FedEx’s Frederick Smith: ‘Good Chance’ Congress OKs 33-Foot Trailers

This story appears in the March 23 print edition of Transport Topics.

FedEx Corp. Chairman and CEO Frederick Smith said last week there is “a good chance” Congress this year will clear the way for longer trailers, which would further boost productivity.

Smith said he remains “hopeful” Congress will extend allowable trailer lengths for ground and less-than-truckload packages to 33 feet from 28 feet in a new highway bill this year.

Noting the projected 18% productivity improvement, Smith said longer trailers would be “the biggest single thing that could be done in this country that would help the environment and improve the productivity of our logistics systems.”

He cited additional benefits, such as improving safety and reducing fuel use.

Smith made the comments during a conference call March 18 after his company’s announcement that better results at all FedEx units drove a 53% rise in fiscal third-quarter net income to $580 million, or $2.01 per share.

Profit before interest and taxes more than doubled at FedEx Express, rose 94% at less-than-truckload operator FedEx Freight and climbed 14% at FedEx Ground.

Overall revenue rose 4% in the quarter ended Feb. 28 to $11.72 billion.

Speaking about the results, Smith said: “We had a very successful peak season as volumes grew across all transportation segments, and our profit improvement programs are moving ahead as scheduled.”

Share repurchases also had an 11-cent, year-over-year positive effect on third-quarter results, the Memphis, Tennessee-based company said.

Chief Financial Officer Alan Graf said lower fuel prices provided “a significant net benefit,” without specifying how much they contributed to earnings. Express’ fuel costs dropped by $313 million, or more than 30%. Freight fuel costs fell $37 million, or 25%. (Ground fuel costs aren’t measured because they are embedded into total purchased transportation cost from its contractors.)

At the individual businesses, Ground produced the most profit at $558 million. Revenue rose 12% to $3.39 billion, and the operating ratio improved to 83.6 from 83.8.

Ground package volume rose 7%, and rates rose 3%.

T. Michael Glenn, executive vice president, said the decision to use dimensional pricing for lighter-weight Ground shipments as of Jan. 1 “had an impact” on results, but he didn’t specify how much.

He noted that announcing the shift in June “gave a lot of customers time to adjust packaging, and we were quite pleased by customers who took advantage of that.”

Ground CEO Henry Maier observed that the peak shipping season was sporadic, with busy periods at the beginning and the end, and a “little light” in between.

Freight nearly doubled profit before interest and taxes to $68 million as revenue rose 6% to $1.43 billion.

Glenn said FedEx Freight’s “market continues to be strong. Obviously, the capacity issues in the market are having an effect. We think the pricing environment is strong and rational.”

LTL revenue per 100 pounds of freight and shipments both rose 3%, pushing the operating ratio to 95.2 from 97.4.

Express profit before interest and taxes reached $384 million. Revenue was flat at $6.66 billion.

Robert Salmon of Deutsche Bank said Express profits were “driven by better-than-expected margin expansion as the segment benefited from reduced costs associated with its profit improvement plan, lower fuel expense and a more mild winter.”

In the year-ago quarter, net income was $378 million, or $1.23 per share.

For nine months, net income rose 32% to $1.8 billion, or $6.25. Revenue climbed 4.8% to $35.3 billion.

FedEx’s full-year profit forecast was revised to a range of $8.80 to $8.95 per share by raising the lower end and trimming the top. And the capital spending forecast for fiscal 2015 remains $4.2 billion.

Graf said that crude prices aren’t expected to provide much benefit to fourth-quarter results and that the strong dollar hurt profit on overseas shipments.

FedEx anticipates moderate economic growth with an expected 3.1% rise in GDP this year and next, and an improving global economy.

Asked on a conference call about the potential for ride-sharing services to supplant FedEx, Smith said: “We were Uber before Uber was there,” referring to its Custom Critical service and same-day delivery offerings in 23 cities.

While calling Uber “a great company and a great concept,” Smith also said there is “urban mythology out there that the app somehow changes the basic cost input of the logistics business or changes the circadian patterns of the underlying business situation.”

FedEx said the acquisition of logistics operator Genco, which was completed earlier this year, won’t add to profits over the next 12 to 18 months.

FedEx Corp. ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada.