Despite a tough quarter for everyone, and what is being called a “throwaway year” by many investors, FedEx reported strong Q4 earnings, greater than expected. There are several reasons for this, but Wall Street praised the company, and stock was moved into the “buy” category by J.P. Morgan and others.
So what happened? How does a logistics company thrive during a global pandemic? There are a number of contributing factors, but one of the primary ones relates to FedEx Ground, which had revenue up 25% over last year.
Business to Business Shipping
Generally speaking, business to business shipping is more profitable for FedEx than business to consumer shipping (more on that in a moment). Business to business shipping was understandably down, and analysts were concerned about how that would affect the FedEx bottom line globally.
First, business to business shipping didn’t stop entirely and an increase in eCommerce, up 14% over last year meant some businesses actually shipped more, keeping revenue in this area from falling too low.
FedEx Ground Business to Consumer Shipping
The big story was business to consumer shipping. There was some question if that would be enough to carry the dip in business to business shipping. The good news for FedEx investors and FedEx Ground route owners was a resounding “yes.” FedEx Ground revenues and shipping are up 25% year over year.
More consumers have switched to online ordering for everything, from groceries to other consumables they would normally run to the store for, an event that is much more difficult than it once was. As many states roll back or stall reopening plans, this trend will continue.
Many experts also suspect that consumers, once having developed the habit of ordering online, will stick with the convenience over going out, and the cost savings that often goes with purchasing digitally.
For companies like FedEx and specifically FedEx ground, this is good news for the future.
Improving efficiency and Logistics
Does anyone remember ZapMail besides people who invested in FedEx shares in 1986? That’s because a) we don’t really fax anymore and b) it was a dismal failure and cost FedEx millions. They shed it in September of that year, and that was the last time shares grew this much in a single day.
Why? Because FedEx has increased its investment in efficiency, and made improvements even in this extraordinary time, improving profitability. Think of how severely this quarter affected so many companies, but despite these issues, FedEx moved quickly with tweaks to preserve earnings.
Those efforts combined with the already efficient FedEx Ground system and the large increase in volume equaled great results for the company.
Beating the Odds
FedEx Ground has always been a profitable venture and has always been a great investment. FedEx Ground contractors operate independently rather than as employees and can make tweaks to their own business models to increase efficiency as well.
The good news for route owners is that while business to consumer deliveries are not as profitable, it is possible to increase volume on these routes. Delivering to consumers often takes less time than business deliveries and pick-ups, and since there are fewer time-sensitive constraints, routing can be smoother and more efficient as well.
In short, while other businesses are taking a hit from closures and the global pandemic, FedEx Ground route owners are doing extremely well.
Becoming Your Own Boss
The beauty of FedEx Ground is that you can get in on the action yourself. Routes can be purchased, and as volume increases new routes are added to terminals, current owners split off and sell additional routes, and the routes that are for sale are more profitable.
Owners sell routes for a variety of reasons, and now can be a great time to buy. Learning the ropes of the business now, during the offseason, is much better than learning other times of the year, and whether you are facing unemployment or are just reconsidering your priorities and in search of a business of your own, FedEx Ground routes are a great option.
Interest rates are at historic lows, and it’s a great time to get started with your own FedEx Ground route. At Route Advisors, we can help. Contact us today, and we can direct you to the right route for you. We’ll advise you every step of the way. Contact us today! We’re here to help!