Consultant Insight: FedEx Express aims for market share growth

FedEx is basking in the glow of Wall Street’s approval as it reported stronger than expected earnings last week. According to Brie Carere, executive vice president and chief marketing and communications officer at FedEx, “We are actively pursuing opportunities to increase both market share and revenue quality, especially for international priority freight and international economy freight services.” FedEx anticipates the overall air cargo capacity recovery will take at least 18 months to return to pre-COVID levels and it plans to take full advantage of this expectation. Indeed, as noted in last week’s Air Cargo World article by Senior Editor Charles Kauffman, “the favorable demand that surfaced following passenger flight cancellations enabled FedEx to make up for lost ground in Q4 with additional flight segments and a surge in charter activity.” FedEx has added extra capacity in the short-term and believes it is “well-positioned to profitably gain share from the freight forwarders.” This is an interesting statement with no further explanation provided. FedEx Trade Networks, which includes FedEx’s freight forwarding group, was formally rebranded as FedEx Logistics in early 2019. The rebranded FedEx Logistics provides the following services: air and ocean cargo networks; trade brokerage and facilitation; custom critical services; supply chain services; cross-border e-commerce and fulfillment; and forward depots and 3D printing. Prior to this reorganization, FedEx Trade Networks served as the FedEx Express forwarder, placing less-profitable cargo with other airlines and allowing FedEx Express to move the more profitable cargo. It is likely this strategy has continued, perhaps with the additional assistance from the company’s partnership with Freightos. How realistic is FedEx’s plan to increase both market share and revenue quality within its Express division? Its primary competitors, DHL Express and UPS, are likely doing the same and all three with a particular focus on cross-border e-commerce. FedEx's Carere noted on the earnings call that the integrator is “enhancing its e-commerce capabilities in Europe. E-commerce demand there has accelerated as a result of the pandemic and is helping to offset the softened B2B market across Europe.” However, the enhancement of e-commerce capabilities in Europe still depends a good bit on the integration of TNT, which is still not completed. Progress continues and, according to Raj Subramaniam, president and COO of FedEx, the company “substantially completed” its interoperability of its intra-European Ground network and will complete integration of line-haul and pickup and delivery operations in fiscal year 2021. Meanwhile, UPS, DHL and even Amazon continue to expand and grow their own capabilities in Europe. Still, as noted by Subramaniam, “With freighter capacity now accounting for 75% of total air capacity in the trans-Atlantic lane, FedEx capacity remains a premium. Increasing international profitability is a major priority for us and Europe is our biggest opportunity.” Yes, it is likely that not only will FedEx Express pick up market share, but DHL Express, UPS and other freighter operators are likely to pursue the same course. Whether or not the freighter dominance will be short-lived remains to be seen, particularly as more passenger airlines begin to reintroduce more planes into their networks. A similar strategy is also underway on the trans-Pacific lane. In mid-March, FedEx Express’ Asia-Pacific average daily volume “grew substantially” over pre-COVID levels, fueled by PPE demand surge. Indeed, FedEx noted that its Asia volumes strengthened throughout Q4 as demand rebounded significantly after lockdowns, and belly capacity on passenger airlines continue to be severely constrained. Expect UPS and DHL to report similar trends when they announce their next quarterly earnings report. Combined with the July 1 implementation of the USPS increase in UPU-approved cross-border rates, all three express providers could likely gain additional volumes particularly along the trans-Pacific lane. Express providers were leading much of the air cargo market in terms of volume growth prior to COVID-19 and this will continue until other airlines and freighters are able to offer profitable e-commerce solutions. While FedEx Express will indeed likely increase their market share, so too will UPS and DHL Express, and the competition among these top express providers will continue to be strong.

Consultant Insight: FedEx Express aims for market share growth

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