Delta Air Lines 2Q16 Earnings Call Notes

Delta Air Lines’ (DAL) CEO Ed Bastian on Q2 2016 Results

Taking out capacity to fight unit revenue headwinds

“Despite our strong results, we continue to face persistent headwinds on our unit revenues on a number of fronts that we are working hard to combat. Capacity is one of the biggest levers we have to move the needle on our unit revenue performance. In May, we announced that we plan to take one point of capacity out of the fourth quarter. That brought our second half capacity growth plan to below 2%. Now, with the foreign currency pressure from the steep drop in the pound, the economic uncertainty from Brexit and continuing yield pressures in the North Atlantic, we have decided to take an additional 6 points of capacity out of the UK for the winter IATA season. ”

The large fuel savings are now behind us

” the reality is that the large year-on-year savings driven by lower fuel are now behind us, market prices are essentially flat for the third quarter and look to be higher year-over-year in the fourth quarter for the first time since 2012.”

Third quarter is the peak of the year

” I think the third quarter is the peak of the year. Candidly, it’s this June, July and August, right? So, that continues to be our – that’s our sweet spot.”

Currency putting pressure on purchases to the US from Britain

“The currency certainly has impacted the booking point of sale. And we have seen some strength in the U.S. point of sale to the UK as the talent has deteriorated. Likewise, we have seen some reduction in our UK point of sale coming to the U.S. And that’s why we are making certain of the capacity adjustments combined with overall high levels of capacity in the North Atlantic, which is putting pressure on yields even before Brexit.”

Paul Jacobson

Potentially is some impact on pension from low rates

“Well, I think it’s a little bit too soon to tell. Obviously, our balance sheet liability is impacted by rates. We have talked about that in the past. So, assuming rates don’t revert back higher, we could see a higher balance sheet liability, but keep in mind that, that has little impact on expense and little impact – no impact at all on our minimum funding requirements for our strategy going forward, which is much longer term based.

Glen Hauenstein

We are not trying to forecast any turn in the cycle, we’re just saying where we are

“Jamie, you asked a lot in that question and I have not gone back to check to 2008. 2008 to me is a blur going back in time. Listen, our guide is our best estimate to where we sit now. We do not think that we are at a – trying to forecast any type of inflection on the cycle or the margins if that’s your question. It’s really where we are. Fuel prices have bounced around a fair bit and fuel prices are up a bit in Q3 versus Q2, hedge aside. And we realized that we do have unit revenue weakness, particularly in the first half of Q3 that we are recognizing. So, I think that if you look at Q3 year-on-year, I think we are about flat, 20% pre-tax margin and I think that’s a – that’s about all I can draw from that.”

Strength in Mexico

“I think we have mentioned in the prepared remarks that the Latin unit revenues were up in the month of June for the first time in 26 months. So those green shoots that we saw last quarter are actually coming in and again being driven by strength in Mexico and a lot of that strength may be related to the presence of Delta and Aeromexico together because it seems that we are getting a much higher share of some of the corporate travel to and from Mexico.

London represents 35% of total business between the US and Europe

“London has – is the biggest market in the UK. But London has a very, very high business component. As a matter of fact, London represents about 35% of the total business to and from the U.S. between U.S. and Europe. So what we are doing is we are taking potentially down frequencies in off peak days. We are down-gauging equipment into the regional cities. Manchester tends to be a perfect example of much higher UK point of origin market and that one because there is a lot of leisure travel coming out of Manchester. And those would be the types of markets that we would look at to reduce.”

CSX 2Q16 Earnings Call Notes

CSX’s (CSX) CEO Michael Ward on Q2 2016 Results

9% volume decline driven by coal

“Yesterday CSX reported second quarter earnings per share of $0.47, compared to $0.56 per share in the same period last year. Revenue declined 12% in the quarter; a strong pricing across nearly all markets, was more than offset by the impact of a 9% volume decline, which included a 34% decline in coal, as well as negative mix and lower fuel recovery.”

Continues to be a challenging freight environment

” it’s clear this continues to be a challenging freight environment with plenty of macroeconomic headwinds. Thanks to the extraordinary work of our employees, CSX is delivering record levels of efficiency and rightsizing resources to the business demand of today.”

Need more than just a hot summer to normalize coal inventories

” it is helping, but you have some of our utilities that we serve have an awful lot of coal on the ground at this point and it’s going to take more than just really hot summer to get it back to where it needs on average.”

Frank Lonegro

Expect y/y volumes to decline in 3Q

“Now let me turn to the market outlook for the third quarter. Looking forward we expect year-over-year volumes to decline in the third quarter, in the mid to high single digit range. Despite some markets growing, the majority of our markets will be down with the most significant declines continuing to be concentrated in coal and crude oil.”

Auto expected to still grow

“Automotive is again expected to grow, as light vehicle production remains higher on a year-over-year basis. Minerals volume will be higher with a continued ramp up of the new fly ash remediation business and ongoing strength in construction, which drives demand for aggregates.”

Comps will begin to ease in back half of year

“There are comps that begin to ease as we get into the back half of the year. Although as we mentioned, volumes in the third quarter will be down mid-to-high single digits, with crude down international intermodal losses in the coal as we mentioned on a year-over-year basis down as well.”

Fredrik Eliasson

Inventories are still at a high level

“Inventory is still at the high level, has been a sequential decline just a little bit, but it’s still high versus historical basis. So that’s certainly impacting the international part of our intermodal business more perhaps than it does on the domestic side, which is also why you’re seeing the steamship line continuing to struggle quite significant than demand on that side is very week at the moment.”

Overcapacity in truck is impacting our markets

“I think short term meaning for the next 12 months or so we see a period of excess capacity out there that certainly is impacting things but overall you have a chance to see it where it comes each and every quarter.”

A little early to say if the panama canal expansion will have impact on volumes

“In terms of Panama Canal obviously it is very recent, as little too early to tell, we have said this for a while that there is so many different drivers that comes into play here, that is very difficult to predict exactly what’s going to happen. The good news is that we have a flexible network. We will be able to handle additional volume coming into the East Coast. If that happens and we’re working very closely both with international customers and with the ports to make sure we have the capability that we need if it is a bigger shift that we’re currently anticipating.”

Star Bulk Carriers 1Q16 Earnings Call Notes

Star Bulk Carriers’ (SBLK) CEO Petros Pappas on Q1 2016 Results

Commodity prices appear to have reached bottom

” after more than two years of strong declines commodity prices appear to have reached the bottom during the first quarter of 2016.”

Some fundamentals improving in China

“We expect that the ongoing monetary in the system stimulus taking place in China will boost steel consumption in the medium-term. As a matter of fact house prices and building permits have been recording healthy increases during the first half of 2016. Furthermore, we find very encouraging that both iron ore and coal production in China are reported to have recorded strong declines during the first month of 2016.”

Scrapping could be slower in the second half of the year

“if you look at last year’s scrapping the way scrapping went last year there was a lot of it in the first half and much less in the second half. So, depending on people’s expectations we will also see how scrapping moves. I think that probably scrapping in the second half of the year will reduce in comparison to the first half, but it will depend a lot on how rates go, if rates are strong scrapping will slowdown.”

China will be importing coal from different locations

“Well, what we’re seeing is that Indonesia is supposedly going to cut exports by about 50% going forward because of needs for domestic consumption. We think that China has raised its bottom of — I mean the downside of Chinese coal imports have reached their bottom. And we think that China will be obliged to import this coal now mostly from South Africa, Australia and probably also Colombia especially with the new Panama Canal coming into play.”

A year from now the market for ton miles should be better than it is today

“Just one thing I want to say. I believe that in a year or a year and a half from now we will see a better market as far as ton miles are concerned in various sectors like coal as we already discussed, iron ore because we see that Brazil is going to be exporting many more tons probably more than 100 million tons starting as of mid ’17. And Australia has much less to export in addition to what it’s already exporting and that is a major factor in the market it’s more important than tons, ton-miles it should be more important than tones. And then we think that there is going to be much more trade in bauxite because Indonesia again is curtailing their exports in bauxite and we’d probably see it coming from Africa. And we think there is going to be more grain trade which by definition is long ton miles. So, we believe that the upturn of this market is going to start from that sector more than anything else”

Scrapping will be a key to a better market in 2018

“I think this year there is going to be more scrapping than last year I don’t know by how much. And oil prices are important because if it stays around $50 versus $30-$35 that we were seeing last year will probably contribute in slowing down vessel speeds. And we see China looking more towards infrastructure and we see more housing permits starting up, so we think that there are reasons why we should be looking at a better future. However, as we said more strain on ordering and more scrapping this is going to be the key of a better market in 2018. Thank you very much operator.”

FedEx FY 4Q16 Earnings Call Notes

Fred Smith

Our goal is not to maximize margins in every segment every year

This is Fred Smith. Let me take that question on a broader front, because this is one of my hot buttons as you probably know. We don’t manage FedEx Corporation trying to maximize each segment margin each year. If we did that, we would never be able to take advantage of this broad portfolio in the cross-selling that’s available to us.

Millenials are not going to stop going to stores

“We know from research that the millennial generation, the largest generational cohort in American history is not going to stop going to stores. In fact, we had a wonderful presentation about just a couple of weeks ago at our Board Meeting. So, e-commerce is fantastic and its going to continue to grow and we intend to be a major player in that space. But as Mike just said, it’s not going to — in our opinion and in the research from very credible sources, going to eliminate retail. What it may do is change the character of retail.”

B2B is the backbone of FedEx network

remember of all retail e-commerce is now about 10%, growing fast, taking share, but it’s going to be a long time before retail is threatened. And B2B meaning the underpinnings of the business world medical production, automotive, and things like that that in the main is not going to be diverted to e-commerce anytime soon and that is the backbone of the FedEx networks.”

Not a lot that doesn’t concern us with the election

“I would say, we would have a hard time putting up a list of the things that don’t concern us giving the two candidates position, but obviously we’re concerned about the anti-trade rhetoric a lot of the anti-business positions and it’s very worrisome. But hopefully after the election cooler heads will prevail.”

Mike Glenn

Continue to see moderate growth in global economy

“On the economic front, we continue to see moderate growth in the global economy. Our U.S GDP forecast is 1.8% for calendar ’16, which is 40 basis points lower than our forecast last quarter, and we forecast 2.4% for calendar ’17, led by gains in consumer spending.”

Ecommerce would not be possible without our networks

“Now I’d like to take a few minutes to further discuss and address the growth of e-commerce which continues to outpace GDP growth both in the U.S and globally. E-commerce has become a [indiscernible] for consumers acquiring goods around the world, but the success of e-commerce continues to be dependent on transportation companies ability to reliably and quickly make residential deliveries around the world.

One of the most profitable e-commerce companies today

As we noted during our last conference call on earnings, more than 95% of e-commerce packages in the U.S are delivered by FedEx, UPS, and the United States Postal Service, with whom we have a strategic relationship to transport their priority mail. E-commerce would be impossible without these companies and our expansive networks. If you were to isolate the FedEx e-commerce business, it would become clear FedEx is one of the most profitable e-commerce companies in business today.”

Continue to get questions about Amazon

“One additional point as we continue to get questions concerning Amazon in the evolution of their transportation capabilities and needs. Amazon continues to be a valuable customer and they’re among the large e-tailers that we stay in close dialogue with throughout the year to understand their transportation needs as they continue to experience significant growth and generate demand for FedEx transportation.”

Diana Shipping 1Q16 Earnings Call Notes

Diana Shipping’s (DSX) CEO Simeon Palios on Q1 2016 Results

Dry Bulk market unlikely to reach anywhere near the levels of earnings and asset prices seen eight years ago

“Even in the best case scenario, it is very unlikely that the bulk carrier market will reach anywhere near we have the levels of earnings and asset prices seen eight years ago.”

You’ve seen ship yards closing in China as government support diminishes

“Now, regards to the general question, the only thing we can say that we’ve seen at least in China something that you have for sure noticed as well that most of the private shipyards do not get much funding anymore from the state government on banks and therefore are silently closing one by one. And you have already seen quite a few shipyards closing which can only be a positive for the overall but this has already happened. There is still a few more to go but not much more.”

Ioannis Zafirakis

Raising equity would be a last resort

“We have stated many times that our model works together with our shareholders at good part of the market raising equities. Our model works if we treat our shareholders with the utmost respect. And therefore diluting them in this part of the cycle as a choice is something that we do not consider. Only out of necessity, we may consider something like this in the future, something that we haven’t — is not a level that we have reached to-date. It’s going to be our last resort. We will eliminate all the other possibilities before we do an equity offering. We know that if let’s say two years past from now and we’re still in the same bad market position et cetera is going to be probably more diluted, if we do an offering. But nevertheless, we have to do our best to avoid and offering period.”

We still need to see more scraping but we are getting to the bottom because no one feels prepared for what’s coming

“we still have a way to go as regards to scraping and laying up. We need more cleansing. One thing is for certain that we have reached the level where everyone and by everyone I mean every shipping company feels like is not very well prepared for what is coming. And this is for me the absolute bottom of the market. It’s a good thing that almost everyone is pessimistic about the market because the cleansing is going to happen.”

This is the absolute bottom

“today we are at this level in the market where nobody really thinks that he is well prepared for what is coming. So radically speaking, we need all the money that we have aside, in order to gain some more breathing space. We know very well but the name of the games, who have been today offense but nevertheless this is shipping and this is the absolute bottom and this is where nobody wants to be to play smart because seeing ahead you need all the dry powder in order to gain sometime. We are very, very fortunate that we manage to buy a lot of vessels at the lower part of the cycle. It has been always a case that not a lot of people buy out the absolute bottom.”

UPS 1Q16 Earnings Call Notes

United Parcel Service (UPS) David P. Abney on Q1 2016 Results

Consumer spending remains primary catalyst for growth

“GDP forecasts continue to be revised downward, yet consumer spending remains the primary catalyst for growth in the economy and e-commerce sales have again exceeded the expectations. On the other hand, industrial production remains below 2015 levels.”

US GDP has obviously weakened. Some things that are good, some things that concern you

” I’ll give the same impression to that that I would to the customers, that is it’s very mixed. And U.S. GDP has obviously weakened. Even today, the numbers that came out quarter-over-quarter has showed weakness and year-over-year slight deterioration. But again, you can look and you can find bright spots and then you can find things that worry you. On the one hand, consumer spending continued to be the primary economic driver in the U.S. On the other hand, industrial production has been disappointing; although I can say there has been some recent data on manufacturing that is showing some sign of expansion. On the one hand, again, online retail is continuing to grow much faster than many expected. On the other hand, the especially brick-and-mortar retailers have not done so well. Again, on one hand, inflation and unemployment have stabilized, although wage growth, of course, has been muted. And when you look at it internationally, I think the same thing, you’re going to see positives and you’re going to see things that concern you. From the European Union, we still expect to see that economy grow at a fairly solid pace compared to the recent past, but there are signs of slowing, especially in some countries.”

Alan Gershenhorn – Chief Commercial Officer & Executive VP

Same day e-commerce has challenges

“Currently, as you know, same-day for e-commerce has challenges with consolidating density and single-piece stop economics that could create profitability issues as these companies look for the low-cost model. Deliv’s goal is pretty unique. It consolidates multiple deliveries on one driver with pickups from multiple stores at a mall, for example. So we’re looking to get some key learnings there.”

There’s really more demand for local next day

“At the same time, we believe that because the lion’s share of shopping takes place in the late afternoon and evenings, there’s much more demand for local next-day, which really speaks to the latter part of your question about omnichannel. ”

Omnichannel is a growing trend internationally too

“omnichannel is a growing trend in the retail industry. We’re seeing 30% year-over-year growth in UPS accounts in 2015, and that means at the store level, we’ve got about 120,000 ship from store locations that are shipping or have the potential to ship. We’re starting to see this phenomena start to take place also outside the U.S. in our International business.”

Union Pacific 1Q16 Earnings Call Notes

Lance M. Fritz – Chairman, President & Chief Executive Officer

2016 has brought continuation of trends from 2015

“2016 has brought a continuation of many of the same trends that we experienced throughout most of last year. An energy market recession, low commodity prices, the strength of the U.S. dollar and soft global economy, and muted domestic retail demand have all contributed to overall market weakness across many of our business lines. And it’s likely that many of these themes will be with us for some time. That said, we are stronger coming into this year than we were a year ago.”

I think we’ll continue to invest in the southern tier of our network

“as we look forward, our capital spend will depend on the first three things I mentioned. First and foremost, what’s the outlook for volume, what’s that environment look like, where is that volume showing up, and what are the projects that we have in front of us that generate attractive returns? In my mind’s eye, you’re still going to see us spend down in our Southern tier of our network. That’s still an area where we would like to continue to enhance our capacity.”

Eric L. Butler – Executive Vice President-Marketing & Sales, Union Pacific Railroad Co.

Auto sals are forecasted to be 17.8m vehicles, but we’re cautious about sales supporting these levels

“Turning to autos, light vehicle sales are forecasted at 17.8 million vehicles, a 2% increase above the 2015 seasonally adjustable annual rate of 17.5 million vehicles, driving both finished autos and parts, including over-the-road conversions. While we expect low gasoline prices will continue to sustain demand, we remain cautious with respect to auto sales supporting these levels.”

Expect growth in intermodal impacted by sluggish retail inventories and sales

“in Intermodal, we see growth potential in domestic Intermodal from highway conversions, though muted by high retail inventories and sluggish retail sales. With trans-Pacific market challenges, we expect continued volatility in international Intermodal”

US is still a great producer of global ag

“if you look at our Ag business, it really is dependent on the fact that the U.S. still is a great producer. Generally speaking, long term it is in the sweet spot in terms of world competitiveness. We have had wins this year with the strong dollar, but it’s in the sweet spot, and the U.S. as a producer will continue to be a good producer.”

The dollar is still very high in any relative sense

“I’m not a central banker, but I would say the dollar is still very high in any relative sense. It has dropped a little from the peak, but it still is very high. And as you know, dollars impact the competitiveness of U.S. exports across the board. So whether it’s Ag, whether it’s things like steel, whether it’s things like our iron or metals business or other commodities business, it impacts all of those things. And so I don’t have any prediction of how much the dollar needs to fall. It still is very high in any relative historical sense…The dollar is still a headwind. The strong dollar is still a headwind to U.S. exports.”

West Coast port entry is still fastest option to Eastern markets

“that West Coast port entry still is the fastest option to get to the Eastern markets, usually by two weeks. Another factor is with all of the rationalization going on in the container shipping industry, all of the alliances and the mergers and all that’s going on, there does seem to be a migration to the larger ships. ”

Coal was even softer than we anticipated

“So clearly, as Rob said earlier, the coal side was a lot softer than what we anticipated. Again, warmest winter on weather, we did not expect these low natural gas prices. The shale impact is significant. But if you set aside the shale impact, the energy, the coal impact, you do have some variability going on in terms of retail sales that is probably a little softer than what we anticipated.”

There is general economic strength in our industrial products business

“there is general economic strength that we’re seeing in our industrial products business in terms of construction coming back, housing coming back. Chemicals has the benefit of plastics going to the automotive industry as you see automotive sales. And so there’s a slowly strengthening economy out there and we’re doing a lot of business development to go after it, which again is being overshadowed by just the huge volume numbers for coal and shale and the other headwinds we have.”

There is a lot of grain stockpiled in storage

“There is a lot of grain in storage. There is about 200 million bushels that were carried out from last year. I think the USDA estimates are that can grow by another 500 million bushels based on the number of acres that are being planted and the types of yields that are expected. So there is a lot of grain out there. We believe that eventually it has to move. And so we are certainly optimistic that when it does move, we’re going to get our fair share of that, and it will move. It’s just right now, U.S. grain is not competitive on world markets. The strong dollar is an issue. There are other issues in terms of really good crops in other places, growing regions around the world. But we do think it will ultimately will move, and we’re going get our fair share of it when it does.”

Cameron A. Scott – Executive Vice President-Operations

Adjusting aspects of business to lower demand

“we also continue to adjust other aspects of our business to lower demand. At the end of the first quarter, we had around 600 total engineering and mechanical employees on furlough as well.”

Robert M. Knight – Chief Financial Officer

Operating revenue down 14% driven by significantly lower volumes

“Operating revenue was $4.8 billion in the quarter, down 14% versus last year. Significantly lower volumes, a challenging business mix, and lower fuel surcharges more than offset solid core pricing achieved in the quarter.”

Delta 1Q16 Earnings Call Notes

Ed Bastian


“I’ve been asked many times over the last couple of months as I take over as CEO as to what my priorities will be as we look to the future. Our goal as a team will be to continue to invest in the initiatives that are producing adorable, sustainable and industry leading foundation at Delta.”

Domestic fleet renewal is a medium term need

“The focus we’re in the midst of currently is the domestic fleet renewal over the next five years. It’s not a short-term need. It’s a medium term need, because MD-88s do need to retire. We have roughly 115 of them currently. And we also need to continue to up gauge our regional flying to the main line which we’ve had a lot of success in and there is much more to go. And I think we can do it cost effectively.”

Paul Jacobson

Lower fuel costs providing huge benefits, but a lot of uncertainty

“While lower fuel cost are providing huge benefits for our business, there is a lot of uncertainty in the global environment and we know fuel won’t stay low permanently. As a result, we remained focussed on staying disciplined with our cost.

Glen Hauenstein

The industry needs to fill capacity in order to maintain margins

I think those are always are concerns. I think that the demand that is strong particularly ex U.S. and it’s been little bit weaker ex Europe. But if these elevated level stay and fuel goes up and economies don’t grow, I think that would be an indication that industry would need to full capacity in order to maintain margins.”

CSX 1Q16 Earnings Call Notes

Frank Lonegro

Earnings down 19% from the prior year

“Overall, net earnings were $356 million down 19% versus the prior year, and EPS was $0.37 per share down 18% versus last year.”

Expect volumes to decline in 2Q

“Looking forward we again expect volumes to decline in the second quarter, the challenging freight environment will continue as headwinds in coal, energy and metals volume are expected to more than offset the markets that will show growth. Automotive is expected to grow, as light vehicle production continues to be a bright spot in the economy. Minerals will benefit from the continued ramp up of the new fly ash remediation project and continued highway construction, driving aggregate movement.”

Slowly recovering domestic steel production environment

“Despite a slowly recovering domestic steel production environment, metals is expected to be unfavorable year-over-year as the market works off excess supply from the strong US dollar and imported product. ”

Comp per employee is up 4-5%

“comp per employee is about 4% or 5% higher. There’s a couple of driver, some of those are industry related and some of those are CSX specific. Clearly you have general wage inflation of 4% a year or so, and then with probably as the biggest driver for us health and welfare inflation. As the industry is reducing resources, you’ve got fewer employees to spread the health and welfare cost over. So both of those are industry in nature.”

comps will be tough until the fourth quarter

“?the second quarter and probably even third quarter are going to be challenging quarters from the volume perspective. It’s not really until we get to the fourth quarter we will have a little bit easier comparisons year-over-year both on the coal side and on the general merchandize side as well.”

It is helpful that the dollar has weakened but even with the relief it’s still not until the fourth quarter that you will see improvements

“the dollar’s still well above its 10 year average of so forth, but it is clear that it’s been helpful in certain areas the fact that it has taken a step back to last two months or so. ..But it is fair to say that even with that sort of a relief over the last two months on the dollar; you’re looking in to the fourth quarter I think until you’re going to start seeing meaningful improvements in the volume performance.”

Still see economy having uninspiring growth for the next couple of quarters

“If taken to the highest level from what we see the economy, I think we still see the overall economy progressing in that 2%-2.5% range, kind of uninspiring growth. Clearly we’re still dealing with the aftermath that we saw last year both on the energy side and also the strength of the dollar and the low commodity prices. And as I said earlier that’s going to be with us for at least another two quarters and it is also why we guided to volumes to be down a little bit more year-over-year sequentially in the second quarter. ”

In last two weeks: Merchandize business has stayed strong, some weakness in coal, auto still looks good and intermodal has been weak

“Specifically the last couple of weeks to your question, we look at our four key markets merchandize, intermodal, coal and auto. Our merchandize business has stayed probably some of the two strongest weeks in fact in the last two weeks, but then we have seen some weakness in our coal markets which is consistent with our guidance…Our auto business was very strong early on in March. We probably had 65% of our cars under load and that’s kind of cycling through that right now. But we continue to see good strength there for the rest of the year, and yes we have seen a little bit of weakness in the intermodal space over the last few weeks, but I don’t think anything that has structurally changed there.”

Have seen a downtick in sequential pricing

“We’re certainly not immune to what’s going on in the market place and I think you’ve seen a reflection of that here in the quarter versus the fourth quarter as you’ve seen a sequential downtick in our pricing.”

FedEx FY 3Q16 Earnings Call Notes

FedEx’s (FDX) CEO Fred Smith on Q3 2016 Results

We do things that increase earnings cash flows and returns

“We buy airplanes because they increase earnings, cash flows and returns over a period of time. We add automated ground facilities because they do the same thing. So there is no motivation inside FedEx to do anything other than to achieve those results at the corporate level and sometimes we decide to be aggressive in one segment because we are achieving our corporate goals”

TPP is going to be harder to pass with the leading candidates against it

“I don’t think there is any question about the fact that TPP is going to be harder to pass given that the leading republican and democratic candidates were presenting United States are against it. Free trade and opening markets has been American policy since 1934 when Roosevelt and Hull passed the trade agreement act that overturned the absolutely disastrous Smoot-Hawley Tariffs, those were two republicans that in 1930 put in a lot of tariffs to protect America. So trade contracted by 66% and the Roosevelt Hull action in 1934 turned it around but there is no question that those tariffs created with a big part of the cause of the depression.”

Trade makes everyones standard of living better

the thought that trade is not been a great thing for the world and America is absolutely belied by facts. Now have they been in merchant list, of course they have Japan and China in particular. But to lump in all trade with the trade practices of a couple of trading partners is like putting leaches on you and bleeding the way they used to do during the old days and think you’re going to get better. I mean it’s a self inflicted problem and in the case of Mexico, the NAFTA agreement has added hundreds of billions of dollars which is traded with Mexico, yes we do have a modest trade deficit with Mexico but the benefits of trade are always dispersed, lower iPhones, lower TVs, lower priced T shirts, lower automobile cost, on and on down the line which makes everyone standard of living better whereas the pain is always localized”

The key to the delivery business is route density and revenue per delivery

“the essential thing in the delivery business is route density and revenue per delivery stock. And that is why he said virtually the same thing that we have said that in all likelihood the primary delivers of e-commerce shipments for the foreseeable future will be UPS, The U.S. Postal Service and FedEx because input costs even though you might have a local operator over the thousands, it might talk about are trumped by the delivery density and the revenue per stop characteristics of the big carriers.”

It’s Metcalfe’s law

“And remember, we are not delivering from 50 fulfillment centers or 100 stores or 60 stores, we have the capability to pickup, transport and deliver an item from 95% of the human beings on the planet much less every business on the world within one to two business days, door to door customs cleared. So that’s known as Metcalfe’s law, everybody understands this in the telecommunication business, it’s the number of nodes on the network squared. If you run the hub-and-spoke system, it’s in times and minus one. So whether you’re a big box retailer or you’re an e-tailer that puts their fulfillment centers which is a surrogate for the store delivers the items individually or how you come into the store, the economics are the same. It’s network density and revenue per delivery stop that are the determinant of who is going to deliver these packages in the years to come.”

Doubling up packages leads to greater revenue per delivery stop

“The postal service delivers to a 140, 154 million addresses every day and so like way the e-commerce packages are perfect for the postal service because they can put them in with a mail and deliver on two residents”

This misunderstanding is leading people to misunderstand the future evolution of the markets

“it’s that misunderstanding that the drivers are network density and revenue per delivery stop that have led to a lot of the misunderstanding about the future evolution of the markets.”

Mike Glenn

2015 peak season was historic

“The 2015 peak season was historic by many measures and it was driven by the continued growth of e-commerce. Demand for residential deliveries across the industry surpassed expectations as consumers increased online shopping in record numbers, not only with their higher volumes, but the types of goods purchased online increased.”

E-commerce is now enabled as a full scale retail revolution

“It is very clear that e-commerce is now enabled the full scale of retail revolution. There are several important trends worth noting. First, referring to a specific peak day is quickly becoming a thing of the past. As evidenced this year, there were multiple days where volumes exceeded 25 million packages as consumer buying habits are changing. We view this as a positive as Mother Nature can sometimes play habit with last minute e-commerce shoppers. Smoothing sales throughout peak season is a trend that will benefit retailers and transportation companies alike. We believe online shoppers will have increasing incentives to order earlier in the holiday season”

More and more retailers shipping from store

“Second, more and more retailers are fulfilling e-commerce orders from individual stores or what we call store to home delivery. FedEx is well positioned to service this growing market in the years ahead with our broad portfolio of services including metro delivery and same day services.”

Seeing more non-traditional items purchased online

“Third, we are seeing a significant increase in non-traditional items now being purchased online, mattresses to new swing sets and big screen TVs just to name a few. ”

It would be a daunting task to try to replicate existing delivery networks

“Large retailers have long had their own transportation capabilities, primarily to enable movement and positioning of inventory across their store and fulfillment locations. While recent stories and reports of a new entity competing with the three major carriers in the United States grabs headlines, the reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx.”

Amazon’s strategy is to build distribution closer to the end customer

“I think Amazon’s strategy is clear, the more distribution facilities they put up the more they would like to be close to the end consumer which by definition makes more deliveries on a local basis. Having said that, all of the conversation about new entrants into the local delivery market, I mean there are hundreds and thousands of local delivery companies in every market in the country delivering parcels.”

Dave Bronczek

China not causing any problems because for the most part multinational customers

Yes thanks Fred, and thanks for the question David. Obviously, China is a very important to us, but they are not more important than all the rest of the world. I mean they are a part of the rest of the world for us. There’s a lot of multinational companies that are in China that we do business with in China and exporting out of China. So, I would say that we’re always watching how the economy is in China, but it is not causing us any problem or any concern right now because our customers there are for the most part multinational customers.

Alan Graf

Fuel prices ticking up could work against us

“You never know, fuel prices are ticking up a little bit and so that could possibly work against us on a year-over-year basis, so we’re watching that very carefully.”