Company says it limited customer volumes in order to meet service commitments.
FedEx Corp. said Wednesday that labor issues at West Coast ports have affected its operations and have resulted in it putting limits on customer volumes.
“While we are still in the heart of peak season, there are several trends and developments that are affecting the season, including labor issues at the West Coast ports that have affected productivity and impacted retailers’ ability to get inventory where it is needed and when it is needed,” said Michael Glenn, executive vice president of FedEx.
Speaking during the company’s quarterly earnings call, he said, “This issue has impacted our operations as we made adjustments to capacity in key markets to support our customers facing these ongoing port slowdowns. In some situations, the slowdowns have resulted in unexpected shifts in retail and e-tail customer needs in certain markets, and we have put limits on customer volumes in order to meet our service commitments.”
He continued, “Despite these challenges and significant weather events during the peak in both the Northeast and West Coast, I’m proud to report we have been able to maintain outstanding levels of service across our networks.” He said several days this year have ranked as among the busiest in FedEx history.”
Fred Smith, the chief executive officer of FedEx, said “the slowdown in the West Coast ports has been a much bigger deal than people think, and a tremendous amount of inventory was simply not put through the ports in the timeframe that the retailers had expected.”
He noted delays at West Coast ports has also affected East Coast ports “because a lot of people saw this coming and diverted traffic into the East Coast ports.”
He continued, “We received a lot of traffic on the two coasts, which normally, we would have anticipated getting from distribution centers in the middle of the country. So we’ve had to move power where the customers needed it.”
Smith noted that this shift led to a slowdown in retail purchases by consumers during the holiday season because some goods were simply not in stock.
“So I suspect you’ll see a lot of purchases of gift cards in lieu of merchandise, and in January you’ll see some of that traffic moving in the truckload sector and elsewhere into the retailing brick-and-mortar system,” he said.
FedEx also experienced a continued shift in how retailers sold goods, with stores getting “very, very good at ecommerce in terms of their marketing, and their apps, and their ability to sell things online,” he said. “What they haven’t gotten as good at, in some cases, is processing those orders and getting them out the door. So some of the major retailers that we deal with … were telling us in November that they were seeing orders, but the orders were backlogged.
And so we are seeing a great deal of that traffic now moving into the December timeframe.”
Smith predicted that retailers will see reflected in their quarterly results that port congestion “has been a bigger deal for the peak season than most people have thought it was to date.”
FedEx reported net income of $616 million in the second quarter of its current fiscal year. That’s 23-percent more than the $500 million recorded in last year’s second quarter.
Revenue in the second quarter was $11.9 billion, up 5 percent from the $11.4 billion recorded in the second quarter of the prior year. FedEx said operating income and margin increased primarily due to higher volumes and base yields in all of three of its transportation segments — FedEx Express, FedEx Ground and FedEx Freight.
It said results in the second quarter also included benefits from the company’s profit-improvement programs, lower pension expense and a slightly positive net impact from fuel, offset in part by higher aircraft maintenance expense.
Compared to the same period last year, FedEx said:
- The FedEx Express unit saw a 3-percent increase in revenue to $7.02 billion, while operating income grew to $484 million, up 36 percent from a year earlier. Revenue increased because of higher U.S. domestic package volume and international export package base revenue, partially offset by lower fuel surcharges and exchange rates. U.S. domestic revenue per package declined 2 percent due to decreased fuel surcharges and lower weight.
- The FedEx Ground segment had revenue of $3.06 billion, up 8 percent, and operating income was $465 million, up 6 percent. FedEx Ground average daily volume grew 5 percent, driven by growth in both business-to-business and FedEx Home Delivery services.
- FedEx Freight saw revenue increase 11 percent to $1.59 billion and operating income increase 35 percent to $112 million.