DC Velocity - October 2012

program for FedEx Express that it will make public this month in Memphis. On the
analyst call, Smith bristled at the description of the initiative as a “restructuring,”
arguing there are no plans for layoffs or other “draconian steps.”
He claimed the marketplace will be “surprised by the magnitude” of costs the com-
pany plans to shed from its air network, much of it coming from the reconfiguring of
line-haul operations and the support infrastructure.

In a research note, William Greene, lead transport analyst at Morgan Stanley & Co., said that investors would expect “significant” cost reductions coming out of the October meeting. However, Greene said that “we worry that these expectations may be hard to meet.” He noted at the time the results were released that FedEx’s share price was roughly unchanged from where it was in June, when projections for full-year earnings were 10 percent higher.

Jeffrey Kauffman, transport analyst for Sterne Agee, said FedEx is coping with a combination of secular and cyclical trends. Kauffman said the domestic overnight express market hasn’t grown since 2000, while the shift in international trade from air to ocean has been under way since 2007. Those long-term trends have been amplified by what Kauffman called a “cyclical growth slowdown” that has prompted retailers to draw down existing inventory levels rather than place new orders.

Smith said decisions by shippers to “trade down” to slower, less-costly services are due in part to the sluggish macroeconomic environment. He added that more commerce would return to the premium “Priority” segment once businesses are more confident about the health of the U.S. and global economies.

Smith said the bigger challenge is the escalating price of oil, which makes shipping and transporting goods significantly more expensive. The relentless rise in energy costs has slowed overall economic growth, while forcing businesses to look for cheaper alternatives to air, such as surface transport in shorter-haul markets and ocean freight on long-range, intercontinental lanes, Smith said.

“The world economy has absorbed a tremendous increase in the price of fuel in the past 10 years,” he said.

According to data from the Department of Energy’s Energy Information Administration, the spot market price for jet fuel on Sept. 18, 2002, stood at 81.5 cents a gallon. On Sept. 11, 2012, the price hit $3.257 a gallon, a fourfold increase almost down to the last digit. ;

short takes
I know your production manager.
I know
your plant’s
assembly
schedule.
We know what it takes
to get it there
next- day.

Sunbelt Industrial Trucks and Narrow Aisle Inc. (SBNA) has been acquired by a newly formed holding company, SBNA Holdings Inc. With the acquisition, 33. 3 percent of SBNA shares were sold to the employees of both companies via an employee stock-ownership program. … Logistics company C.H. Robinson Worldwide Inc. has agreed to acquire Apreo Logistics S.A., a freight forwarder based in Warsaw, Poland. … Old Dominion Freight Line Inc. has opened a new service center in Parkersburg, W.Va. … Material handling company Intelligrated has relocated its Midwest operations to expanded facilities in Woodridge, Ill. … SDV has acquired an 80-percent majority stake in Getco, an Italian multimodal transport operator headquartered in Milan. In other company news, SDV USA has relocated and expanded its Boston branch. … Riekes Equipment Co., a Yale lift truck dealer headquartered in Omaha, Neb., recently opened a full-service facility in West Fargo, N.D.