FedEx Fy 2Q16 Earnings Call Notes

Fred Smith

Oversized packages are increasing in e-commerce

“A couple of developments in e-commerce are worth noting. First, oversized packages are increasing, and second, a number of e-commerce shippers continue to use extremely cubed inefficient packaging, loaded density and over-the-road ground trailers is therefore declining because of these trends.”

Congress should have allowed larger trailers on highways

“we are extremely disappointed that Congress did not approve the use of Twin 33-foot trailers on the nation’s highways versus the current 28-foot standard. 33 is already permitted in 18 states and we have safely driven them almost 1,500,000 miles in Florida along, drivers tell us they are more stable than the 28-foot trailers, with similar handling and turning. Our industry estimate this change would, one, eliminate about 6.6 million trips annually and thereby improve safety due to fewer accidents per year, the 33’s would materially reduce congestion, third, it would save over 200 million gallons of diesel and reduce carbon emissions by 4.4 billion pounds per year.”

A big part of ecommerce is being able to handle returns

” a big part of e-commerce is handling returns. So some years ago as we saw the market evolving, we decided it would be a very, very good thing for us to have a supply chain capability to offer a broader portfolio of value-added services to our e-commerce customers, because this was a huge part of the marketplace. It wasn’t just planning on how to get it to the end customer but how to efficiently process the returns and merchandise.”

Postal trucks were not designed to deliver packages

“I have to tell you, I feel for a lot of our postal folks out there. They operate their parcel delivery system with 200,000 jeeps, which were basically designed for mail delivery and watching them it looks like a submarine. These people are — they got at least, packages on the left-hand side of the truck, they have to stop, they have to pull them out, resequence them before delivery and at my house, I can promise you we’re getting a lot of very lightweight cube items coming from retailers through SmartPost or directly from an e-tailer.”

We work really closely with our good customers to manage peaks

“So our good customers that work with us in a partnership basis we can do an excellent job of anticipating what their needs are and provide the equipment in the right place and the sortation equipment. The people that have the real problem in the e-commerce business by and large are those that view the transportation companies as some sort of utility or a vendor and they make some really, really bad decisions. I mean, they are — we’ve just watched an amazement several of them just really dig themselves into a whole. But our good customers, we work very closely with them.”

Mike Glenn

Experienced record breaking demand

“we’ve experienced record-breaking demand during this peak season largely driven by the rapid growth of e-commerce. Our busiest days during peak have exceeded our forecast and more than double our average daily volume and should be noted that our busiest days this year are approximately double what they were just about eight years ago.”

Return rates are double digits in e-commerce

“Returns is a particularly big part of any e-commerce value proposition because they tend to be double digits whereas the traditional brick-and-mortar retailer is in the mid-to-lower digit return rate. ”

We think it would be very hard for someone to try to displace our network (i.e. Amazon)

“I do think it’s important to point out however that FedEx is a highly integrated global transportation network. In fact, one of only two operating at a significant scale in the United States today and only one of three major delivery networks in the U.S., the other two being UPS, the United States Postal Service. That’s not likely to change in the foreseeable future as these networks are very capital intensive and information intensive.”

Peak season is very highly planned

‘Well, I just want to add that, I think, it’s important to note that peak season is a very highly planned period of time. I mean we literally will start working with customers in late January, preparing for next peak season.”

Dave Bronczek

International shipping growing, but more modest

Transpacific, Transatlantic. It’s generally the same economic environment that Mike talked about at beginning around the world. It’s growing but it’s more modest. So I wouldn’t say — I think it is actually growing more out of Europe because of the currency exchange, a little bit less out of Asia but around the world we’ve balanced our network.”