US – GERMANY – WORLDWIDE – This week, the FedEx Corporation posted its third quarter results which showed its net income drop 31% from $521 million last year to £361 million, as of February 28. Contrary to a recent report by the International Air Transport Association (IATA), stating that the market shows signs of stabilisation, FedEx, along with other multimodal freight forwarding groups, attributes the decline to ‘continued weakness in international air freight markets’. Alongside these continued reports of a weak air freight market, German based logistics group, Dachser has contrastingly posted a 7.4% increase in its Air and Sea Logistics sector, mixing the two modes of transport and generating €1,305 million in 2012 compared to €1,215 million in 2011.
As usual trying to extract true meaning from the financial statements issued by senior executives at the head of the large logistics group can prove a puzzle to say the least but can be made sense of with careful reading. To illustrate the point, speaking at the Corporation’s earnings conference, David J. Bronczek, President and CEO at FedEx Express, explained:
“Total international export volume was up 4%. That however was driven by a 12% growth in deferred international export traffic, mainly led out of Asia and Europe. So we had a lot of freight, a lot of freight on our planes. Our high load factors, quite frankly, were driven by the deferred traffic. So we had lower yields, we had more traffic, higher pounds, all in deferred traffic.
“If you look at the [airfreight] market you can see that it’s overcapacity [that has affected international trade] and because of that overcapacity, people are looking for a market shift in their pricing and the issue for us isn’t that we don’t have enough volume, we have too much volume in the wrong product in the wrong network. Our overall growth in deferred was 12% and quite frankly, that’s only because we had to cap it because our planes coming out of Asia were full, full of the wrong type of products. So, we are moving the traffic into a lower cost network. We’re opening our express traders for truly international priority traffic and we’re bringing down our costs of the capacity. So, when you look at the marketplace, it shifted. Right now until the marketplace corrects itself on the overcapacity, we’re taking the lead for our business.”
FedEx Express’ revenue in 2012 increased by 2%, from $6.54 billion last year to $6.70 billion due to business acquisitions and growth at FedEx Trade Networks, while core express revenue was constrained by continued demand shift toward lower-yielding international services. Operating income (down 66% from $349 million a year ago to $118 million) and margin (down from 5.3% the previous year to 1.8%) were significantly lower due to the demand shift to lower-yielding international services, the prior year reversal of a $66 million reserve associated with a legal matter, the negative impact of one fewer operating day, higher pension cost and increased depreciation expense. Costs associated with the business realignment program also negatively impacted operating results by $34 million.
Revenue for FedEx Ground increased 11% from $2.48 billion last year to $2.75 billion with average daily volume up 10%. Operating income for the sector increased slightly from $465 million a year ago to $467 million, while operating margin was down to 17% from 18.8% the previous year, as the benefit of higher volume and revenue per package was mostly offset by higher purchased transportation, a favourable self-insurance adjustment in the prior year, higher network expansion costs, one fewer operating day and intercompany charges of $9 million associated with the business realignment program.
For the third quarter, the FedEx Freight segment reported increased revenue, $1.24 billion, up from last year’s $1.23 billion, an operating income of $4 million, compared with an operating loss of $1 million a year ago and an operating margin of 0.3%, up from (0.1%) the previous year. Even though the quarter had two fewer operating days, operating income and margin increased due to higher yield, volume growth and continued operational efficiencies within the company’s integrated network. Frederick Smith, Chairman, President and Chief Executive Officer said:
“The third quarter was very challenging due to continued weakness in international air freight markets, pressure on yields due to industry overcapacity and customers selecting less expensive and slower-transit services. In response, beginning April 1, FedEx Express will decrease capacity to and from Asia and will aggressively manage traffic flows to place low yielding traffic in lower-cost networks. We are currently assessing how these actions may allow FedEx Express to retire more of its older, less-efficient aircraft. We remain focused on our strategic cost reduction programs, which are ramping up and on track.”
Meanwhile, Dachser closed the 2012 financial year with new record highs in terms of overall revenue and staff numbers, hardly surprising given the company’s acquisition policy of late. Revenue growth nevertheless slowed to 3.7%. Dachser has set initial growth impulses for 2013 with the acquisitions of the Spanish logistics providers Azkar and Transunion. Including revenues from these acquisitions and expected organic growth, Dachser aims to surpass the €5 billion revenue threshold for the first time in the current fiscal year.
The group’s revenue increased in 2012 to €4.41 billion, 3.7% higher than €4.254 billion in 2011. 49.8 million consignments weighing 37.5 million tonnes represent an increase of around 1% over the previous year.
Dachser’s biggest business field, European Logistics, contributed to the group’s revenue in 2012 with €2.661 billion compared to the previous year’s € 2.625 billion, closing the fiscal year with a slight growth of 1.4%. Dachser Food Logistics raised its revenues by 13.2% to €573 million, from €506 million in 2011 and once again proved to be a stabilising factor independently of the economic fluctuations. The Dachser Air & Sea Logistics business field generated €1.305 billion, realising a growth in revenues of 7.4%. With the inclusion of Malaysia and Vietnam, the Air & Sea Logistics business field added two new Asian country organisations to the Dachser network.
Source From: Handy Shipping Guide