FedEx Corporation (FDX) has increased its rates for FedEx Freight by 6.9% on shipments covered under FXF 1000, FXF 501 and other related series base rates. The increased rates will be effective July 9, in the U.S. and Canada. For freight transaction between the U.S. and Mexico, the rate hike will be only applicable on shipments from the U.S.
FedEx' Freight segment continues to benefit from strong price recovery and a streamlined cost structure. The segment provides less-than-truckload (LTL) freight services through its FedEx Freight business (regional LTL freight services) and its FedEx National LTL business (long-haul LTL freight services).
Despite the rise in diesel prices, the company has not increased it fuel surcharges like other major players in the LTL industry that have raised theirs by approximately 23%, based on average fuel prices on June 4. As a result, FedEx Freight remains attractive to its customers with one of the lowest fuel surcharge rates in the LTL industry.
We believe the company will capitalize on capacity shortage in the freight market, and is well positioned to benefit from tighter industrial fundamentals and LTL industry’s pricing discipline.
Continued focus on improving prices signifies FedEx’ initiative to substantially better its earnings power over the next several years. Early this year, the company increased its general rate by 4.9% for FedEx Ground and FedEx Home Delivery shipments in order to strengthen revenue generation and yield expansion in the these product lines. It also raised shipping rates by 3.9% for FedEx Express covering U.S. domestic, U.S. export and import services.
Likewise, we expect the current price hike in FedEx Freight to support the company’s long-term goal of robust revenue and margin expansion as well as earnings improvement.
Apart from the pricing improvements, FedEx is working on a series of initiatives that are expected to deliver industry leading margin and earnings growth over the long term.
The company recently announced its plans to retire from service 18 Airbus A310-200 aircraft and 26 related engines, six Boeing Co.’s (BA) MD10-10 aircraft and 17 related engines. The majority of these aircraft are currently not in use and therefore removal of these aircraft is expected to enhance cost efficiencies for the company. Additionally, FedEx has initiated the deployment of electric trucks at its distribution center in Silicon Valley, CA.
By the end of this year, the company expects the delivery of 34 electric trucks across San Francisco Bay Area. FedEx also expects to deploy electric trucks in international markets like Hong Kong, Berlin, Florence, London and Paris.
Deployment of these trucks is part of FedEx’s previously announced goals of increasing the number of fuel efficient transportation in its fleet. The company’s vehicle fleet currently boasts of achieving 16.6% more fuel efficiency compared to that in 2005 and targets being 20% more fuel efficient by 2020.
We are currently maintaining our long-term Neutral rating on FedEx. The stock holds a short-term (1–3 months) Zacks #3 Rank (Hold).
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