Federal Express - FedEx Corporation - Assignment Example

Federal Express (FedEx Corporation) Executive summary: Federal Express is a logistics company providing transportation, e-commerce and business services in USA and internationally. The last two years witnessed a decline in the profits of the company owing to several internal and external factors. The report discusses the actual reasons behind the decline in the revenues of Fedex and also compares its performance with United Parcel Service, which is the market leader in the logistic industry. The ways through which Fedex can avoid such losses and move towards achieving the position of market leader in the logistic industry are also discussed in the following report. Introduction: Federal Express is a logistics company which was founded in 1973 and incorporated in 1997. It provides transportation, e-commerce and business services in USA and internationally( Lester, DL. 2008). The company was founded by Frederick W. Smith who conceived the idea for his air-cargo company while studying economics in Yale University. His idea was initially rejected by his professor when he presented it in his term paper, but his belief that the concept of air- cargo service would be very useful in the future due to rapid advancement in technology at that time. Hence, his entrepreneurial mindset and firm belief on his prediction resulted in the inception of Federal Express in 1973( Lester, DL. 2008). Although the company suffered heavy losses in its early age but eventually the company excelled and today is considered to be one of the largest logistics company in the world with a network spread all over the world. The company operates in four segments: FedEx Express, FedEx Ground, FedEx Freight, and FedEx Services and has a workforce of 260,000 employees and contractors worldwide. The company is currently listed in New York Stock Exchange (NYSE). The price of one share of FedEx as of April 6, 2010 is $92.46 (Chiang, KC. 2008). The current CEO of FedEx is Frederick W. Smith who is the founder of the company. Born in 1944 in Marks, Miss., Smith attended Yale University, where he earned a B.A. in 1966. Smith served as an officer in the U.S. Marine Corps from 1966-1970. He was formerly chairman of the Board of Governors for the International Air Transport Association and the U.S. Air Transport Association. The CEOs of the operating companies of FedEx are: David J. Bronczek (FedEx Express), William J. Logue (FedEx Freight) and David F. Rebholz (FedEx Ground). The international executives of FedEx include: Michael L. Ducker (President, International operations), David L. Cunningham (President, Asia Pacific Region), David Binks (President, Canada Region), Robert W. Elliott (President, Europe,Middle East and Africa region) and Juan N. Cento (president, Latin American-Caribbean Region). Financial outlook of Fedex: Following is the financial data of Federal express for the past four years: 2009 2008 2007 2006 Total Revenue $35,497,000 $37,953,000 $35,214,000 $32,294,000   Cost of Revenue $26,439,000 $27,754,000 $25,441,000 $23,245,000   Gross Profit $9,058,000 $10,199,000 $9,773,000 $9,049,000   Operating Expenses           Sales, General and Admin. $5,132,000 $5,296,000 $4,755,000 $4,485,000   Non-Recurring Items $1,204,000 $882,000 $0 $0   Other Operating Items $1,975,000 $1,946,000 $1,742,000 $1,550,000   Operating Income $747,000 $2,075,000 $3,276,000 $3,014,000   Addl income/expense items $15,000 $39,000 $75,000 $27,000   Earnings Before Interest and Tax $762,000 $2,114,000 $3,351,000 $3,041,000   Interest Expense $85,000 $98,000 $136,000 $142,000   Earnings Before Tax $677,000 $2,016,000 $3,215,000 $2,899,000   Income Tax $579,000 $891,000 $1,199,000 $1,093,000   Net Income-Cont. Operations $98,000 $1,125,000 $2,016,000 $1,806,000   Net Income $98,000 $1,125,000 $2,016,000 $1,806,000   Net Income Applicable to Common Shareholders $98,000 $1,125,000 $2,016,000 $1,806,000   The revenues of Fedex depend on the following key internal and external factors: The overall demand of customers. The volume of transportation services. The service mix purchased by customers. The price of the services. The ability to match the operating and capital costs with the shifting volumes. The timing and fluctuation in the prices of the fuel. The sales revenues of Fedex showed an upward trend in 2008 as compared to 2007, the reason for this was the rapid pace of globalization and global trade. As the world trade increased, the freight delivery and transportation worldwide increased, as a result, the performance of Fedex increased as customers started taking their services to deliver their goods to other countries. The increase in Fedex’s revenues in 2008 was also due to the growth in average daily volume in Asia, particularly China and India while at the same time, outbound shipments from USA and Europe also showed an upward trend (Bonacich, E. 2009). However, the skyrocketing increases in oil prices in 2008, from $92 per barrel in 2007 to $147 a barrel in july 2008 (Melick, WR.2009), resulted in high operating costs for the company which resulted in total gross profit less than expected. Nevertheless, the company still managed to make high return in the year 2008. 2009 showed a completely different picture. The world was going into recession due to the financial crisis that hit the world in late 2008. The recession resulted in a sharp decline in global trade network. As a result, the financial performance of Fedex also declined, both in domestic and international markets. Although the decline in oil prices in 2009 to less than $40 a barrel (Melick, WR. 2009), helped the company control its operating costs but still, due to the decrease in demand for logistics services due to decline in global trade, Fedex suffered from decreasing revenues and a deteriorating return on equity and return on assets. Although the company managed to remain profitable, but the net income of the company fell by 91%. According to the concept of supply and demand, any change in the external factors other than the price and quantity, shifts the demand and supply curve. In the case of Fedex, the demand for Fedex services was adversely affected due to the financial crisis. This can be explained using the following graphs: Before Financial crisis After Financial crisis Fedex Vs UPS: United Parcel Service is the market leader in the logistics industry. Its subsidiary, DHL, is the direct competitor of Fedex. Following are the financial statements of UPS during the same period: We can conclude from the financial statements of both the companies that excluding external factors, such as fuel prices and global financial recession, United parcel managed to make more profits as compared to Fedex because of its diversification into air and road transportation which resulted in overall profits even during the global recession when global trade was at halt. The company managed to make revenues from it s domestic logistic services based on road network. The second reason which I feel made UPS make more profits during the recession period was its hedging strategy of purchasing oil at cheaper price before the surge in oil prices which helped the company control its operating expenses in 2008 when oil prices rose to $147 a barrel. Recommendations for Fedex: Fedex could have made more profits if it had used strategies used by UPS. Fedex must have used UPS as a benchmark because of its position as the market leader in logistics industry. In order to reduce further decrease in profits in the upcoming years, Fedex must adopt the following strategies: Diversify its operations and enter other markets such as trucking services and sea services. This would help the company to generate more income as the reliance on only air transport would be minimized. Moreover, through diversification, the company can also meet the demands of customers who rely on road transportation for delivery of goods. As a result, Fedex can increase its overall customer base. Fedex must using hedging techniques in order to minimize its operating costs. It should enter into future contracts of purchasing oil at the time when the prices of oil are low (Khan, Mohsin. 2008). This is helpful especially since the prices of oil are very volatile. The company must also look for other sources of energy than oil. In this way, it can achieve economies of scale and make more profits in the long run. Finally, Fedex must improve its services and customer support so that it can retain customers and have a solid customer base. This is helpful in the competitive business environment of logistics. It should also look for market niches in order to get more market share before competitors enter the market. Conclusion: Being one of the top five logistics companies in the globe, Fedex must not become complacent and must focus on continuous improvement. This would help the company maintain its position, which it holds, in the logistics industry. Fedex must also focus on keeping its operating costs low and must exploit every opportunity to cut costs which arises. Most importantly, it must ensure customer satisfaction as customers are the key to a company’s success. Keeping UPS as a benchmark and following on its steps and finding better opportunities than UPS, Fedex can eventually become the market leader in the logistics industry. Bibliography reuters, . (2009). Fedex financial statements. Nasdaq, Retrieved from http://www.nasdaq.com/asp/ExtendFund.asp?symbol=FedexHYPERLINK "http://www.nasdaq.com/asp/ExtendFund.asp?symbol=Fedex&selected=Fedex"&HYPERLINK "http://www.nasdaq.com/asp/ExtendFund.asp?symbol=Fedex&selected=Fedex"selected=Fedex Federal express corporation. (2008). Page 1 UNITED STATESSECURITIES AND EXCHANGE COMMISSION, Chen, Clement. (2009). Fedex strategic audit 2008 Fedex quarterly reports. (2008). Yahoo finance, Retrieved from http://biz.yahoo.com/e/100319/fdx10-q.html Fedex quarterly reports. (2009). Yahoo finance, Retrieved from http://biz.yahoo.com/e/100319/fdx10-q.html Khan, Mohsin. (2008). The 2008 oil price “bubble”. Peterson institute for international economics, United parcel annual report 2009. (2009). Yahoo finance, Hesseldahl, Arik. (2008). Ups vs. fedex vs. dhl. forbes.com, Bruner, RF. (2008). The Battle for value: federal express corporation vs. united parcel service of america inc.. JEL Classifications, Smith, M. (2009). Ems & fedex... the similarities should be more striking than the differences.. EMS magazine, Lester, DL. (2008). Making the case for sustainable strategic management: an assessment of fedex. International Journal of Sustainable Strategi, Ott, J. (2010). Fedex looks to a380 for edge in future. elibrary.eu, Chiang, KC. (2008). Dynamic analysis of" smalls" in fedex next day air shipments. Gradworks., Morrison, KE. (2010). The Fedex problem. The College Mathematics Journa, Bonacich, E. (2009). Economic crisis and the logistics industry: financial insecurity for warehouse workers in the . cdlib.org, Melick, WR. (2009). Recovering an assets implied pdf from option prices: an application to crude oil during the gulf crisis. Journal of Financial and, Read More