In its most recent earnings, FedEx beat projections due to the surging demand in e-commerce, and the markets accelerated migration to online buying.
Because most retail stores were forced to close up shop amid the COVID-pandemic, demand quickly went up for online purchases – and with that – residential package delivery.
FedEx’s topline revenue for Q4 2020 was $17.4M. This far-exceeded the projected $16.8M, albeit lower than 2019’s Q4 ($17.8M). Total net income was $663M, which was quite a bit lower than 2019’s Q4 net income ($1.32B), but again, beating expectations. A win for FedEx, who’s been a question mark for investors after cutting ties with Amazon in mid-2019.
A FedEx representative reported that in the same quarter last year, total residential volume accounted for 56% of deliveries, compared to 72% this quarter. That is a seismic shift that had both positive and negative effects for FedEx.
Many retail stores closed up shop as early as March, which left online buying one of the only options for consumers. This helped FedEx strictly from a volume standpoint, as delivery demand sky-rocketed. FedEx also implemented peak residential surcharges (among other increase) which impacted a handful of large shippers. Although FedEx enjoyed higher than expected revenues, a vast majority of these deliveries were to residences. Residential deliveries are less-profitable for carriers due to longer miles, and decreased pickup and delivery density. It makes sense that under the current circumstances, revenue was up, however net margin was drastically reduced.
FedEx’s delivery model can also hurt their profits. Each of FedEx’s service options act as its own entity. For example, if you ship a Ground Package and an Express Package via FedEx, they will be picked up by two different FedEx trucks and handled in separate networks. This creates a costly environment to service two trucks each day to the same location.
UPS, on the other hand, has one delivery network, with its services available under the same umbrella. This makes it easier for them to handle abnormal volume shifts, like what we are seeing with the impact of COVID-19. Many believe that UPS will continue to win market share over FedEx as long as the market conditions remain volatile.
It appears as though FedEx has won this quarter. Only time will tell what the future will hold for FedEx, and the carriers alike.
