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Anyone catch this little tidbit in the earnings release.
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<blockquote data-quote="Ricochet1a" data-source="post: 954370" data-attributes="member: 22880"><p>The key point for the casual observer here is the differential operating margins of each opco. </p><p></p><p>Express is making a 5.3% margin and Ground is making an 18.8% margin.</p><p></p><p>These two numbers should tell even the casual observer where the future of FedEx Corporation lies. </p><p></p><p>Remember, Express and Ground handle roughly the same volume (piece count) currently. </p><p></p><p>To get a rough estimate of revenue ratio per piece, divide the Express revenue figure by the Ground revenue figure - the ratio is 2.64 (it costs roughly 2.64 times as much to ship the average package through Express as it does through Ground). </p><p></p><p>Now to compare absolute margin on a single average piece - apply the margin percentage.</p><p></p><p>On $264 of Express revenue, the margin is $14.00 (money in FedEx Corporation's pocket)</p><p></p><p>On $100 of Ground revenue, the margin is $18.80</p><p></p><p>As you can see, it is actually MORE advantageous for FedEx Corporation's customers to choose Ground to move a particular piece rather than use Express. </p><p></p><p>This is the "paradigm change" that has occurred. </p><p></p><p>FedEx isn't making a higher absolute margin on the highest priced service (as is typical in most service applications), it is making the highest absolute margin on the LOWEST priced service. </p><p></p><p>The reason for this is obvious - the wages that FedEx pays to Ground drivers is drastically under market "norms". </p><p></p><p>Does anyone doubt the future of FedEx Corporation - and where it will shift service to in order to up margins on its "Express product".</p></blockquote><p></p>
[QUOTE="Ricochet1a, post: 954370, member: 22880"] The key point for the casual observer here is the differential operating margins of each opco. Express is making a 5.3% margin and Ground is making an 18.8% margin. These two numbers should tell even the casual observer where the future of FedEx Corporation lies. Remember, Express and Ground handle roughly the same volume (piece count) currently. To get a rough estimate of revenue ratio per piece, divide the Express revenue figure by the Ground revenue figure - the ratio is 2.64 (it costs roughly 2.64 times as much to ship the average package through Express as it does through Ground). Now to compare absolute margin on a single average piece - apply the margin percentage. On $264 of Express revenue, the margin is $14.00 (money in FedEx Corporation's pocket) On $100 of Ground revenue, the margin is $18.80 As you can see, it is actually MORE advantageous for FedEx Corporation's customers to choose Ground to move a particular piece rather than use Express. This is the "paradigm change" that has occurred. FedEx isn't making a higher absolute margin on the highest priced service (as is typical in most service applications), it is making the highest absolute margin on the LOWEST priced service. The reason for this is obvious - the wages that FedEx pays to Ground drivers is drastically under market "norms". Does anyone doubt the future of FedEx Corporation - and where it will shift service to in order to up margins on its "Express product". [/QUOTE]
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Anyone catch this little tidbit in the earnings release.
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