FDX - FedEx

[gfp]

One business Amazon appears to be currently giving almost entirely to UPS is the returns business.  I return a lot of stuff from Amazon (not because I'm weird but because we receive several Amazon deliveries a day here) and virtually all of our returns get dropped at the nearby UPS store with no packaging.  We just hand them the item and they scan a code off my phone.  UPS bundles them all up and handles the returns.  UPS has a big returns logistics business for other companies as well.  I don't know anything about the economics of it.

 

In my market, FedEx seems to have Walmart's e-commence delivery business almost exclusively.  Amazon uses USPS a lot, the local Amazon-branded sprinters, and a lot of UPS.

 

(my favorite is when Amazon tells me to just keep or donate my return.  I received a free lawn mower that way, because shipping something that has had motor oil in it is more difficult)

[K2SO]

One business Amazon appears to be currently giving almost entirely to UPS is the returns business.  I return a lot of stuff from Amazon (not because I'm weird but because we receive several Amazon deliveries a day here) and virtually all of our returns get dropped at the nearby UPS store with no packaging.  We just hand them the item and they scan a code off my phone.  UPS bundles them all up and handles the returns.  UPS has a big returns logistics business for other companies as well.  I don't know anything about the economics of it.

 

In my market, FedEx seems to have Walmart's e-commence delivery business almost exclusively.  Amazon uses USPS a lot, the local Amazon-branded sprinters, and a lot of UPS.

 

(my favorite is when Amazon tells me to just keep or donate my return.  I received a free lawn mower that way, because shipping something that has had motor oil in it is more difficult)

 

Somewhat off-topic (although tangential to the shipping industry) is how sustainable this is for Amazon and other online retailers. I've had small, cheap goods shipped next day where the cost of shipping probably exceeds what I paid for the item. How sustainable is this, along with these liberal return policies? Doesn't make sense to me, but I guess I just don't understand the "new economy."

 

 

[Okonomen]

I notice that FedEx mentions ROIC several times also in their proxy, but they do not use it as a KPI in management remuneration. They do use other decent metrics but not this golden one, and I wonder why

[CorpRaider]

One business Amazon appears to be currently giving almost entirely to UPS is the returns business.  I return a lot of stuff from Amazon (not because I'm weird but because we receive several Amazon deliveries a day here) and virtually all of our returns get dropped at the nearby UPS store with no packaging.  We just hand them the item and they scan a code off my phone.  UPS bundles them all up and handles the returns.  UPS has a big returns logistics business for other companies as well.  I don't know anything about the economics of it.

 

In my market, FedEx seems to have Walmart's e-commence delivery business almost exclusively.  Amazon uses USPS a lot, the local Amazon-branded sprinters, and a lot of UPS.

 

(my favorite is when Amazon tells me to just keep or donate my return.  I received a free lawn mower that way, because shipping something that has had motor oil in it is more difficult)

 

Somewhat off-topic (although tangential to the shipping industry) is how sustainable this is for Amazon and other online retailers. I've had small, cheap goods shipped next day where the cost of shipping probably exceeds what I paid for the item. How sustainable is this, along with these liberal return policies? Doesn't make sense to me, but I guess I just don't understand the "new economy."

 

I seriously doubt whether alot of this is sustainable at all.  I've got people in $50K minivans delivering stuff via Shipt that my wife ordered from Target like a mile away (totaling like $50 bucks) and I've had Amazon ship me extra pairs of sneakers (from third party sellers) and then tell me to just keep low value stuff rather than return it, etc...I wonder what UPS thinks about Amazon trying to compete with it on such a large scale...reportedly.  I guess marketplace sellers or manufacturers don't mind too much....yet. 

 

The whole delivery space reminds somewhat of Webvan and the like during the 90's at a 10x scale.  Good to experiment with convenience/distribution I suppose (for society...not with my capital).  I really feel like B&M retailers could be very competitive with a little limited local delivery/pickup (it has to be cheaper to pack ship, right?) and mostly just eliminating standing in line to give them money/electrons.  I would often rather just go grab something from the store and see what else is out there (especially versus 2 day shipping that really takes 3-4, with a random dude banging on my door aggressively at random times) but waiting in line for you to inventory my selections and accept payment seems pretty much unacceptable in 2020.

 

Also consumer anecdote:  Fed EX is nearly as bad as random amazon drivers in busted out rapist vans pulling up to my house.  Just really inconsistent experience (like putting stuff in weird places/the wrong address a lot, beating the box up like ace ventura) versus UPS and USPS.

[Jurgis]

Also consumer anecdote:  Fed EX is nearly as bad as random amazon drivers in busted out rapist vans pulling up to my house.  Just really inconsistent experience (like putting stuff in weird places/the wrong address a lot, beating the box up like ace ventura) versus UPS and USPS.

 

I ordered a number of 6-bottle (glass bottle) juice packs from Amazon. Shipped by UPS. Four shipments broken-in-shipment-returned-to-sender-didn't-even-get-to-my-door. One shipment broken at my door. Two shipments delivered fine. I'm pretty sure UPS hates me by now. Some Amazon third party merchants probably hate me too (unless they get more for insurance from UPS than they have to reimburse me).

 

I've got another shipment of tonic water in glass bottles coming next month.  8)

[dwy000]

I simply don't get how this is a viable business model (for the seller, not the delivery company).  You cannot compete on price for low ticket items and maintain enough margin to pay for free shipping.  It's just economic reality.  Unless the shipment exceeds like $50 and the route is ultra dense, it doesn't work.  Online has driven the gross margin down to a level where it's bare bones profitable in the first place. 

[Castanza]

I simply don't get how this is a viable business model (for the seller, not the delivery company).  You cannot compete on price for low ticket items and maintain enough margin to pay for free shipping.  It's just economic reality.  Unless the shipment exceeds like $50 and the route is ultra dense, it doesn't work.  Online has driven the gross margin down to a level where it's bare bones profitable in the first place.

 

This is why UPS is utilizing USPS for last mile delivery. Anything under 5lbs and you're making cents on the dollar. Generally they are used to fill empty volume in the trucks not taken up by B2B. If you have to make a second attempt then you've already lost money. UPS tried to combat this in 2017 by changing the standards for what constituted a package that could be left regardless of location. I can remember managers chewing out drivers who didn't leave (DR) a 2nd attempt package on the stoop of a house or even a business that was in a rough area or simply a busy street with a lot of foot traffic. There was also push to get this done on the first attempt as well. Drivers hated it because for the most part they wanted to do their job well and keep the customers happy. Doing this made them look like lazy SOBs. I remember regional management coming in and saying "I don't care if the house is burnt down and there is nothing left but the front steps. If the DIAD says you can leave it you leave it." To me this mentality really shows the dichotomy between pleasing the customer/doing what's right and making money. This was an agreement between Amazon and UPS though and I'm not sure what the stipulations were on DR packages (price, etc). I'd wager it was something to do with odds of a package being stolen and having to pay for it vs not having to make a second attempt. This is also a double edge sword though because as a customer if you report a package as stolen you are automatically put on a list which requires a signature for every future delivery. Many wouldn't file because well, who is home during the day to sign for a package? A real catch 22.

[Spekulatius]

Anecdotal for sure, but USPS is totally screwed for packages. We received one package that needed more than 3 weeks from the Midwest and another small one that took more than 3 weeks from  CA to MA. The latter one actually took 1 week to move from Springfield, MA to our house 65 miles away.

 

I have received another package shipping with FedEx from CA to MA that took 3 days. Why does USPS even bother?

[DTEJD1997]

Anecdotal for sure, but USPS is totally screwed for packages. We received one package that needed more than 3 weeks from the Midwest and another small one that took more than 3 weeks from  CA to MA. The latter one actually took 1 week to move from Springfield, MA to our house 65 miles away.

 

I have received another package shipping with FedEx from CA to MA that took 3 days. Why does USPS even bother?

 

This is really crazy!  I was going to go on a total rant about Fed-Ex today.

 

I am expecting an incredibly important package to be delivered by Fed-Ex ground.  It was supposed to be here Friday.  Then it was supposed to be here on SAT.  So the Fed-Ex delivery truck is at the neighbors...I run up it to it...NO PACKAGE.  WTF?  Driver has no idea where it is or what is going on.  He says things are all #@$%^ at the local hub.  He says call service #

 

I call service and get a foreign worker who is very nice.  He assures me it will delivered on SAT. by 8 PM.  Well, a couple of hours to go and no package.

 

I used to ship THOUSANDS of packages through Fed-Ex per year.  They were pretty good.  Come 2016, I shut down that business....

 

Fast forward to modern day...I ship THOUSANDS (about 50-60 per week) of packages through USPS per year.  They are pretty good, pretty cheap.  Things get delivered within target (+1 day) about 99% of the time.  Heavily damaged/stolen packages are LESS than 1%.

 

I know my local PostMaster, most of the clerks.  If there is a problem, they help me out to the best of their abilities.  This has saved me a couple thousand $ through the year, so a definite plus.

 

Contrast this to Fed-Ex.  They have damaged/lost/theft problems with 3 out 5 of the packages I've shipped with them in the past year.  They don't pay on insurance.  They have TERRIBLE customer service.  Simply unreal.  I avoid them like the plague.  The only time I am now using them is if a customer insists on it, AND they are shipping on their account.

 

So my experience is completely the opposite.

[Spekulatius]

DTEJD1997, it seems that the local hubs really matter. Apparently our local USPS hub really sucks. We also know that our package sat at the local post office for 2 days (per website tracker ) and the truck drove by our house without delivering. It doesn’t explain the whole thing, but it does add up, if they are late one day at every step. And if you have a slow hun at the sender and at the receiver, you get the results we have seen.

 

We are a bit out there (~35miles from Boston) and most of our packages are from Amazon ~ 2/3% FedEx and ~1/3 Amazon and packaging typically take 3 days. Apparently the warehouse / logistics point is too far to make it the regular 2 days. We lived in Long Island, NY before the Amazon was crazy fast, virtually all packages were less than 2 days, many delivered within one day and we sometimes had oders submitted in the morning delivered the same day afternoon. So both locations show a big difference, especially considering that Amazon has been working on faster delivery in the meantime and tries to push 1 day, yet in our location they are still far from that. This goes to show how difficult it is to create a consistent service in the logistics business in a country as large as the US.

[DTEJD1997]

DTEJD1997, it seems that the local hubs really matter. Apparently our local USPS hub really sucks. We also know that our package sat at the local post office for 2 days (per website tracker ) and the truck drove by our house without delivering. It doesn’t explain the whole thing, but it does add up, if they are late one day at every step. And if you have a slow hun at the sender and at the receiver, you get the results we have seen.

 

We are a bit out there (~35miles from Boston) and most of our packages are from Amazon ~ 2/3% FedEx and ~1/3 Amazon and packaging typically take 3 days. Apparently the warehouse / logistics point is too far to make it the regular 2 days. We lived in Long Island, NY before the Amazon was crazy fast, virtually all packages were less than 2 days, many delivered within one day and we sometimes had oders submitted in the morning delivered the same day afternoon. So both locations show a big difference, especially considering that Amazon has been working on faster delivery in the meantime and tries to push 1 day, yet in our location they are still far from that. This goes to show how difficult it is to create a consistent service in the logistics business in a country as large as the US.

 

Yes, the local hub certainly does make a difference...but Fed-Ex has really sh!t the bed...

 

As I write this reply, my package has NOT been delivered.  This is counter to the answer I got earlier today when I called Fed-Ex service on it.  Further, I've now been on hold 27 minutes waiting to talk to a human being about this.  I am absolutely IRATE over this.  UPDATE: At 38 minutes, the call was taken off hold and answered by a human.

 

Fed-Ex's problems extend WAY beyond local problems though.

 

For example, it was almost a year ago that I shipped an incredibly expensive and incredibly well packed computer monitor.  The monitor was "double boxed", one of the boxes was also "double walled".  A spike went through the boxes and the monitor at some point.  Totally destroyed.  Fed-Ex didn't want to pay, as it was "not packaged properly".  That is complete nonsense.  I've shipped tens of thousands of boxes.  Original box & shipping materials AND THEN ANOTHER double walled box(with foam inserts) is not enough for proper packaging?  GTFO!  what is proper packaging?

I don't think that box was destroyed at my local hub?

 

Another time, they gave a $2k box away to "some dude" who called them on the phone.  "Some dude" got the box re-routed to a notorious freight forwarding company/address (in a different state/city) who then sent it to Eastern Europe.  So I all gotta do is have a tracking # and I can get packages re-routed mid-delivery?  Fed-Ex at least admitted that they broke protocol on that one.

 

I'm so upset, I've considered detailing each of the problems I've had and then sending it to each member of the board of directors.

 

Finally, this is not screwing up 3/1000 packages.  This is screwing up 3/5 packages shipped/received in the latest 12 month period.

[bizaro86]

Interesting how different people have such different experiences. I get a few dozen packages via FedEx per year, and have zero problems ever. UPS I find consistently terrible. In the past month, two of the three packages sent to me via UPS have not been delivered correctly. Both were marked as delivered, but were actually sent somewhere else. In both cases the mistaken recipient dropped them off at my address, but that's not really something I prefer to count on.

[gfp]

Yeah it’s weird the different perceptions - where I live UPS is great and FedEx is like Wild West horrible - just a rag tag bunch of independent contractors. And except for Wal-mart’s deal, FedEx ground does seem to take forever. And now this -

https://www.bloomberg.com/news/articles/2019-12-16/amazon-cuts-off-fedex-ground-for-prime-shipments-this-holiday?srnd=premium

[Spekulatius]

FDX is screwed imo, especially if you consider the bigger picture with AMZN:

http://investors.fedex.com/news-and-events/investor-news/news-release-details/2019/FedEx-Corp-Reports-Second-Quarter-Results/default.aspx

 

[Gregmal]

Just my 2c from NJ, but Fedex is typically lower quality 1099 people at a surprisingly high cost. UPS is premium, and USPS is reliable enough and cost effective.

 

I’d love for this to be one of those once a year type blue chip panic attack no brainer investments...aka CVS, NXPI, AXP, JPM... but there's just so much bad about this business I can’t get there yet, nor am I sure I ever will. The only thing that allows these to work is the duopoly like market dynamic. And even with that it’s questionable and still resembles the bastard child businesses most of us typically avoid.

[Spekulatius]

Just my 2c from NJ, but Fedex is typically lower quality 1099 people at a surprisingly high cost. UPS is premium, and USPS is reliable enough and cost effective.

 

I’d love for this to be one of those once a year type blue chip panic attack no brainer investments...aka CVS, NXPI, AXP, JPM... but there's just so much bad about this business I can’t get there yet, nor am I sure I ever will. The only thing that allows these to work is the duopoly like market dynamic. And even with that it’s questionable and still resembles the bastard child businesses most of us typically avoid.

 

I think we established in another exchange that anecdotal observations probably not going to help others companies that huge, as the differences are too large even for regions that are close to each other. I think a lot of the perceptions depend on how well your local hub operates.

 

As for the stock I was buying FDX during the decline in late 2018, assuming that this was just somewhat cyclical, with some operational issues thrown in, that would be resolved over time. I sold during the moderate bounce after I felt that the issues run way deeper than I thought and that managements hasn’t fully fessed up. Since then, we had several management changes, TNT is still not performing and they are going to war with their biggest customer (Amazon) who I think will become a competitor. Even worse, I think the founder is pretty dilution all about the real issues, as he rants about USPS and thinks new planes are going to solve the cost issue in a couple of years.

 

The company also hasn’t  really generated FCF for years as Capex and pensions ate it all, which is fine when the business is growing fast, but lately growth has trailed off and Capex hasn’t. Now this is a business that operates as a platform with high fixed cost and as the revenue declines (as it has in the last quartet) I think they could get quickly in a situation where they are going  to lose money.

 

I am not in the camp that Amazon is going to win every battle they get into, but I am pretty sure that they are going to be major force in logistics and shouldn’t taken way more serious than USPS. Anyways, I am not an expert in this, I just try to stay away from trouble and owning FDX stock is more trouble than it am willing to accept. Being what it is, I think the stock is overvalued at $150 (the pre market price).

[Castanza]

FMCSA likely to grant 80 hour workweeks for these guys.

 

Investment wise no clue....likely to see rotating weekly shifts with layoffs to preserve capital.

 

Under normal economic conditions I like UPS under $90. But will not be adding any for a few months.

 

Hard to believe FedEx is this cheap. To think it was at 270s a little over a year ago.

 

 

[mwtorock]

this is the dow dog to outperform. Ground is renting uhaul trucks for delivery, and express is getting more business because of all the cancellations of international flights. It definitely gets a boost in the short term. Medium term it would be bad if recession hits, but they have been cutting costs the last two years and they survived all the previous downturns and emerged stronger.

[Castanza]

this is the dow dog to outperform. Ground is renting uhaul trucks for delivery, and express is getting more business because of all the cancellations of international flights. It definitely gets a boost in the short term. Medium term it would be bad if recession hits, but they have been cutting costs the last two years and they survived all the previous downturns and emerged stronger.

 

It's difficult to predict what this will look like in a recession. If you look back it certainly looks bleak. E-commerce (specifically the utility of it) has shifted drastically since 2008. B2B is still the bread and butter so there is definitely room for downside. Lower fuel prices will certainly be a nice boon. 

[rogermunibond]

Passenger airlines had a cargo capacity that's completely gone now.

 

FDX, ATSG, AAWW all doing lot of business.

[mwtorock]

Reported by WSJ today - Amazon to Suspend Delivery Service That Competes With UPS, FedEx.

 

Dont want to read into it too much, but it somewhat shows the moat around the delivery network. FedEx invested heavily in ground last couple of years, which may be seen in history as a great example of defending moat.

[Jurgis]

Reported by WSJ today - Amazon to Suspend Delivery Service That Competes With UPS, FedEx.

 

Dont want to read into it too much, but it somewhat shows the moat around the delivery network. FedEx invested heavily in ground last couple of years, which may be seen in history as a great example of defending moat.

 

Amazon is suspending the service not because it cannot compete with FedEx but because they need all the infra (trucks/drivers/etc) for their own deliveries that are skyrocketing.

 

You could argue that the skyrocketing deliveries are good for FexEx/UPS (they are), but I don't think you can make any conclusions about (long term) moat of  FedEx/UPS from this news item.

[mwtorock]

Reported by WSJ today - Amazon to Suspend Delivery Service That Competes With UPS, FedEx.

 

Dont want to read into it too much, but it somewhat shows the moat around the delivery network. FedEx invested heavily in ground last couple of years, which may be seen in history as a great example of defending moat.

 

Amazon is suspending the service not because it cannot compete with FedEx but because they need all the infra (trucks/drivers/etc) for their own deliveries that are skyrocketing.

 

You could argue that the skyrocketing deliveries are good for FexEx/UPS (they are), but I don't think you can make any conclusions about (long term) moat of  FedEx/UPS from this news item.

 

i could argue that it would only make sense for amazon to do this because they think they get better returns to bring the infra back. Their competitive strength is clearly not delivery services, otherwise they would not pause or pull back.  On the other hand, FDX clearly knows where their strength is and defended it by investing in ground business. For example, if FDX did not get those trucks/drivers/contractors in the last couple of years, other entries (including amazon) may be able to grab them at relatively lower cost. By driving up the cost to entry, FDX could effectively defend their moat.

[Castanza]

I think this is more due to volume declines than anything else. UPS and FedEx are not insulated to the decline in B2B. Dare I say Amazon has an advantage in this environment due to its direct to consumer warehouse model. Overall it's hard to say until we see some numbers reported.

 

What's interesting is for UPS they have the SurePost contracts with USPS which is beneficial during good times, but in an environment where you're running trucks at (I'm guessing) 1/2-3/4 volume those last mile deliveries might seem a bit more valuable simply to put volume on the trucks (purely speculation).

 

I poked around and talked with a few former contacts. At least in their region it seems that route cuts/consolidation, holding areas (packages) back to build density increasing stops per mile, and reducing overtime are the current approach.

 

Until businesses open up in large FedEx and UPS will see some near term negative effects.

 

[LC]

Just an anecdote, I ordered about $20 of stuff from Amazon yesterday and received it today. And not high volume items either (a dust collection bag and silicon wood glue applicator). I was expecting weeks, maybe a month delay but nope, one day turnaround - even faster than the normal 2-3 day delivery time. I was totally shocked.