3/20/23 Monday Parcel News Update

1. Despite Volume Normalization, FedEx Raises Earnings Outlook

On an earnings call last Thursday, FedEx raised their earnings outlook for the remainder of 2023, despite declining volumes and revenue. While earnings declined for the second consecutive quarter, FedEx highlighted successful cost reductions and rate increases, and shared that they would continue cutting expenses and reduce U.S. employment count by 25,000 by the end of May.

The carrier’s new dynamic peak-volume surcharges generated $150 million in profit from peak season home deliveries – a key aspect of the improved outlook. These surcharges are now based on shippers’ weekly volumes. The more they ship in a week during peak season (relative to average weekly volumes earlier in the year), the higher their “peak factor” and fees will be.

Articles from Denny Jacob, Wall Street Journal, and Max Garland, Supply Chain Dive

2. FedEx Readjusting Air Network

While dynamic peak pricing was a key strategic move for FedEx’s outlook improvements, changes with the air and international unit are likely what made the most impact. FedEx Express generated 8% less revenue YoY in the quarter, but adjusted operating income dropped 81% in the same period, which totaled $1.2 billion in YoY savings.

Adjustments include an 8% decrease in aircraft use, cutting the use of 9 cargo jets and switching to smaller aircraft on lower-volume routes. The 9 cargo jets are MD-11s, planes that are older and less fuel-efficient than modern options. FedEx announced plans to retire six more in the next quarter, and UPS recently shared they’re starting to replace their MD-11s with more fuel-efficient aircraft. FedEx’s MD-11 fleet served for flex capacity, and the company is now leaning more heavily on their ground network for domestic parcel shipments.

Article from Eric Kulisch, FreightWaves

3. Zipline Drone Delivery Enhancing Capabilities

Drone-delivery service Zipline announced an autonomous drone delivery system built around a new technology platform, Platform 2 (P2). P2 will make their drones significantly more quiet, and able to complete local deliveries roughly 7x faster than traditional methods. CEO Keller Rinaudo Cliffton said that rapid delivery capabilities may help put an end to “porch pirates.”

The drones use a tether system to “drop” packages into spaces as small as a doorstep. They’re able to dock and recharge autonomously, and can carry up to eight pounds of cargo within a 10-mile radius. Clifton says this is significant, because “when you look at e-commerce in the US, a vast majority of packages weigh five pounds or less.”

Article from Lora Kolodny and Katie Brigham, CNBC