FedEx Express (NYSE: FDX) will invest in 20 more cargo jets as e-commerce continues to drive global growth for the parcel sector.
Chief Operating Officer Raj Subramaniam said during Thursday’s briefing on the company’s quarterly results that FedEx is exercising options to purchase 20 additional 767 freighters from Boeing Co. (NYSE: BA) to modernize its fleet and improve service amid strong shipping demand. Ten aircraft are scheduled for delivery in the 2024-2025 time frame, and 10 more the following year.
FedEx has received 100 767s since 2013, according to Boeing’s website. The 767-300 aircraft have a maximum payload of 120,000 pounds.
Aircraft are the linchpin to FedEx’s express delivery model, with online shoppers increasingly expecting one- and two-day service.
FedEx’s parcel volume for the fiscal year ended May 31 was very strong across the enterprise. FedEx Express revenue grew 18.5% to $42 billion, with operating income nearly tripling to $2.8 billion and operating margin up 6.7%.
FedEx grew e-commerce parcel volume by more than $1 billion year-over-year out of Asia and Europe and was able to price international shipments competitively, making it “quite sticky,” said Chief Commercial Office Brie Carere.
E-commerce drove a 28% year-over-year increase in FedEx’s returns business.
Meanwhile, the U.S. domestic parcel market is expected to surpass 107 million packages a day in 2022, with e-commerce contributing 88% of total U.S. market growth, said Carere. By 2026, the carrier forecasts the U.S. domestic parcel market will reach 172 million packages per day.
More than two-thirds of deliveries in the past year were residential, versus 62% in the prior period. The company expects residential volumes to grow significantly faster than commercial volume in the long term, but with retail inventories currently at record lows it expects “solid” business-to-business volume growth this fiscal year.
FedEx is also benefiting from the 10% to 15% reduction in global air cargo capacity, primarily due to the limited number of international passenger flights as COVID remains a worldwide health threat.
“We expect air cargo capacity to remain constrained through at least the first half of calendar year ’22. Recovery will be slow, potentially episodic, and a full recovery is not anticipated until 2024,” Carere said. “We believe favorable pricing internationally should continue through fiscal year 2022. We will continue to manage demand internationally, using yield management and continuation of peak surcharges, especially on trans-Pacific and trans-Atlantic lanes. We are seeing a very good capture rate on these surcharges.”
Click here for more FreightWaves/American Shipper stories by Eric Kulisch.
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