Express employees should pull up the FY 10 annual report to shareholders and take a look at it. Here are some selected stats from the report and my comments.
1. Page 4 in reference to Ground, “We now deliver more than 50 percent of packages in two days or less and more than 80 percent in three days or less…”
This begs the question, why does Express need to continue ES service if Ground is able to pull this off? (Answer, it doesn’t need to.)
2. Page 4 still in reference to Ground, “FedEx Ground’s average daily volume… more than 3.5 million in FY 10”
3. Page 20 selected stats on Express:
Express worldwide average daily volume 3.5 million
Express US Domestic Overnight average daily volume 1.77 million
Express US Domestic Non-overnight average daily volume 867 thousand
As far as volume of packages moved (excluding freight), non-overnight volume U.S. domestic in the Express system constitutes approximately one-quarter of Express volume. Excluding international volume, non-overnight volume in the domestic U.S. is approximately one-third of Express U.S. domestic volume. Put another way, the typical U.S. full time Courier’s volume consists of two-thirds overnight and one-third non-overnight pieces.
4. Page 16 FedEx Corporation operating margin FY 10, 5.8%
5. Page 20 FedEx Express operating margin FY 10, 5.2%
6. Page 19 FedEx Express Revenues
U.S. Domestic Overnight = $7.2 Billion
U.S. Domestic Non-overnight = $2.6 Billion
International Priority = $7.1 Billion
“OTHER INTERSEGMENT TRANSACTIONS” (these total almost $2 BILLION in FY 10)
“Certain FedEx operating companies provide transportation and related services for other FedEx companies outside their reportable segment. Billings for such services are based on negotiated rates, which we believe approximate fair value, and are reflected as revenues of the billing segment.”
I included the above to illustrate that FedEx Corporation does indeed move money around from one segment to another (contrary to what some have suggested). The “related services” are provided on a cost schedule determined solely by FedEx; no open source competition is sought. A determination is made as to what is “fair value”, then that fee is assessed by the segment providing the service, against the “books” of the segment receiving the service. I wanted to get this nailed down for the doubters, who think that Express couldn’t move volume over to Ground, then pay whatever FedEx Corp determined to be “fair value” for the delivery of said volume. FedEx already engages in that sort of activity, it just doesn’t talk about it too much. The ground work already exists for one segment to perform “work” for another segment.
Analysis: Express is pulling its weight in FY10, generating a margin of 5.2% compared to 5.8% of FedEx Corporation as a whole. It is quite easy to see that revenues from non-overnight volume are rather small compared to all the other sources of revenue for Express – by my simple math, it comes up to about 12% of total revenue for Express. Important revenue, but in the greater scheme of things, small...
As most Couriers know, that non-overnight volume tends to be the bulkier, more time consuming volume to get off their truck. That volume takes up time for the Courier, disproportionate to the statistic of stop count or piece count.
Now… it has been established that FedEx moves “work” around from one segment to another (to get more favorable costs of performance). This is undisputable, read the annual report.
A typical Courier has about one-third of their delivery piece count taken up by non-overnight volume, which generates disproportionately small revenues for Express.
An Express Courier typically costs FedEx Corporation about double what it cost FedEx Corporation to have a non-employee Ground driver move a given piece.
Logic exercise…
Is it more efficient for Express to commit their Couriers (which are paid double that of Ground drivers) to delivery of one-third of their current volume (which brings in little real revenue, comparatively speaking), or to shift that delivery of that one-third of total Express volume over to Ground for delivery?
Next Question:
The Ground segment delivers approximately 3.5 million pieces a day in the U.S. Would the addition of an additional 867 thousand pieces cause any undue disruption to the Ground network as it currently exists? That additional volume would be a 25% increase in delivered volume for Ground….
It doesn’t take an MBA to figure this one out. Non-overnight volume is moved by Express as a “favor” to its customers, to enable them a lower cost alternative when they don’t need overnight service. Express makes its money on those doc bags and the international volume.
In a quest to squeeze “inefficiency” out to an even greater degree, the shifting of delivery of non-overnight volume to a lower cost solution is the proverbial “no-brainer”. Ground can easily expand its daily delivery by 25% with a few months of notice. Additional routes can be fitted into the current structure and away they go.
With the non-overnight volume shifted over to Ground for delivery, Express won’t have nearly as great a need for full-time Couriers. Initially Couriers can be dual tasked with a delivery then a pick-up route. Once the system is perfected, a gradual shift to a nearly pure part-time force can be made. This is made possible by the adoption of a key piece of technology which is already being tested and ironed out – ROADS. Couriers and be moved off the AM sort operation and replaced by handlers, who will be able to not only pull the belt, but also place the truck in stop order (just like UP S does – we all know how Express likes to copy UPS). Handlers will be hired into each station to perform the sort and used as a ready pool of Courier replacements.
Full timers will still be needed for extended rural routes, as swing Couriers and to provide an experience base (initially). As the system is perfected, the ratio of full-time to part-timer will drop (in typical stations) to about 1 in 6, possibly as low as 1 in 8 in stations without extended rural routes.
The doubters can continue to doubt all they want. What would be interesting in my opinion would be their painting of an alternative picture which would include full-time Couriers NOT being affected by any changes. Since it is a given at this point that the Couriers of Express won’t sign IBT union cards, the only thing the existing full-time Couriers can do is either accept going to part-time in the near future, or leaving – or hope they can get a route that requires a minimum of 8 hours to perform.
