FedEx Earnings Q1 and CRE Trends

Here are a few items from the FedEx Corp Q1 2021 Earnings Call Transcript that jumped out at me and really point to the speed of accelerating change that have occurred in the past several months and provides food for thought on impacts to CRE. I’ve learned these earnings calls provide great insight as it relates to future trends.

To show the incredible speed of acceleration in certain industries since COVID started, FedEx noted “the growth that we expected to see over a period of three to five years happened in a period of three to five months."

Here are a few items that jumped out at me and really point to the speed of accelerating change that have occurred in the past several months.

Changing Travel Patterns

From earnings call transcript:

“There are two trends that have had substantial impact on our industry and showcase FedEx's incredible value proposition. The first key trend is the dramatic reduction of air cargo capacity as a result of the significant loss of commercial airline capacity. Current estimates indicate that freighter capacity now accounts for 66% of total air capacity on the Transatlantic lane; 83% on the Trans-Pacific; and 80% on the Europe to Asia lane. This compares to pre-COVID freighter capacity of 33% for Transatlantic; 59% for Trans-Pacific and 50% for Europe to Asia.”

As it relates to commercial real estate, reduced commercial airline traffic directly impacts the U.S. travel and tourism industry. Of the 25+ subsectors that make up the travel and tourism industry, three sectors--accommodations, air travel and food services--account for more than half of total output.

Acceleration of E-Commerce

We’ve all heard about the acceleration of e-commerce. Here is real proof.

From earnings call transcript:

“The second and perhaps more profound trend is the acceleration of e-commerce. Pre-COVID, we projected that the US domestic market would hit 100 million packages per day by calendar year 2026. We now project that the US domestic parcel market will hit this mark by calendar year 2023, pulling volume projections forward by three years from the previous expectations. E-commerce fueled substantially by this pandemic is driving the extraordinary growth. In fact, 96% of the US growth is expected to come from e-commerce. While e-commerce as a percentage of total retail has declined from its apex in April, it remains elevated. E-commerce as a percentage of total retail for Q2 calendar year 2020 is estimated at 21% compared to 15% in Q2 calendar year 2019.”

"In August, FedEx completed the Dollar General expansion. FedEx has more than 27,000 staff locations with 92% of the US population now living within five miles of a FedEx pickup or drop-off location. Our vast network and proximity to consumers provides small and medium e-commerce merchants with the buy online, pickup in store convenience without the brick-and-mortar expense."

My takeaway - E-Commerce is here to stay, it’s growing rapidly and those that adopt and implement stronger e-commerce strategies will win.

Last Mile Distribution Seeing Major Surge

From earnings call transcript:

“Collaboration between operating companies reached historic levels in Q1. Last mile optimization, which allows us to flex our network, reduce cost, increase delivery density for residential and rural packages, has successfully launched in 57 origin markets. FedEx Freight has provided more than 20 million miles of road and intermodal support and delivered more than 750,000 non-conveyable shipments for FedEx Ground so far in fiscal year 2021.

To put this in perspective, Freight had never delivered a Ground package before May of this year. The support in Q1 alone far exceeds the less than 1 million miles that Freight had provided Ground throughout fiscal year '19.”

My thought - Again, the key here is the rapid acceleration being implemented to accommodate the changing consumer buying patterns and best meet those needs. Certainly, not the time to be standing on the sidelines. It’s a case of Who Moved my Cheese!