FedEx Rant -- March 18, 2016

Earlier I linked this story but did not have a change to do more than that. NASDAQ.com is reporting the rant that the FedEx/CEO made the other day while discussing its 3Q15 earnings report. Some excerpts from the story:

FedEx Corp. executives said retailers should be paying more for shipments to help offset the cost of expanding its network to meet the growing demands of e-commerce.
"There's an enormous interest in people having things delivered to themselves. It does not change, one iota, the input costs of the delivery," Chief Executive Fred Smith said in an interview.

FedEx this year increased its capital spending to $4.8 billion, with the largest increase in its ground division which handles most of its e-commerce business, and intends to continue the increases in the next two years.

Mr. Smith said he thought it was unbelievable that some have suggested that Amazon would be able to build out a network to compete with FedEx and rival United Parcel Service Inc.

Just because Amazon has created a network of warehouses to support its retail operations, doesn't mean that could translate to something akin to FedEx's massive network for deliveries, Mr. Smith said. "The key driver of any delivery system is route density and revenue per delivery stop," he said.

Mr. Smith said Amazon is an important customer and that they expect to continue to do business with them for a long time. Last week Amazon said it agreed to lease as many as 20 planes from an air-cargo company for transporting merchandise around the U.S., something FedEx said it expected.

No single customer, including Amazon, makes up more than 3% of FedEx's total revenue.

One way that FedEx intends to boost its e-commerce returns is by increasing fees attached to the growing number of large shipments such as kayaks and other items that don't fit into its ground network.

Mr. Smith blamed some of the trend in low-cost e-commerce expectations on the U.S. Postal Service, which it and other delivery companies, including UPS and Amazon, use to deliver packages the most expensive leg of the trip—to resident's doors.

"The postal service's rates, which are the primary driver of e-commerce…they're going to have to go up as mail service goes down," Mr. Smith said.

I laughed at this observation by the CEO when I first read it, but reflecting a bit on this, there is something important being said:

"There's an enormous interest in people having things delivered to themselves."

But I think he's wrong on the second part:

It does not change, one iota, the input costs of the delivery. 

Common sense tells me that if FedEx delivers two products to my house at the same time, that should cut delivery costs compared to shipping one product each on two separate days. Extend that analogy to one delivery in my apartment complex/day vs 20 deliveries in my apartment complex/day.

With the CEO's concern about financing expansion with debt, what's new about that? Amazon has been doing that for decades; I don't think Amazon has shown a profit much more than three quarters over all the years it's been in business.

With regard to his comments about the USPS, the CEO did not note that both UPS and FedEx use the USPS to ship packages that originate with them via USPS to remote locations in Montana, Texas, and the entire southwest United States.

But he did confirm what I've always know: UPS and FedEx are expensive compared to USPS.