FedEx has introduced a programme for cost reductions

As a result of the fourth quarter’s profit setback in 2001 (31 May) FedEx
Corporation (FDX) in Memphis (USA) has introduced a programme for ‘cost reductions all along the line’, parts of which have already been put into practice, according to company founder Mr Fred Smith. ‘We are adjusting our capacity to the decline in demand’, he told a conference of analysts last Thursday. Mr Smith expects the turnover to rise considerably again over the next few months and explained that one new factor contributing to a better turnover would be the alliance with the US post, where FedEx will take over long-distance letter transports from 27 August. FedEx is also installing
10,000 drop-off boxes outside post offices, where customers can post express
consignments. While stating that results from trial areas had been well above
expectations, the responsible FedEx manager did not disclose any figures.
Mr Smith said that co-operation with the French La Poste and the Belgian Business Post constituted a low-cost extension of the service area and that FedEx enjoyed growth rates around 20% in Europe.
FDX increased its turnover during the current financial year by 7% to 23.162bn euros. The operational result, however, dropped by 12% to 1.263bn euros and the net profit fell by 15% to 689m euros. The weak US economy hit FedEx results particularly during the last quarter. The net yield for the whole financial year dropped to 2.9% (compared to 3.7% the year before) and was only 2.2% in the last quarter. At the presentation of the company’s results finance director Mr Alan B Graf Jr said its flagship FedEx Express, which still generates 79.1% (18.33bn euros) of the group’s total turnover, was particularly shaken as ‘in the fourth quarter the daily average US domestic volume dropped by 6% compared to the same period last year. The growth rate of FedEx International’s priority consignments slowed down to 2%.’ During the fourth quarter the total turnover of FedEx Express declined by 3%, while the operational result (-53%) and the net profit (-54%) were halved. The reduced utilization rate and the introduced savings programme both affected the results, as the 146m euros savings fell largely upon FedEx Express (120m euros). The board of directors accelerated depreciation and reduced the number of aircraft in order to increase the
utilization rate. FedEx aims to improve the utilization of its resources by axing the Sunday deliveries, which were part of its overnight service, from 27 August, the date when the major contract for the US post begins. Customers will then be left with the Saturday overnight service (i.e. Friday dispatch) or the much more expensive same-day service.
The savings programme also involves cuts in the staff sector: a freeze on fresh
employment and reduced bonus payments. The last financial year saw personnel costs go up by 9% and attain 44.5% of the total expenses. The number of staff increased by 8.5% to 177,000 full-time employees. Only the growth rates for depreciation (10%) and fuel costs (24%) were higher. The two FDX subsidiaries FedEx Ground and FedEx Freight gained more than the main express branch. Freight appears for the first time as a separate entry in the financial statement; it was created by joining the activities of Viking Freight (previously under Other) and the newly acquired groupage agent American Freightways. The parcel business of FedEx Ground achieved a 10% turnover
increase to 2.639bn euros. Both areas are more high-yielding than the main branch, where the operational result was 5.4% of the turnover, while the freight sector achieved 6.5% and FedEx Ground 7.8%.