Winds Blowing in FedEx's Favor
Margins should improve thanks to additional capacity and continued acquisition integration during the season of robust freight and parcel demand.
Trade barriers are a concern for transport investors, and today’s headlines describe the U.S. imposition of new tariffs on $200 billion of Chinese goods. We’re not overly concerned about the consequence because FedEx’s exposure to trade to and from the United States and China represents just 2% of its total revenue, and the firm indicates the announced tariffs affect only a small portion of pertinent goods.
We expect many winds to blow in FedEx’s favor. Ground will operate six days per week in the coming year, providing additional capacity without incremental capital expense. The TNT acquisition lapped two years, and FedEx continues to snap that ground system into its global network. Management expects growth sufficient to permanently employ a majority of the 55,000 temporary workers it plans to hire for peak season.
The firm continues to work on rates by increasing fuel surcharges and improving rates on nonconveyable items. We expect the tactic of refraining from matching UPS’ increases to residential rates during peak season can gain market share, especially among small customers that can nimbly switch providers.
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