FedEx, UPS Report Challenging Conditions in Latest Quarterly Reports
FedEx and UPS had a challenging fiscal quarter, as both carriers reported year-over-year revenue declines during recent earnings calls.
While each carrier told a different story behind their results, there are a handful of common threads between the two.
First, package volumes have been declining since the peak COVID-19 era. Consumers are shopping online less often, and the economy is facing headwinds. The effects show up in both FedEx and UPS’s quarterly earnings reports.
Second, UPS labor negotiations affected both carriers. With the genuine possibility that union members could go on strike, shippers were forced to make contingency plans. For UPS, this means the carrier is looking to recapture lost package volume. For rival FedEx, the threat of a disruption meant a boost in customers.
Finally, we’ll be watching both carriers closely as they continue enacting large-scale turnaround efforts to shore up their bottom lines. Changes could mean any combination of organizational changes, investments in technology, or layoffs.
Highlights from FedEx Earnings Report
FedEx reported year-over-year revenue declines during the company’s fiscal Q2 of 2024 on the most recent earnings call, held on Dec. 19. The call covered financial performance for Sept. 1 - Nov. 30, 2023.
Despite lower overall revenue, the company reported improved quarterly income and margin. FedEx reported $22.2 billion in revenue and $1.3 billion in operating income for the quarter. In Q2 of 2023, the company reported $22.8 billion in revenue and $1.2 billion in operating income.
“FedEx has delivered an unprecedented two consecutive quarters of operating income growth and margin expansion even with lower revenue, clear evidence of the progress we are making on our transformation as we navigate an uncertain demand environment,” Raj Subramaniam, FedEx Corp. president and chief executive officer, said in a statement. “We are moving with speed to make our network more efficient while delivering outstanding service to our customers through the peak season with the fastest Ground network in the industry. I am confident in our strategy as we make our global network more flexible, efficient, and intelligent.”
FedEx is in the middle of a significant restructuring effort as it responds to the sharp drop in demand. Central to this initiative is implementing cost-cutting measures, including the DRIVE program. The company hopes to save billions of dollars by integrating FedEx Express, Ground, and Freight into a single business unit.
FedEx also noted that the prolonged contract negotiations at rival UPS proved to be a benefit to the company. The Memphis-based carrier said it gained business from shippers concerned about a potential strike disrupting their operations. FedEx also said the summer bankruptcy of Yellow Corp. helped the company gain market share and additional business.
“New customers that came over as a result of the shutdown are enjoying a better value proposition, and we have retained a majority of this volume,” FedEx Chief Customer Officer Brie Carere told Transport Topics.
Highlights from UPS Earnings Report
Like its rival, UPS also reported declining revenue, citing lower demand during its most recent quarterly earnings call. The Jan. 30 call covered Q4 2023 and the full-year earnings.
The carrier reported a consolidated revenue of $24.9 billion, a 7.8% decrease from the same quarter in 2023. According to a company statement, the revenue decrease came mainly from a 7.4% decrease in average daily volume.
CEO Carol Tomé said she doesn’t expect the decline in package volumes to reverse later this year.
In response to the revenue decline, the carrier announced plans to save $1 billion by cutting roughly 12,000 jobs. According to news reports, the cuts will primarily impact management-level employees and contract positions. Currently, the reductions do not include the approximately 340,000 employees represented by the Teamsters union, including drivers.
Employees represented by the Teamsters union were at the center of a contentious labor negotiation last year, with the labor group threatening a strike if the two sides could not reach an agreement. After months of negotiations, the union reached a deal with the company that avoided a strike. Had a strike occurred, it would’ve been the largest single-employer strike in U.S. history.
UPS executives said the carrier is still working to recapture the parcel volume it lost to rival carriers during the prolonged negotiations.
“By the end of December, we had won back and pulled through nearly 60% of the volume diverted during our labor negotiations,” CEO Carol Tomé said. This amount of recovered customers is up from 40% in October.
“I want to thank UPSers for providing the best on-time performance of any carrier for the sixth year in a row,” Tomé said in a news release. “2023 was a unique and difficult year, and through it all, we remained focused on controlling what we could control, stayed on strategy, and strengthened our foundation for future growth.”
Takeaways for Shippers
For parcel shippers, carriers’ declining balance sheets mean two things. First, they’re looking to make up that revenue by taking various cost-cutting measures, including corporate restructurings and layoffs.
Second, the carriers are looking for opportunities to recapture this revenue from shippers. We see it as indefinitely extended “demand” surcharges and certain accessorials increasing faster than in previous years.
Because carriers are worried about revenue, shippers – their customers – have some leverage. Carriers are offering discounts to attract more businesses, and existing customers may be able to negotiate more favorable rates.
If you’re interested in learning more about how you can save on your shipping costs, get in touch. The experts at AUSPI Group are here to empower you with market insights and industry expertise you can use to recapture savings.