FedEx Benefits from Efficiency Improvements & Surcharge Increases as Volumes Fall

Declining demand is nudging FedEx to continue its cost-cutting and rate-raising strategies as the global environment settles into a new normal amid uncertainties.

For fiscal Q2 2023 ended Nov. 30, 2022, FedEx reported overall revenue down 3% year over year to $21.63 billion and operating income down 26.2% YoY at $1.17 billion.

All three divisions—Express, Ground, and Freight—reported year-over-year volume declines. However, despite volume declines, the company exceeded its fiscal Q2 earnings target primarily through “higher yield and cost management actions,” according to FedEx CEO Raj Subramaniam.

A closer look at the numbers reveals more details

FedEx’s largest division, Express, reported a 6.4% YoY decline in revenue to $10.86 billion and a 64.1% YoY decline in operating income to $341 million. Total average daily volumes fell 12.1% year over year while average revenue per package increased 7.9% year over year.

FedEx Freight reported an 8% increase in revenue to $2.4 billion and a 31.7% increase in operating income to $440 million. Total shipments per day declined 8.9%, while average revenue per shipment increased 18.4% year over year.

Meanwhile, FedEx Ground reported a 1.6% increase in revenue to $8.4 billion and a 7.1% increase in operating income to $598 million. Average daily volumes declined by 9.1%, while average revenue per package increased by 12.5%.

“Our Ground service is now back to pre-pandemic levels supported by continued enhancements to our route optimization and package handler scheduling technologies,” Subramaniam told analysts during the company’s earnings call on Dec. 20, 2022.

Indeed, many enhancements are underway in all three divisions. But for Ground, the upgrades will improve efficiencies and cost savings and further link it to FedEx Freight. “We are leveraging our faster road network and our unique ability to bundle parcel and freight,” FedEx Executive Vice President and Chief Customer Officer Brie Carere told analysts during the company’s most recent earnings call.

FedEx noted that it is planning new tools, technology, and processes to increase packages for trailers in its line haul operations.

In its fiscal Q2, FedEx improved packages per labor hour, increasing 3.5% year-over-year

Subramaniam credited the company’s operational insights platform with the enhancements. The platform, run by the FedEx Dataworks group, is based on the partnership with Microsoft utilizing Azure, AI, and machine learning.

Not mentioned on the earnings call was FedEx’s Last Mile Optimization program, also a collaboration between FedEx and Microsoft.

A separate program, Last Mile Optimization (LMO), began in early 2020 and has “developed technology and business systems to allow us to communicate across operating companies,” according to FedEx Express CEO Richard Smith. Furthermore, Smith noted that LMO has “created insights and processes” to effectively hand off packages between Ground and Express and eliminate redundant routes.

Where does pricing fit into these cross-divisional communications, handoffs, and within divisions? The answer seems to lie with a price anomaly detection engine developed and built by FedEx’s pricing and Dataworks teams. 

“The team has successfully detected overbilling and correcting invoices before they are sent to our customers. This is a significant customer experience improvement. We are now adapting these capabilities to identify underbilling opportunities, which will increase revenue quality,” Carere said during the Dec 20 earnings call.

So, yes, the company will continue to leverage surcharges as a tool to boost revenue

Express and Ground volume declines will most likely moderate by the end of FedEx’s fiscal Q3 (period ending Feb. 28, 2023), and comparisons ease further in fiscal Q4 (period ending May 31). Yield growth will be increasingly pressured as year-over-year fuel surcharge comparisons normalize and customer demand shifts, most prominently in Asia, FedEx Executive VP and Chief Financial Officer Mike Lenz said. 

Pressured yields will likely equate to higher surcharges, so shippers must be prepared for potential FedEx invoice shock as Big Purple utilizes artificial intelligence, machine learning, and other technologies to automatically raise surcharges and rates. The right partner can help you navigate uncertain times as a new year begins. Intelligent Audit has helped over 2,800 companies across all industries discover opportunities for cost reduction and supply chain improvements. Contact us today to learn more about how robust business intelligence, analytics, and anomaly detection can help you make data-backed decisions to reach your strategic goals in 2023.

Contact Us

Subscribe Now

It all starts with a conversation...

Get Started

Set up a call with one of our experts to discuss how Intelligent Audit can help your business uncover opportunities for cost reduction and supply chain improvements through automated freight audit and recovery, business intelligence and analytics, contract optimization, and more.

you may also enjoy

More Content Like This

supply chain business intelligence

Demystifying Business Intelligence: A Primer for Supply Chain Professionals

Learn about Business Intelligence in supply chain management with our comprehensive guide. Gain insights into its evolution, impact, and future trends.

Blog Post
a square of dots

Never Miss an Update

Subscribe Now