Top Three Questions Generated by the Recent FedEx Hype
If you follow business news, you’ve no doubt seen FedEx repeatedly mentioned over the last year or so. The company is in the process of making a series of operational changes to accommodate evolving consumer behavior, generating plenty of media attention along the way. As a result, many potential FedEx route sellers and buyers are calling KR Capital with valid questions.
We thought it would be beneficial to put together a sample Q & A, outlining the top questions we’re getting and the responses we’d provide to anyone. Of course, we’re available anytime to discuss these or any additional questions you might have about the process of buying or selling a FedEx delivery route.
Q: How will relationship changes between FedEx and Amazon impact FedEx Independent Service Provider (ISP) revenue?
A: Back in August of 2019, FedEx elected not to renew its expedited express service contract with Amazon. More recently, Amazon ended a ban it instituted during the 2019 holiday season, which prevented third-party sellers from using FedEx ground for Prime deliveries. With the online giant commanding such a large percentage of e-commerce sales, it’s understandable why this news might concern some FedEx contractors. However, Amazon has never been a large part of the FedEx business model.
Over the last few years, Amazon has been busy building a delivery network of its own that could eventually squeeze out other third-party delivery services. In fact, in July of 2019, the month following the FedEx split, Amazon delivered 45% of its own packages. To put that lost revenue in perspective, FedEx reported that Amazon deliveries represented only 1.3% of its revenue in 2018. With major retailers like Wal-Mart and Target beefing up their e-commerce game to compete with Amazon, there will be ample opportunities to make those losses up and more.
Anecdotally, the FedEx route owners we speak to report that they’re delivering more packages than ever. We believe that package growth will continue — even without Amazon — as the e-commerce industry keeps growing.
Q: Do the stock price hits FedEx experienced in 2019 signal significant problems?
A: There’s no denying 2019 was a tough year for FedEx stock. In September, after a disappointing earnings report in the wake of the Amazon split, FedEx stock fell to its lowest level since 2016. While falling stock prices certainly generate lots of negative news, the full story isn’t always told.
FedEx is a global corporation made up of many different businesses. A falling stock price could be due to complicated reasons that are unrelated to the health of their ground operations. For example, FedEx CEO Fred Smith has pointed to the impact trade disputes have had on manufacturers in Europe and Asia as one facet of the company’s recent challenges.
Potential FedEx route buyers should remember they’re joining a multi-billion dollar international enterprise and the second-largest delivery company in the world. Despite recent stock volatility, FedEx will be around for a long time.
Q: How will year-round, seven-day delivery impact FedEx Ground ISPs?
A: FedEx adopted a seven-day delivery model in response to robust and sustained growth in e-commerce sales along with the increased expectations consumers have surrounding delivery timelines. While FedEx Ground ISPs will likely see operating costs increase slightly in their contracted service area (CSA) as they bring on more employees to service routes, revenue will also grow as the overall package count increases.
One factor likely to push package counts up is the FedEx SmartPost program. This long-term partnership with the US Postal Service has FedEx transporting packages most of the way to their destinations, with the postal service delivering to the door.
Technology improvements now allow FedEx to detect when a SmartPost package is bound for an address where a FedEx Ground driver will already be. In those instances, FedEx handles the delivery instead of the postal service. This is a growing business category for FedEx. In 2016, the company delivered 20% of its SmartPost packages, and FedEx expects to deliver “the vast majority” of SmartPost volume by the end of 2020.
Viewed from a broader perspective, the switch to seven-day delivery, coupled with its collaboration with the US Postal Service, positions FedEx as the leader in e-commerce fulfillment.