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FedEx Latest to Cut Costs

Today FedEx joined a growing list of companies that have announced plans to cut costs in response to lower-than-expected earnings. (See: The Stupid Futility of Cost Cutting and Triple Whammy in the PC Arena.)

Though revenue for FedEx's fiscal fourth quarter, which ended in May, rose to $11 billion from $10.6 billion a year earlier, earnings declined to $550 million from $558 million, the company said in a press release. The results were slightly below expectations, and FedEx said it expects higher costs to restrain its earnings over the next 12 months.

Alan B. Graf, Jr., the company's executive vice president and chief financial officer, said in the release:

We are focused on improving margins in all businesses, although we face certain cost increases in fiscal 2013. These headwinds include higher employee-related costs, including higher pension expenses of approximately $150 million due to a historically low discount rate on our May 31, 2012 measurement date, as well as higher depreciation costs.

The company did not specify where it plans to cut costs, except to say that it is evaluating ways to improve its margins.

FedEx and other shipping service providers are considered bellwethers for the health of the overall economy. This is the first time in two years that FedEx has reported a decline in its cargo shipment volume.

12 comments on “FedEx Latest to Cut Costs

  1. FLYINGSCOT
    June 20, 2012

    There is a definite shift to much lower margin higher volume business.  A few years ago I would never consider buying something on Ebay and then paying DHL to go pick it up for me.  Nowadays I think nothing of it as courier services are dirt cheap.  I know from sources in the business that many of these larger companies are losing money on this part of their business but I am not sure it is a wise strategy.  Maybe there is a longer term forced consolidation strategy?

  2. saranyatil
    June 20, 2012

    They must be considering some strategy in mind or else this kind of system will not be found. I think soon this will take of in a better fasion.

  3. Wale Bakare
    June 20, 2012

    The slight increase in revenue would like to get better but news from Nokia and RIM not good for supply chain. In my view, that might also be part of  factors considering for taking such step.

  4. Taimoor Zubar
    June 20, 2012

    ” I think nothing of it as courier services are dirt cheap”

    @flyingscot: I think one of the reasons why courier companies seem to be struggling is because of the oil prices. Since a large chunk of costs that courier companies bear comprises of transport, increase in oil prices have certainly had a big impact on the costs. They do pass on some of the cost increase to the customers but obviously they can't pass on every bit because they have to stay competitive.

  5. Taimoor Zubar
    June 20, 2012

    The slight increase in revenue would like to get better but news from Nokia and RIM not good for supply chain.”

    @Wale: I don't think Nokia and RIM are facing the same problems as FedEx, however you're right that companies generally seem to be struggling with earnings and we haven't seen any company that has announced large earnings lately. However, I'm still optimistic and I see things getting better in the coming years as companies make their way out of recession.

  6. Barbara Jorgensen
    June 20, 2012

    I keep hearing that oil prices are going down, though. Economic uncertainty is hurting commodities trading. So there may be more of an opportunity for FedEx, UPS etc. to make up for lost ground if prices stay low. What you won't see are prices going down. Oil was used as an excuse–in some cases, rightfully so–to add surcharges, fees and other costs to transporation. I'm still waiting for baggage fees to go away…

  7. ITempire
    June 20, 2012

    @ TaimoorZ

    “They do pass on some of the cost increase to the customers but obviously they can't pass on every bit because they have to stay competitive. “

    The burden of oil price increases is borne significantly by courier companies as we dont see any rise in prices of deliveries/services in courier industry atleast. Whether, this be an excuse or not, but over 5-10 years history, fuel prices have gone high. This cost increase burden must be covered from bringing overall efficiency to the processes. 

  8. ITempire
    June 20, 2012

    Better route handling for riders, as in where a rider used to deliver 4 packets on his journey, now he will deliver 5, can contribute to cost cutting measures. This requires good deal of insights on ways to improve processes. Because, if these process improvement require investment in deliveries management systems, then the cost cutting objective cannot be achieved in the shorter run. 

  9. Himanshugupta
    June 21, 2012

    Rightly said Barbara. Oil prices, currency fluctuations etc are usually the quoted reasons for the surcharges and price increase. And to compensate for the increasing operational cost companies always try to find ways to remain competitive. The first in line are the employees.

  10. Mr. Roques
    June 26, 2012

    What percentage of FedEx income comes from cargo shipments? That doesn't include personal deliveries, right?

    Who are FedEx biggest clients?

  11. ahdand
    June 30, 2012

    Its good if they can do it but still the rates are not as low as it was sometime back. Service quality will be the factor which defines the cost or the charges but still its way too high for me.

  12. Mr. Roques
    August 25, 2012

    Their biggest clients are big companies that aren't as concerned with prices as we are. They are mostly concerned with safety and time – things they do very well.

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