DC Velocity - December 2012

specialreport THE TRANSPORTATION MARKET

Some of the yield gains are the result of a controversial move in late 2010 by FedEx and UPS to adopt a dimensional-weight pricing scheme for shipments based on package density. Shippers whose packages fell outside the new dimensional parameters and who couldn’t reduce their shipments’ cubic dimensions to fit the revised guidelines were hit with rate increases that often ran into the double-digits.

In the Oct. 10 presentation, FedEx said the revenue from the dimensional pricing changes “ substantially exceeded our expectations” during the 2011 calendar year. It is believed that FedEx has generated at least $100 million in additional revenue from those changes alone.

In an environment where express package volume isn’t growing but the value of each package is, air express shippers will become coveted prospects, said TranzAct.

“Whatever the reason for [FedEx] Express’s decline—conversion to electronic transmission [for docu-ments], cyclical service downgrades to save money in difficult economic times, a marketplace that is reaching maturity—today’s premium air-express shipper is going to be a strongly desired client by any carrier,” the firm’s analysts wrote.

The industry official went one step further, saying air shippers tendering shipments traveling less than 300 miles will be like liquid gold for parcel carriers. That’s because those shipments could easily be diverted to truck and still be delivered the next day to meet the air service delivery commitments. FedEx—or UPS, for that matter—can charge higher air rates and capture the huge differential between the cost and price of the service, the official said.

FedEx has publicly touted the fact
that its ground deliveries are faster
than UPS’s over about one-fourth of U.S.
lanes served by both companies. The offi-
cial said that claim understates FedEx
Ground’s speed advantage. “I’ve been in
this business a long time, and I’ve never
seen anything like it,” the official said, refer-
ring to FedEx Ground’s time to market.

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SOMETHING OLD …

All of this is a far cry from the mid-1990s,
when FedEx hitched its wagon almost exclu-
sively to the airplane. Around that time,
Smith told an industry conference that, “To
us, truck is a four-letter word.” A company
spokesman, asked years before FedEx
expanded into the ground parcel business if
that scenario was feasible, replied, “We see
no need for a slower service.”
A move into supply chain management
services also seemed anathema to FedEx,
even as UPS was growing its presence in the
segment. As FedEx saw it, transportation—
particularly air transportation—was where
the profits were. Supply chain management
services generated decent revenue but had
relatively thin margins, it reasoned.

By the late 1990s, however, actions began speaking louder than words. With the Caliber acquisition came Roberts Express, which gave FedEx an entry into the time-critical delivery market, and Viking Freight, a regional LTL carrier serving the Western United States. Three years later, FedEx bought LTL carrier Arkansas Freightways, whose Eastern U.S. operations were then combined with Viking’s to create a national system.

FedEx even rebranded itself and took a new corporate name, changing from “Federal Express Corp.” to “FedEx Corp.” to position itself as more than just an express provider.

Now, as the company enters its next 40 years and Smith begins to think about his legacy, the focus will be on profitable growth, and a changed business model. “It’s not about just taking share anymore,” the official said. ;