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The Parcel Guywww.hempsteadconsulting.com/blog

DHL v UPS, Fed & TNT

They appear to move in concert

FedExQ – 3 Ends Feb 28

• FedEx Corp. reported the following consolidated results for the third quarter:

• • Revenue of $8.70 billion, up 7% from $8.14 billion a year ago• Operating income of $416 million, up 129% from $182 million last year• Operating margin of 4.8%, up from 2.2% the previous year• Net income of $239 million, up 146% from last year’s $97 million

• FedEx International Priority® (IP) average daily package volume increased 18%

• IP freight revenue increased 49%.• Air daily package volume grew 1%• FedEx Ground average daily package volume grew 5% year over

year, primarily due to growth in the business-to-business market. • FedEx SmartPost average daily volume grew 46%.

FedEx Q4Ending Feb 28

• Average air daily package volume increased 1%.– Revenue of $5.88 billion, up 23% from last year's $4.80 billion

• International Priority (IP) average daily package volume increased 23%

• FedEx Ground average daily package volume grew 7% – Revenue of $1.96 billion, up 15% from last year's $1.70 billion

• FedEx SmartPost average daily volume increased 23%

• Less-than-truckload (LTL) average daily shipments increased 34%

FRED

• Our chief economist forecasts FY11 GDP growth will be 3.2% compared to less than 1% in FY10.

• Industrial production, to which our shipment volumes closely correlate, is expected to rise from a negative 3.3% to a positive 5%.

So what happened to the FedEx stock?

Why not just telegraph the competition

• Graf-”We are also working very diligently on yield increases across the board, most notably at freight”

• Glenn-”we're being very aggressive in terms of our yield improvement efforts. We're making sure we get acceptable rate increases and taking a much tougher negotiating stance on contract renewals. We've established new pricing guidelines for new business and we're ensuring that customers are meeting their volume commitments in order to retain existing rates. So the results that we're seeing in terms of improvements in base rates and weight per package are a direct result of those efforts, and we remain committed to that path.”

UPS

UPSQ -1

ends Mar 31

• Revenue increased 7% to $11.7 billion• Average volume per day was up slightly

during the quarter, the first year-over-year growth in two years.

• The International Package segment posted an 18% jump in revenue with operating profit increasing 45%.

• Average International daily volume increased 18% during the quarter

UPS Q1• “Revenue was up 7%, operating profit up 31% and earnings per

share up 37% with margin expansion in every segment. The better than expected results stem from stronger operating performance in each segment than we had anticipated, yield improvement and operating leverage across the enterprise.”

• “U.S. domestic package operations. Operating profit jumped 17% on a 2% revenue gain.”

• “Our average daily volume increased less than 1%. The first quarter, since the end of ’07 with positive year-over-year growth. The increase in U.S. domestic volume was driven entirely by ground, outperforming the air products as expected. The 2% improvement in revenue per piece was the strongest, since the third quarter of 2008.”

• “International business - operating profit soared 45% to $427 million on an 18% increase in revenue.”

• “Focused on disciplined profitable growth”

UPS Q1• Generated $1.3 billion in free cash flow after

$630 million in accelerated pension contributions over last year.

• Invested $280 million in capital expenditures paid dividends of $470 million, reflecting a 4.4% dividend increase

• Spent $260 million to repurchase over 4 million shares.

• Ended the quarter with 3.1 billion in cash and marketable securities.

Q4 09• “maintaining disciplined

pricing practices”

Q3 09• “a top domestic priority today and into 2010 is improving our

package yields. Our intention is to drive yield improvements from existing customers that did not provide a fully adequate return. Results from these efforts will become more meaningful as we progress through next year.”

• “yield management and making sure that we extract the value for the services we perform is one of our absolute top priorities in the

domestic environment.”

DHL Q – 1 ends Mar 31

Exited the USA domestic ground & air market Jan 30 2009

DHL Q – 1 ends Mar 31

TDI = Time Definite International

TNTQ-1

ends Mar 31

TNT• Mulling over sale of express business• Peter Bakker told the general meeting that the

company is open for discussions with potential investors. 

• A possible sale of TNT's express division would likely be very lucrative as the unit is valued at around EUR 3 billion.

• Separating the postal subsidiary from the corporation would improve the prospect of a sale, it was said.

Aramex

• First-Quarter Profit Rises 10%• First-quarter revenue rose 14 percent• “The growth in revenues was driven by

strong double-digit growth of our freight forwarding”

Package Services is Parcel Post, Media Mail & Bound Printed Matter.

Shipping Services is Domestic and International Priority Mail, Express Mail & Parcel Select.

USPS Through March 31

Package Services is Parcel Post, Media Mail & Bound Printed Matter.

Shipping Services is Domestic and International Priority Mail, Express Mail & Parcel Select.

USPS Through April 30

USPSTo Loose Billions

USPS made $76M profit in April

(before $458M retiree health charge turned it into a loss)

Opens up all kinds of issues• Postal Service management is considering

substantial price increases for Mailing Services package products that it believes are not covering their costs.

• Includes First-Class and Standard Packages, Bound Printed Matter, and Media/Library Mail.

• Would take effect January 2010, could be 10% or more.

• Expect the USPS to make the walk over to the PRC on or about July 6

What’s the tipping point

Current UPS & FedEx non-discounted

Ground Minimum Charge $4.84

Cutting Saturday Delivery 6 to 5

• Response to the rapidly declining volume of mail moving through the USPS network

• Total mail volume declined by 16.4% from 2007 to 2009.

Expeditors

• Expeditors International of Washington says its air freight tonnage soared 49 percent in April, growing faster than the 18 percent gain in the freight forwarder’s ocean volume.

FUEL SURCHARGES(muddies revenue growth)

EFFECTIVE GROUND AIR

05/04/09 2.25% 0.00%

06/01/09 2.75% 1.00%

07/06/09 2.75% 2.50%

08/03/09 3.50% 6.50%

09/07/09 3.75% 5.50%

10/05/09 4.00% 7.50%

11/02/09 4.00% 6.00%

12/07/09 4.00% 8.50%

1/4/2010 5.00% 7.00%

2/1/2010 5.00% 6.50%

3/1/2010 5.50% 7.50%

4/5/2010 5.00% 7.00%

5/3/2010 5.50% 8.50%

06/07/10 6.00% 10.00%

Are They “contractors”or

employees• FedEx May Be in For Over $1 Billion in Employee

Misclassification CaseAccording to a press release issued by Leonard Carder, LLP, the first summary judgment (June, 4 2010) on the multi-district class action lawsuit over the worker classification of FedEx Ground and Home Delivery drivers has been issued.

• The judge presiding over the 63 cases issued an Opinion and Order on May 28, 2010 granting summary judgment to the drivers in Illinois.

• Judge Miller specifically found that the drivers were employees because their delivery work was an essential and necessary part of FedEx's business.

FedEx Loses Ground Contractor Motion

• Federal District Court Judge Robert Miller ruled on May 28th in favor of plaintiff ground contractors against FedEx in their Motion for Summary Judgment on their Illinois Wage Act claims.

• Judge Miller is the Judge in the FedEx Ground Contractor Multi District Litigation (MDL) case that consolidates several certified class actions as well as non-certified class cases.

• The case Dale Fluegel, et al v. FedEx Ground Package System, Inc. involves three plaintiff contractors (two Home Delivery and one FedEx Ground) who filed a motion for summary judgment under Illinois state wage law. Previously we believe Judge Miller had denied these same plaintiffs certification as a class in the MDL case on procedural grounds, making each plaintiff in Illinois come before him individually.

• The Illinois Wage Act defines an "employee" as "any individual permitted to work by an employer in an occupation, but excludes any person

– (1) who is free - both under the contract and in practice - from control and direction over the work's performance,

– (2) whose work is performed either outside the employer's usual course of business or outside the employer's places of business

– (3) who is in an independently established business (cites omitted)." • In his 13-page decision, Judge Miller noted that FedEx Ground even with facts all taken

most favorable to FedEx was not able to show an exemption under the second prong of the above stated test.

• While this only involves three plaintiffs and we expect FedEx to appeal the motion, we believe this decision likely is instructive of Judge Miller's stance on these claims and not a good sign for FedEx as Judge Miller gets ready to decide on Plaintiff and FedEx's Cross Motions for Summary Judgment on the larger certified class actions.

The Brown "bailout"

• FedEx special status has effectively prevented thousands of Fed- Ex express employees from organizing a union and bargaining collectively.

• UPS drivers are governed by one set of federal labor laws, while FedEx drivers who do the same work are covered by another.

• House Transportation and Infrastructure Committee Chairman James Oberstar (D-Minn.) firmly believes in the FedEx clause

We should know Friday• June 18, 2010 Sen. Jay Rockefeller (D-W.Va.) told Dow Jones

Newswires late Thursday that there isn't enough Senate support to assure passage of the controversial provision and make it part of legislation to fund operations of the Federal Aviation Administration (FAA). The language, which would require most employees at FedEx Express to be governed by the National Labor Relations Act (NLRA) rather than the current Railway Labor Act (RLA), is contained in the version of the FAA funding bill passed last year by the House of Representatives. It is not included in the version that subsequently passed in the Senate.

• "I know perfectly well if I put that in the bill ... it's not going to pass," Rockefeller was quoted by Dow Jones as saying. Rockefeller told the news service that he personally supports the provision.

• Rockefeller's views are significant in that he chairs the Senate committee where the FAA funding bill originated. He is also a member of the political party considered to be more sympathetic to the agenda of organized labor.

UPS mechanics • Teamsters Local 2727 represents nearly 1,400

aircraft mechanics who work for UPS.• Their contract with UPS became amendable on • Nov. 1, 2006, & the two sides have been negotiating

amendments since then.• The mechanics could strike only if the National

Labor Relations Board determines the two parties are at an impasse.

• If mediation fails, the NLRB can ask the parties to submit to binding arbitration. If the parties refuse, there is a 30-day “status quo” period before a strike can occur

Look to the East• May 04, 2010 UPS

Establishes Alliance with Alibaba.com

• UPS to Serve as Preferred Logistics Provider For New Online Wholesale Marketplace

• June 13, 2010 eBay announced a partnership yesterday with China Post and the US Postal Service in a new bid to re-establish itself in China, where the market is dominated by homegrown rival Taobao

Dancin in the Streets

VOLCANO

• April 15, 2010 Half of North American flights likely hit; worst disruption since 9/11

Despite disrupting more than 100 FedEx flights, the Icelandic ash cloud shouldn't do much damage to the express company's bottom line.In fact, FedEx officials said this week they could be looking at an "upside" from extended groundings of aircraft across Europe starting about a week ago.

Parcel Magazine & Morgan StanleySURVEY RESULTS

PARCEL TRENDS REVEALEDRate Your Carriers

Part 1: Results of the Annual Best Practices Surveyover 250 Respondants, Over 90 million parcels

• 11 percent of survey respondents use consultants to negotiate rates.

• Consultants negotiate more favorable rates, driving discounts 49% lower than if the company negotiates.

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Bringing Rationality• Subject: 3rd Party Consultant Appeals Policy  • There has been a change in the corporate policy for submitting bids when a 3rd Party Consultant is

involved.  Before a bid with 3rd party involvement can be appealed up, a review with the Director Of Sales (DOS) and the sales team must take place prior to appealing the request in IWA

• (the internal pricing portal) . The DOS review essentially replaces the previous review that was taking place with the pricing team at corporate.   

• Once the strategy review has taken place with the DOS, the Account Executive can simply state "reviewed with Director Of Sales" in the appeal notes.  A signed Third Party Confidentiality agreement is still required and does need to be attached in IWA.  Once the appeal is reviewed by the Region Revenue Management Manager, if they have any questions about the bid, they will reach out to the DOS personally.

• Subject: Update• FedEx corporate policy is now one of negotiating • business relationships directly and exclusively with our • customers, not through a third party.  By working directly with • our customers, we are able to deliver the greatest value in the • industry today and are committed to doing so.• I have copied and pasted the above statement from out Policy and Procedure guide. Federal

Express has recently taken a position that we will not sign a Non Disclosure with any of these third party agents such as the one that you mentioned. Their sole intent is to drive your costs down which I have no issue with. Cost of service is probably one of the most critical issues in a negotiation. We feel that dealing with you directly will produce more positive mutual results.

Air Freight