From The Wall Street Journal a few days ago:

FedEx CEO Predicts Industry Shift
Chief Sees More Competition From Seaborne Shipping; Courier Reports a 1.4% Decline in Earnings
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By BOB SECHLER

FedEx Corp. FDX -0.34% Chief Executive Fred Smith predicted fundamental changes in the global freight business, with air carriers facing more competition from ships and the industry putting more focus on providing clients with customized, door-to-door delivery options.


The FedEx founder, who pioneered the modern airfreight business and has built the world's largest cargo airline by revenue, cautioned that the traditional airport-to-airport business "is not growing."

"It's very clear that the door-to-door express segment is growing, and the movement of goods on the water is growing," Mr. Smith said Tuesday on a conference call after FedEx reported a 1.4% decline in profit for its fiscal fourth quarter. The company also promised to release details in the fall on a plan to cut costs.

Mr. Smith said FedEx is in a strong position to take advantage of the industry's shifting trends, despite the company's history in the express-air segment, citing FedEx's scale and combined air, ground and freight capabilities. The company also operates a freight-forwarding business, FedEx Trade Networks, which provides logistical services and arranges third-party shipping for customers, including via sea.

Recent industry changes have hurt FedEx as some customers have opted for slower-moving, nonpremium delivery services in the soft global economy. Volume for FedEx's international-priority-airfreight business declined 3% in the company's fourth quarter, which ended May 31, after falling 1% in the fiscal third quarter. U.S. domestic-express volume fell 5% in the fourth quarter, compared with a 4% decline in the third.

The Memphis, Tenn., company plans to disclose a "comprehensive program" in October to cut costs and better align the size of its express air fleet with anticipated market demand, Mr. Smith said.

The company predicted earning $1.45 to $1.60 a share for the current quarter, below the $1.70 forecast by analysts polled by Thomson Reuters.

FedEx projected earnings of $6.90 to $7.40 a share for the year, compared with a forecast by analysts of $7.39 a share, although the company stressed that its full-year forecast didn't include the impact of "significant" cost reductions that are under review.

BB&T Capital Markets analyst Kevin Sterling said it has been evident for some time that growth in the traditional air-cargo segment is on the wane, although he said Mr. Smith's comments were significant. "When he speaks…people listen," Mr. Sterling said.

The analyst said he thinks the three biggest integrated, global airfreight shippers—FedEx, United Parcel Service Inc. UPS -0.84% and Deutsche Post AG DPW.XE -0.73% unit DHL—stand to benefit from the broad industry changes in the long term because of the companies' scale and flexibility.

But Bill Flynn, chief executive of air-cargo carrier Atlas Air Worldwide Holdings Inc., AAWW -1.16% said the airfreight industry is solid and remains a good business. "The rate of growth may be slowing down, but it is a rate of growth on a much larger absolute base of cargo," Mr. Flynn said in an interview.

He noted that there is little option for perishable and other time-sensitive items to move except by air, particularly as container ships cut fuel costs through "slow steaming."


"What we have not seen is a fundamental shift from air back to sea," Mr. Flynn said. "I just think it is going to be harder to take high-value, time-sensitive commodities off of an air carrier and onto a ship."

He agreed with Mr. Smith that there is an increasing opportunity for airfreight carriers to offer value-added services to customers, such as tracking capabilities.

FedEx said fourth-quarter earnings were hurt by volume declines in its express-shipping business and by a $134 million charge to retire aircraft because of sluggish domestic demand.

FedEx reported profit of $550 million, or $1.73 a share, down from $558 million, or $1.75 a share, a year earlier. Excluding the charge, earnings rose to $1.99 a share.

Revenue rose 3.8% to $11 billion.

Revenue for express shipping, by far the company's largest top-line contributor, rose 2.6% to $6.8 billion. The segment's operating profit declined 35%.

FedEx's ground-shipping segment posted a 9.7% increase in revenue to $2.48 billion. The segment's operating profit rose 18% as average daily volume increased 3%.

FedEx shares rose $2.50, or 2.8%, to $91.01 in 4 p.m composite trading on the New York Stock Exchange.

Write to Bob Sechler at [email protected]