How much volume is Express Saver?
That is the current $64,000 question...
The problem with getting a good figure is two fold.
First, Express combines all non-overnight volume together in its public financial statements. So there is the difficulty in splitting out Express Saver from 2nd Day.
Second, one just can't look at revenue as an indicator/replacement for volume data - since revenue on ES volume (for a given piece) is markedly different from potential revenue for the same piece had it been shipped 2nd Day.
Going way back, Express did ES more as a way for customers to save money on non-urgent shipments and to fill space on underutilized linehaul - in otherwords, ES was a source of incremental revenue enhancement without any real additional variable cost incurring as a result.
Well... Express is squeezing out all low revenue generating line haul capacity right now (this is confirmed from my sources). Express Saver's days at Express are literally numbered right now. FedEx Corp fully expects all of this volume to be shifted over to Ground
by the customers once an announcement regarding the ending of ES service is made. The potential margins for FedEx Corp in shifting this volume over to Ground are greater, compared to maintaining ES service with Express as an option for customers. Express has resorted to "holding" ES volume at stations when it arrives in time for delivery on the 2nd day - just to prevent customers from utilizing ES to get around from paying 2nd Day prices.
I'd have to review the financials of FedEx, but I don't believe that current Express ES volume would equate to that "28%" increase (remember 900,000 pcs equating to 28%) that you wrote of. It would be convenient to be able to match up a 28% increase in Ground volume (900,000 pcs/day) with a similar reduction in piece count/day from ES on the Express side, but I can't do that as of yet. I don't believe that ES volume is that high. If I had to take a guess at this instant, I'd state maybe 300,000 pcs/day through the Express system are ES, but that is just a guess based off what I know in my head regarding overall volume and ratios of the various service levels of Express.
I do know a relatively large reorganization is underway at Express at this moment. They are going to be rolling it out progressively over the next few months. A large part of it involves "right sizing" the line haul capability to better match FUTURE expectations of volume moving through the Express system. Getting the ES volume out of the Express system and having customers move it over to Ground (on their own) is a part of that right sizing.
There is only a small part of volume that cannot be moved by Ground within 3 days to its destination (20% is the figure given). FedEx is thinking that for those customers, they can live with a reduction in price for their shipment movement (along with an additional day, rarely 2 additional days), or if they can't then they'll bump up to 2nd Day service. Anyway it works, FedEx is seeing a win-win for itself (increase in margin per piece moved, regardless of which system does the movement).
The elimination of ES will affect AGFS (linehaul) much more than the stations. Most ES "tags along" with other pieces being delivered, so total stops performed by Express won't drop too much (caveat below). However, ES does tend to be rather large/heavy pieces, so the "dimentional" volume picked up/delivered by Express will drop. This is why all the Sprinters have been acquired to replace worn W700s.
The "Cheetah" program is meeting FedEx's expectations (test markets have been favorable), so that will be another source of reduced volume for Express - shipments within a given metro area being diverted (by the customers) from Express and to Office for delivery.
The only other shoe to drop is what will become of 2nd Day volume (delivery thereof). Given the advantageous position of FedEx right now (RLA is safely secured), my sources are seeing an incremental approach to transformation of Express and not a sudden shift. Get ES moved over to Ground, get delivery manifesting perfected, push personnel policies which will result in a gradual attrition of current wage (and even salaried) employees - get replacement employees at bottom of wage scale....
There are some savings to be had by possessing a more efficient linehaul system (fuel efficiency, etc), but the BIG savings are going to be in labor costs. FedEx wants to squeeze an additional BILLION dollars a year in profit for Express (moving the profit margin up from around 5% to 10% of revenues for Express)- they aren't going to save a billion solely through fuel efficiency measures - they are going to get it largely though labor cost reductions.
Between Cheetah coming on line at Office and ES being dropped by Express, there should be (by my estimations at this point) about a 20% drop in volume at Express in the next 3 years (most of that coming this summer with the dropping of ES). I'm trying to get data on whether FedEx sees a way to reducing its labor costs by 20% within Express as a result of this (if so, then this would mean a reduction of about one-third of the current full-time Courier positions into part-time positions). Rumors (I use that term deliberately) are that buyouts are to be implemented for topped-out Couriers along with early retirement incentives. I have no way to believe this is either true or not at this stage (my sources are more concerned with the impact on salaried staff positions right now).
