Q1 2024 Carrier Earnings: FedEx Freight

First-Quarter LTL Carrier Earnings season of 2024. Here at last.

First out of the gates (because of their unorthodox quarterly calendar), as always, is FedEx Freight. Their “first quarter 2024” is actually third quarter 2024 for them - it ran from December 2023 to February 2024.??

Why do they use this fiscal calendar???

Since FedEx Freight is the largest LTL carrier in the US, and they release their results a month in advance of other carriers, their quarterly earnings release gives us somewhat of a leading indication of the LTL industry. (The proverbial canary in the coal mine, if you will.)??

In case you want a refresher on FedEx’s performance over the last few quarters, take a look at their Q3 and Q4 Earnings analyses before you get started with this one!?

• FedEx Freight 2023 Q3 Earnings
• FedEx Freight 2023 Q4 Earnings

Otherwise, here are their results they announced with some commentary, plus our added thoughts:

Carrier #1: FedEx Freight ?

• STRONG PROFITS were produced in the face of what management described as year over year “volume challenges”.? (Lol volume challenges is a pretty good euphemism- great corporate wording here)

While these challenges are obviously due to the macro environment, FedEx Freight has been shedding market share due to a combination of intentional moves and unintentional consequences.??

(Like that one time they gave 1,400 customers a day’s notice that they were being dropped… ??)

• On a year over year basis, shipments were down -8.4%, tonnage was down by the same mark, and revenue was down -10%.??

FedEx is shrinking.? The question then becomes…are they shrinking their way to higher profitability?

• Their operating ratio rose slightly from 83.7 in 2023 to 84.0 in 2024, after accounting for a $30M gain on a terminal sale in 2023.?

Stagnant profit margin with large business declines IS a concern - and it’s because they seem to be losing more than just the freight they don’t want.?

Quarter-over-Quarter…what went wrong?

• Shipments were down -3.4%, tonnage was down -6.5%, and revenue was down -2.8% on a sequential basis.?

This couldn’t be MORE DIFFERENT from where FedEx was performing at in Q4…It’ll be interesting to see how the other carriers fared in these areas quarter to quarter.??

• Surprisingly, FedEx’s operating ratio jumped to 84.0 in the recent quarter from a very impressive 79.0 in the prior quarter.?

That’s a HUGE 4.6 point jump, after we gave FedEx praise just last quarter in our Q4 Earnings analysis on them…where we acknowledged the impressive drop (AKA improvement) in their OR to end 2023…

So, the question is WHY to explain these jumps and dips in their performance at the start of 2024. And again, it’ll be very interesting to see how other carriers held up!

• Revenue per cwt was down a slight -0.5% from last year, again suffering from a fuel surcharge headwind.??

We estimate their Revenue per cwt (with fuel surcharge excluded) was closer to a 4-5% gain.?

• Year over year, shipment count was down due to a large drop in Priority shipments, and economy shipments were flat.??

(This is pretty normal in a soft freight environment - cheaper pricing is selected over premium service).

New Plan: rule the skies AND the roads

• As part of their DRIVE initiative, FedEx plans on growing the premium Air Freight market by using the FedEx Freight network.??

It opens the door for international freight AND more domestic expedited air freight since FedEx can choose lower-cost options;?

and it of course opens up the door wider for “air” freight that actually moves via truck, including shorthaul lanes like Memphis to Dallas.??

This has the makings of an expedited in-network offering that no one else can do for freight…but one wonders why FedEx wasn’t already pushing as hard as they were on this concept.

(For reference here, FedEx Express moves about $2.5B in air heavyweight palletized freight per year.? That alone would be a top-10 LTL carrier if they segmented this out….)

The opportunities for growth here are certainly there… but big organizations often struggle to pivot and capitalize.

When Diesel Falls…

• Management did note specifically that the Fedex Freight operating income was down partly due to lower fuel surcharges.??

LTL carriers make profit with their fuel surcharge as fuel prices rise; conversely, profits fall when diesel prices fall.?

(This is partly due to the latent nature of fuel surcharge application relative to when fuel is purchased, but it’s also due to the structure of LTL carrier fuel surcharges.)

• Fedex Freight’s total Fuel expenses were down 18% over last year, but purchased transportation was down - so true fuel expenses did not fall as much.

We estimate that FedEx Freight’s fuel surcharge revenue was down around -16%.? Their fuel surcharge revenue fell more than their true fuel cost.

FORECAST: Cloudy, with a chance of…Synergy?

Fedex Freight continues to turn out very strong profits and still keeps itself as the largest LTL carrier in North America - but interestingly enough, it’s a small part of FedEx’s overall company structure.??

What’s surprising: little discussion was held regarding FedEx Freight on the recent analyst conference call.??

There are some great opportunities to find internal synergies with things like Heavyweight Air, but these could also lead their LTL sector off track if it’s not managed properly.??

BUT, FedEx Freight didn’t get to their size and profit level by making an irreparable amount of mistakes, so the odds are in their favor here.

The loss of business is a concern, though, because of how it doesn’t appear to be wholly intentional…? might make room for some opportunities on FedEx Freight’s end to dial up the customer experience.??

Their historical Mastio scores indicate there is room for improvement, if they so choose to accept that mission.??

Up Next: KNX, ODFL, ABF, and more! #StayTuned ??

Every LTL carrier is in the middle of a ‘re-trenching and re-focusing’ after Yellow’s downfall.? So, the stories being written today are far from over…2024 is already shaping up to be quite the year for LTL.

Looking to diversify your LTL carrier portfolio? Rising LTL carrier profits like we see here with FedEx mean it's time to test the field to ensure you're getting a fair rate. Click this link to connect with someone on our team today.?

This article was collaboratively written by “LTL Observers” - a collective of industry veterans spanning the carrier, shipper, 3PL, and tech provider spaces who are willing to share their opinions.

Disagree with these opinions? We'd love to add you to the line-up to make sure we're including a diverse set of LTL observers. Contact us today.