LABOUR shortages that cost FedEx US$450 million in its most recent quarter had an uneven impact on different segments of the global transportation company, with FedEx Express and Ground struggling more than FedEx Freight.
Quarterly profits dropped at Express and Ground but rose 42 per cent at FedEx Freight, the less-than-truckload (LTL) arm of FedEx and largest US trucking company.
All three FedEx segments were profitable, but the LTL division was the only one of the three to increase profits. Express and Ground saw operating profit drop 20 per cent to $567 million and $671 million, respectively. FedEx Freight reported a $390 million operating profit, reports IHS Media.
'The US domestic parcel network has a very different set of challenges than dealing with a much smaller set of shipments that go through the freight system,' Raj Subramaniam, FedEx's president and chief operating officer, told analysts.
Overall, the carrier's LTL shipments rose 12 per cent year over year in the quarter that stretched across the summer months, with priority shipments rising 13 per cent and economy volume 11 per cent, to an average of 113,800 shipments per day in the quarter. Operating revenue rose 23 per cent to US$2.3 billion.
The improvement in operating profit came despite some strong cost headwinds. Salaries and benefits at FedEx Freight rose 15 per cent year over year, while fuel costs more than doubled.
FedEx Freight's network, designed to move pallets rather than packages, is part of the larger FedEx network, a smaller wheel among larger wheels in a clockwork. When one of those larger wheels - FedEx Ground's package network, for example - cannot turn fast enough, it affects velocity in the FedEx Freight network as well.
The company did not say how many packages FedEx Freight hauled for its sister division in its June-to-August quarter. FedEx Ground's intercompany expenses for services from other FedEx divisions in the June-to-August quarter increased 14 per cent to $491 million. The package carrier's purchased transportation expenditures rose 6 per cent, climbing $214 million to $3.5 billion.
FedEx Freight's purchased transportation costs rose 41 per cent from a year ago to $239 million in the quarter. Purchased transportation costs have been rising for LTL carriers across the board as they bring on line-haul capacity to meet increased demand.
Those figures indicate that however much capacity FedEx has at Ground or Freight, more is needed, and not just more trucks or trailers, but more people. FedEx Ground's Portland, Oregon, hub is running with only 65 percent of the staff needed to handle normal package volumes, let alone today's package volumes, Mr Subramaniam said during the earnings call with Wall Street analysts.
'This staffing shortage has a pronounced impact on operations, which results in our teams diverting 25 per cent of the volume that would normally flow through this hub because it simply cannot be processed efficiently to meet our service standards,' he said. 'The volume diverted must be rerouted, a process which drives inefficiencies in our operations, and in turn higher costs.'
Those inefficiencies include additional line-haul and delivery routes, increased miles driven, and higher use of third-party transportation 'to enable us to bypass Portland entirely,' Mr Subramaniam said. Across the FedEx Ground network, more than 600,000 packages a day are being rerouted, he said.
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Quarterly profits dropped at Express and Ground but rose 42 per cent at FedEx Freight, the less-than-truckload (LTL) arm of FedEx and largest US trucking company.
All three FedEx segments were profitable, but the LTL division was the only one of the three to increase profits. Express and Ground saw operating profit drop 20 per cent to $567 million and $671 million, respectively. FedEx Freight reported a $390 million operating profit, reports IHS Media.
'The US domestic parcel network has a very different set of challenges than dealing with a much smaller set of shipments that go through the freight system,' Raj Subramaniam, FedEx's president and chief operating officer, told analysts.
Overall, the carrier's LTL shipments rose 12 per cent year over year in the quarter that stretched across the summer months, with priority shipments rising 13 per cent and economy volume 11 per cent, to an average of 113,800 shipments per day in the quarter. Operating revenue rose 23 per cent to US$2.3 billion.
The improvement in operating profit came despite some strong cost headwinds. Salaries and benefits at FedEx Freight rose 15 per cent year over year, while fuel costs more than doubled.
FedEx Freight's network, designed to move pallets rather than packages, is part of the larger FedEx network, a smaller wheel among larger wheels in a clockwork. When one of those larger wheels - FedEx Ground's package network, for example - cannot turn fast enough, it affects velocity in the FedEx Freight network as well.
The company did not say how many packages FedEx Freight hauled for its sister division in its June-to-August quarter. FedEx Ground's intercompany expenses for services from other FedEx divisions in the June-to-August quarter increased 14 per cent to $491 million. The package carrier's purchased transportation expenditures rose 6 per cent, climbing $214 million to $3.5 billion.
FedEx Freight's purchased transportation costs rose 41 per cent from a year ago to $239 million in the quarter. Purchased transportation costs have been rising for LTL carriers across the board as they bring on line-haul capacity to meet increased demand.
Those figures indicate that however much capacity FedEx has at Ground or Freight, more is needed, and not just more trucks or trailers, but more people. FedEx Ground's Portland, Oregon, hub is running with only 65 percent of the staff needed to handle normal package volumes, let alone today's package volumes, Mr Subramaniam said during the earnings call with Wall Street analysts.
'This staffing shortage has a pronounced impact on operations, which results in our teams diverting 25 per cent of the volume that would normally flow through this hub because it simply cannot be processed efficiently to meet our service standards,' he said. 'The volume diverted must be rerouted, a process which drives inefficiencies in our operations, and in turn higher costs.'
Those inefficiencies include additional line-haul and delivery routes, increased miles driven, and higher use of third-party transportation 'to enable us to bypass Portland entirely,' Mr Subramaniam said. Across the FedEx Ground network, more than 600,000 packages a day are being rerouted, he said.
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