as Amazon sending shipments to customers. The LTL system also requires a large hub structure, which both UPS and FedEx Ground have. In LTL, labor costs are high, with many drivers being represented by the International Brotherhood of Teamsters Union. Natural Gas Powered Trucks The trucking industry had high hopes for natural gas powered trucks, especially in the United States, where natural gas is plentiful but sales have lagged expectations. In 2013, sales were around 8,700 trucks and around 10,000 in 2014. However, analysts were expecting 16,000 natural gas powered trucks to be sold in 2014. Premiums on the trucks upwards of 33 percent have caused pause with potential customers, combined with cheaper diesel fuel prices during the same time. Also, only in select parts of the South and West are there reliable natural-gas fueling stations. Natural gas powered trucks do save around $1.70 per equivalent gallon on fuel after taking into account diesel trucks are 20 percent more fuel efficient. In the end, it takes around
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4 years at current fuel prices to recover the price premium paid for a natural gas powered truck. However, UPS has a fleet of around 300 gas-powered trucks and 700 tractors. In addition, UPS has helped finance several natural-gas filling stations. Future . w a l t h g i r y p o c e l b a c i l p p a r o . S . U r e d n u d e t t i m r e p s e s u r i a f t p e c x e , r e h s i l b u p e h t m o r f n o i s s i m r e p t u o h t i w m r o f y n a n i d e c u d o r p e r e b t o . n n o y s a r M a e . P d e . v 6 r 1 e 0 s 2 e r @ s t t h h g g i i r r y p l o l C A
From Summer 2014 into early 2015, oil prices fell nearly 60 percent in the United States, in what many would consider a boom for trucking companies such as FedEx. But as CEO of Old Dominion Trucking pointed out, much of the oil price is passed on to consumers, and rising or falling prices do not directly impact trucking business. FedEx, in fact, missed its second quarter 2014 earnings estimates, reporting $2.14 EPS versus Wall Street estimates of $2.22 EPS. The difference was blamed mostly on reduced fuel surcharges stemming from the drop in oil prices, which FedEx was unable to pass along to consumers as the price of oil dropped. Nevertheless, FedEx is still doing great; second-quarter 2014 profits were up 23 percent from the same quarter in 2013, and revenue was up 5 percent over the same period. UPS’s stock price dropped nearly 15 percent in one week in January 2015 after reporting flat earnings and a 6 percent sales gain. In response to UPS’s news and growing concerns, FedEx’s CEO was quoted as saying “We are not UPS.” FedEx acquired GENCO Distribution System, Inc. in January 2015. The GENCO acquisition is expected to further FedEx’s commitment to its customers by improving logistics offerings. GENCO is a large third-party logistic provider in the United States and Canada. FedEx plans to allow GENCO to operate as a subsidiary and keep its management team. The new subsidiary will, however, report through FedEx’s Ground business segment. FedEx is flying high. In mid-2015, the company signed a deal to buy 50 additional Boeing Co (BA.N) 767-300 freighters in the biggest order ever for the plane, allowing Boeing to extend its production line well into the next decade. The deal includes options for another 50 767Fs and is worth $9.97 billion at list prices. The new aircraft are being delivered to FedEx Express over the fiscal years 2018 to 2023. This deal brings FedEx’s orders for 767Fs to 106 and extends the company’s drive to modernize its fleet. FedEx needs a clear strategic plan moving forward. Help CEO Smith prepare this document.