Fedex 2019 Annual Report
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FEDEX CORPORATION 2019 FEDEX CORPORATION ANNUAL REPORT ANNUAL 2019 Annual Report Challenge. Change. Innovation. To our shareowners, Fiscal 2019 was a year of both challenge and change for FedEx. We are proud of our team members who responded to both with positive actions and innovative solutions that will make FedEx stronger, more competitive, and more profitable in the future. CONFRONTING CHALLENGES AND EMBRACING OPPORTUNITIES A very big challenge has been the slowdown in global trade that began in the fall of 2018. The negative effects of trade disputes adversely affected the Chinese economy and contributed to a sluggish performance in the Eurozone. Uncertainty over Brexit also weighed heavily on the European market. The spillover effects from trade tensions have affected manufacturing and reduced shipping throughout Asia, Europe, and North America. We are, however, mitigating these headwinds by actively managing costs while investing for long-term success. It is essential our customers worldwide know they can continue to rely on our superior global networks and portfolio of solutions to help them quickly and efficiently manage their transportation and logistics needs. The weak global economic conditions experienced during Fiscal 2019 weighed on International Priority volumes at FedEx Express. Additionally, a less profitable mix of international package and freight at FedEx Express negatively impacted our results. We are taking steps to reduce costs, and our customers are now benefiting from faster transit times due to FedEx and TNT integration in Europe. Additionally, while the rapid growth of global e-commerce is good for package volumes and revenue growth, it requires disciplined cost management to maintain attractive margins. This is especially true for deliveries to certain residential and rural areas that lack the density of commercial stops where we deliver and pick up multiple packages. During the past year we have continued to position FedEx to capitalize on e-commerce growth and improve profitability through the realignment of our systems, the optimization of deliveries, and the use of innovative solutions such as FedEx Extra Hours. MAKING POSITIVE CHANGES FOR THE FUTURE FedEx enters Fiscal 2020 with a sharp focus on extending our lead as the premier global transport and logistics company and on making the necessary investments today to capture the big opportunities we see for the future. While these investments are long-term in nature and their success cannot always be measured immediately, we’re confident they will drive significant earnings growth and improve margins, cash flows, and returns for our shareholders over the long term. Here are some steps we’re taking: Increasing Ground Capacity. For years, FedEx has anticipated the growth of e-commerce would significantly increase demand throughout our networks and raise consumers’ expectations. We continue to manage this challenge by strategically opening new facilities and investing in innovation and highly advanced technologies that have positioned FedEx Ground as the industry’s most automated network. As a result, FedEx Ground continues to grow profitable market share and is faster to more locations than UPS. FEDEX.COM 1 Challenge. Change. Innovation. In Fiscal 2019, we further improved the FedEx Ground network to meet the speed and reliability customers demand by: > Transitioning to a year-round, six-day FedEx Ground operation to meet the growing demand for e-commerce packages to be picked up on the weekend and delivered on Monday. > Building two major hubs in Pennsylvania and Connecticut to serve some of the busiest transportation corridors in the U.S. We announced on May 30th further transformation of FedEx Ground capabilities to include: > Extending Ground residential deliveries to seven days per week year-round for the majority of the U.S. population beginning January 2020; > Rapidly integrating FedEx SmartPost package volume into standard FedEx Ground operations; > Adapting and expanding specialized facilities to better process the rapidly growing, oversized package e-commerce market. Improving FedEx Express hubs. Over the next six years, FedEx Express will modernize and expand our Memphis and Indianapolis hubs to accommodate future growth. At the massive Memphis World Hub, FedEx is investing in new sort systems and automation. We’re also enhancing and expanding our Indianapolis hub with state-of-the-art technology. We’re pleased these plans will create new opportunities for team members while significantly improving the efficiency of the core of our global FedEx Express network. Integrating TNT. Combining FedEx Express and TNT networks is beginning to deliver exceptional value for customers worldwide. Our peerless European footprint and parcel and freight solutions encompass more than 500 stations and 55,000 weekly road trips across 45 countries. Before we acquired TNT, European revenue accounted for about 20 percent of our international revenues. It now accounts for approximately 40 percent of international revenues, and we expect it to grow. The vision for the FedEx global system is clear, and we are excited to be building a European business with unmatched capabilities. We continue to integrate European stations and reduce costs through more efficient delivery routes. We expect to have most FedEx and TNT services rationalized and technology upgrades and enhancements implemented in the summer of 2020, which will allow final customer migration activities. We made other progress on the integration during Fiscal 2019 as well: > We’ve substantially integrated the FedEx and TNT sales forces to deliver an outstanding FedEx experience and grow our business. > FedEx and TNT shipments are now sharing the unmatched legacy of the TNT European surface linehaul network, significantly lowering our cost to serve customers and bringing them greater value. These synergies have improved FedEx intra-European economy parcel shipments’ transit time by at least one business day on about 40 percent of European lanes in 28 countries. > Transit times for FedEx/TNT European Economy Express service have also improved from two days to one day on 1,200 lanes. > The TNT brand will be largely retired by the end of FY20. > We’ve significantly improved or replaced the legacy TNT technology infrastructure to address future cybersecurity threats. Modernizing our aircraft fleet. Replacing older aircraft with new 777s and 767s is essential to creating more efficient operations and meeting our customers’, investors’, and the public’s sustainability expectations. Our long-term environmental strategy saves fuel, reduces emissions, makes our operations more flexible and improves operating margins. Investing in new aircraft also reduces maintenance costs and increases reliability which translates into a better customer experience. 2 ANNUAL REPORT 2019 Challenge. Change. Innovation. Nearing the end of Project RENEWAL. In 2010, we began a major information technology transition from traditional mainframe computing to cloud-based systems. Consistent with FedEx’s outstanding technology heritage and remarkable and often-lauded information technology team, this multi-year project is one of the largest in industrial history. RENEWAL is delivering benefits in terms of flexibility, security, speed to market, and resiliency. Reducing costs. With the global economic challenges of Fiscal 2019, we took actions to improve our financial performance with a heightened focus on organizational efficiency and productivity. The near-term actions include lowering variable-incentive compensation, a voluntary buyout program for eligible U.S. employees, limited hiring in staff functions, and reducing discretionary spending. We are carefully reviewing capital expenditures to insure they will increase our returns in the future. STAYING AHEAD THROUGH INNOVATION The FedEx team continues to push the boundaries of what’s possible by tackling challenges big and small, from global macro-economic trends to the evolving needs of customers. Consumers value convenience. Customers in 59 countries outside the U.S. can now schedule package deliveries where and when it’s convenient for them through FedEx Delivery Manager®. More than 14 million people are enrolled, a 66 percent increase over the last year. We continue to expand our retail networks and technologies to give consumers more options to pick up, ship, or have packages held. With the recently announced addition of more than 8,000 Dollar General stores to our convenience network, more than 90 percent of Americans will live within five miles of a FedEx hold retail location by the end of 2020. Thanks to the new FedEx Extra Hours service for retailers, consumers can now shop in the evening and enjoy next-day or two-day delivery. FedEx SameDay bot delivers. Our bot prototype, developed with DEKA Development & Research using its well-tested iBOT technology, represents the next chapter in our long legacy of innovation and offering new solutions for customers. Upon entering service, our SameDay bot will allow FedEx to enter a substantial new market segment, enabling retailers to accept orders from nearby customers and make same-day and last-mile deliveries to their homes or businesses with speed and unprecedented low costs. FedEx is collaborating with companies such as AutoZone, Lowe’s, Pizza Hut, Target, Walgreens, and Walmart to help assess retailers’ autonomous delivery needs. On average, more than 60 percent of merchants’ customers live within three miles of a store location,