FedEx results: Lower US growth only part of the picture
published: cw 13, 2007 in Logistics & ShippingFedEx third quarter results (3Q), delivered last week, brought the string of good figures from large LSPs down to earth with a bump. But this leading indicator may underestimate the fall in prospects for the logistics market in the next twelve months.
The US based Express and Logistics company reported revenue up 7% over the 3Q 2006, but Net Income was down 2%, with Operating Income down 10%. Whilst there were some exceptional reasons for these poorer figures, such as bad weather in the US, the biggest reason for weaker margins was lower growth in the US economy. In its core Express business, domestic US demand fell by 2% leading to lower margins. International grew, but at a modest 3%. More growth was seen in FedEx’s Ground and Freight LTL businesses, largely due to a strong offering in areas such as home delivery as well as expansion through acquisition.
FedEx’s senior management seems to be sanguine about slower American growth, regarding it, in the words of Fred Smith, as “a healthy transition for the economy as it phases into a more sustainable growth”. Rather, it is looking to “global economic-growth trends” to deliver the sort of expansion that it has seen over the past several years. This is likely in the long run, with FedEx continuing its expansion out of North America through further acquisitions in Europe and China. But the short run may be a different matter.
That companies as strong as FedEx are already feeling the effects of lower US demand only highlights the vulnerability of demand in other areas of the world’s economy to oil price shocks. The US consumer has been key to driving trade across the world, but particularly across the Pacific. With out this growth the record of impressive growth figures from logistics service providers worldwide may come to an end.
Source: Transport Intelligence
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