Did some analysis... using a spreadsheet instead of an old fashioned calculator.
Year
| AvgDailyPkgVol
| VariancefromAvg1999-2012
| Variancefrom1999-2008
| JetFuel$Gal
|
1999
| 2850
| 103.3%
| 101.4%
| $0.50
|
2000
| 2936
| 106.4%
| 104.5%
| $0.85
|
2001
| 2920
| 105.8%
| 103.9%
| $0.73
|
2002
| 2737
| 99.2%
| 97.4%
| $0.69
|
2003
| 2752
| 99.7%
| 97.9%
| $0.82
|
2004
| 2771
| 100.4%
| 98.6%
| $1.15
|
2005
| 2822
| 102.2%
| 100.4%
| $1.72
|
2006
| 2817
| 102.1%
| 100.2%
| $1.92
|
2007
| 2778
| 100.7%
| 98.8%
| $2.13
|
2008
| 2723
| 98.7%
| 96.9%
| $2.96
|
2009
| 2603
| 94.3%
| 92.6%
| $1.66
|
2010
| 2638
| 95.6%
| 93.9%
| $2.15
|
2011
| 2684
| 97.2%
| 95.5%
| $3.00
|
2012
| 2607
| 94.5%
| 92.8%
| $2.65
|
1. The third column is the variance from the average for 1999-2012. The average daily package volume through this time period was 2760 pcs/day.
2. The fourth column is the variance from the average for 1999-2008. The average daily package volume through this time period was 2810 pcs/day. The reason this was done, was to statistically control for the drop in volume due to the "Great Recession". It actually wasn't too severe, but I did this just so one could compare the current situation Express is in, to the "good ol' days" pre-Great Recession.
3, The fifth column is the average price of jet fuel per gallon, Gulf Coast FOB. I placed this in the table so that one could see just how much the price of jet fuel has skyrocketed in the past 13 years - and to illustrate just how skillfully Express has managed to keep volumes up during this time period, DESPITE the massive increase in jet fuel. Fuel costs for non-aircraft applications track very closely to jet fuel prices, so this data point is valid across ALL uses of fuel within Express.
Analysis:
It is very easy to see that domestic volume hit it maximum in 2000, fuel prices were cheap and the economy was still booming. This has been no secret - Express has acknowledged that the domestic market for air shipping was saturated at this time (there was no more potential growth in the US market for this product). In the downturn that followed the 9/11 attacks, Express did really well in maintaining its business, only seeing a very slight drop in domestic volumes, while steadily expanding into foreign markets (that data set isn't contained here).
Despite the fact that fuel prices were steadily increasing from 2000 through 2008, volumes remained at a relative constant - there was inelasticity in demand for the product despite the price increases that had to be passed onto consumers.
The "Great Recession" has resulted in Express losing approximately 7% of its pre-Great Recession volume. Businesses re-evaluated their shipping needs, and started using lower cost alternatives when possible. This trend is continuing. The drop off in volume CANNOT be attributed to the cost of fuel, since there was inelasticity demonstrated prior to the recession. Labor costs have not increased faster than the rate of inflation, so this cannot be blamed on the drop in volume. The reason for drop in volume is due to two factors (in order of importance): customers shifting their shipping to lower cost alternatives and secondly to a decrease in overall economic activity.
The amazing thing within all of this, is that Express has managed to maintain profitability through all of this, DESPITE the fact that one of their key cost centers (fuel) has steadily increased in price throughout the time period. These costs had to be passed onto customers, who continued to use Express product despite the increases in price for the Express product. Therefore, the cost of fuel CANNOT be blamed for the current drop in Express volumes, it is a change in customer demand for air cargo product that is to blame.
The drop in volume by approximately 7% is actually slight, considering what is going on right now. The bottom ISN'T falling out of the air cargo market, it merely reflects the current economy and attempts to aggressively manage costs by shippers.
Express views the current level of demand as the "new normal" thus the "rightsizing" initiative (tacit admission that volumes WON'T return to pre-2009 levels). The line haul system is to be rid of excess capacity to reflect this new normal. By ridding itself of this excess capacity, the fixed cost of the Express line haul system will DECREASE, thus end profitability would by necessity INCREASE. This was all covered in the investors' conference call awhile ago.
The coming changes in how the final movement of non-overnight volume is to be conducted is merely an attempt to gain EXTRA profitability - AT THE EXPENSE OF THE CAREER EXPRESS EMPLOYEE. I previously compared this to how the "airline industry" in the US operates with the use of regional carriers, whose employees ARE NOT employed by the major carriers (Delta Connection, United Express, American Eagle, etc.). What Express is about to do, PRECISELY mirrors what the major airlines have already done with their service - shift the lower revenue product (in their case, travel to smaller cities, in Express' case, non-overnight volume), to a lower cost provider (one can directly compare Ground to the regional airlines, when it comes to cost structure), in order to realize greater profitability for the major carriers (in this case, Express).
To put it simply, the employees of Express are going to be tossed under the bus, for the benefit of the shareholders of FedEx (of which executive management of Express just happen to own large amounts of stock themselves). If you want proof of "PSP" being dead, it is right here.