Jan 2, 2013
FedEx Corp. (NYSE:$FDX) reported a 12% year-over-year drop in quarterly profits. This is due to hurricane Sandy and the global economic slowdown, which has changed customer's preferences from high margin overnight delivery service to cheaper alternatives. This shift was also evident in FedEx's income by segment. Operating profits at its premier air express unit dropped by 33% to $230 million, while margins have shrunk from 5.2% in 2011 to 3.4%. On the other hand, operating income of its slower ground and freight segment are up by 4% and 90% to $412 million and $76 million, respectively.
In short, the fall in air transport was offset by ground operations. This is a trend I expect to continue in the long term as the era of cheap, abundant energy that facilitated the model is over and therefore air freight volume is likely going to drop, but margins may remain as it will weed out all of the price elastic customers, leaving those whose need far outweighs the shipping cost differential.
Read the rest over at Seeking Alpha.