DALLAS - FedEx Corp.'s falling volumes for its fastest, most-profitable services signal that shippers are increasingly deciding their packages no longer have to be there overnight -- and not just in a slowing economy.
The operator of the world's largest cargo airline may be seeing a more permanent change in its market, as customers turn to cheaper, slower ground deliveries and even ocean shipping. It's an evolution that threatens to touch United Parcel Service Inc. and Deutsche Post's DHL Worldwide Express, too.
"There has been a secular shift from 'got to get it there overnight' to more deferred products," said Jeff Kauffman, a Sterne Agee & Leach Inc. analyst in New York. "Not because they can't afford it, but because they are finding out the deferred choices are just as time-specific."
FedEx spotlighted the strains on its business Tuesday when it cut its full-year profit forecast, sending the shares to their biggest drop since June 1. Quarterly volumes fell for premium delivery services in the U.S. and overseas, as shippers chose cheaper alternatives to having their goods packed onto jet freighters, the Memphis, Tenn.-based company said.
Chief Executive Officer Fred Smith pioneered the modern air-freight industry as he took an idea in one of his college essays and built it into the company he runs 41 years later. FedEx Express, the biggest unit, uses planes to expedite deliveries of goods ranging from electronics to pharmaceuticals.
Now FedEx is under pressure from forces as varied as the economic slowdown in the U.S. and overseas and what Kauffman said is a growing number of customers that have never used overnight deliveries. Three- and four-day services meet many businesses' needs, Kauffman said in an interview.
"You're seeing a demand for slow instead of a demand for fast. That's a structural change," said David Vernon, a Sanford C. Bernstein & Co. analyst in New York. "You either create a service that takes more of that volume shift or you end up in a much worse position."
FedEx will use an Oct. 9-10 investor meeting in Memphis to detail changes at FedEx Express that will take out "a significant amount of cost," Smith told analysts yesterday on a conference call. He didn't elaborate, and Jess Bunn, a spokesman, declined to comment beyond what was said on the call.
The changes noted by FedEx will extend to UPS and DHL, said Donald Broughton, an Avondale Partners analyst based in St. Louis. UPS pared its annual profit forecast in July after second-quarter earnings trailed analyst estimates.
