Fedex delivers on its pledge to lower its costs

LOGISTICS giant FedEx posted a better-than-expected quarterly profit on cost cuts yesterday and said it would raise rates next year for express shipping, a business that has suffered as customers shift to slower but cheaper delivery options.

The company, considered an economic bellwether because of the massive volume of goods it moves around the world, earned $489m (£306m) for its three months to the end of August.

FedEx also backed its profit view for the year, sending its shares up three per cent in premarket trading.

The group said on a conference call that the company was seeing “signs of improvement” in China and Europe.

“The FedEx economic forecast calls for continued moderate growth both in the global and domestic economy,” Mike Glenn, executive vice president of market development, said on the call yesterday.

FedEx said express shipping rates would increase an average 3.9 per cent for US domestic and international services, effective from 6 January.

Rate increases for its ground courier facilities will be announced later this year, the company said.

Deutsche Post, the owner of DHL, quickly followed with its own planned express shipping price increases for 2014. A DHL spokesman declined to give details.

Analysts said FedEx’s plan for raising prices indicates the market is stabilising after customers moved away from overnight delivery. The cutback in less profitable routes should help the overnight business remain profitable even at lower volumes, they said.

“We’ve seen most of the shift [from express to cheaper options] happen at this point,” said Logan Purk, an industrials analyst for Edward Jones.

FedEx has also retired older, less efficient planes. The company said modernisation of its fleet reduced maintenance costs in the first quarter. Group revenues were up two per cent at $11.02bn, just ahead of forecasts. Revenue at its express unit fell, but operating margins rose to 3.6 per cent from 3.1 per cent the previous year.

Revenue at its lower-margin ground segment rose 11 per cent, but operating margins were at 17.1 per cent, down from 18.1 per cent last year.