Wednesday, June 22, 2011

FedEx Earnings and SmartPost and Parcel Select

FedEx announced its earnings today.   The Associated Press reported that earnings were ahead of analyst expectations.   FedEx is forecasting strong earnings growth in its First Quarter, 2012 (which starts June 1, 2011) and all of its FY 2012

 FedEx Ground delivery volume grew 6% in the quarter which is stronger than total industry growth.  This growth was paced by FedEx SmartPost where "average daily volume increased 24% due to growth in e-commerce and gains in market share. FedEx SmartPost revenue per package increased 8% primarily due to growth in higher-yielding services and increased fuel surcharges."

Since 2008, FedEx SmartPost has grown from 4.9% of FedEx Ground Revenue to 7.4% of Ground Revenue in 2011.   During the same period, FedEx SmartPost has grown from 15.5% to 27.7% of shipments that FedEx Ground picks up from its customers.

In the conference call a FedEx executive on the call  made the following statements:
  • "Smart Post is a key part of a residential delivery portfolio.  
  • There are a lot of light weight items in that network.  
  • It gives us a competitive network. 
  • It allows us to focus our home delivery network on heavier items and items that require special features such as day definite or time definite delivery.
When a transcript of the statement is available later today,  the full statement will be added to the blog as and the person who made them will be identified.


Implications for the Postal Service

FedEx's success with SmartPost raises questions about the success of the Postal Service's Parcel Select and Parcel Select Light products.   Clearly FedEx's volume is growing faster than the Postal Service's reported volume.   FedEx SmartPost appears to be taking market share away from other parcel consolidators that drop parcels at postal facilities.  Also, the growth of FedEx SmartPost suggests that the Postal Service may have some pricing power in its parcel select products, particularly in terms of delivering light weight parcels for more remote locations, that it needs to explore as it tries to maximize profits from its parcel products. 


Nicholas Piasecki said...

With FedEx SmartPost, you (1) don't have to pay a third-party a monthly fee to print the shipping labels (contrast with Endicia or in order for e-commerce to use USPS directly), (2) get reliable FedEx tracking up to the last mile (contrast with USPS's inconsistent tracking, though this is improving), (3) get FedEx customer support to deal with USPS when there are delivery problems at the last mile, instead of having to negotiate directly with the destination post office (fairly frequently we see parcels that were scanned as "Delivered" when the postal carrier meant to select "Notice Left", etc.), and (4), perhaps most importantly for small businesses, leverage the "float" (since FedEx has an account-based billing system, businesses pay for SmartPost parcels when their FedEx bill arrives, not immediately as the label is printed). SmartPost (5) also simplifies warehouse implementation since a misprinted or unnecessary SmartPost label means you throw it in the trash; a misprinted USPS label requires a refund.

For USPS to effectively completely in parcel services in the small business market (where mailing manifest/permit imprint isn't really an option due to low or inconsistent volumes), it needs to address these services that SmartPost provides on top of the USPS services. If it can perform these services, then the only value-add with SmartPost is the price, which is not always worth it since SmartPost is usually slower than using USPS directly. But these additional benefits of using SmartPost are hard for businesses to ignore.

My two cents.

Anonymous said...

To some people, cost is everything unless your delivery time is extremely faster. Sounds like a lot of hogwash to make FEDEX "seem" much better than the USPS.

Anonymous said...

I am a frequent online buyer and I HATE, HATE, HATE SmartPost. I don't really care what benefits it gives the corporation when it decreases my benefits...and it does.

*I have to pay courier prices for the items shipped to me.

*Dropping them off at a USPS hub adds at least two days to the delivery time.

Please tell me how paying more for worse delivery is a good thing?

I have complained, and stopped using where possible, to companies that use SmartPost and are not willing to flag my account "FedEx only". I will continue to complain and continue to seek alternative vendors as long as this absolutely stupid shipping method is in practice.