FedEx Looking at Container Business
Fred Smith had some interesting comments about his views on the ship-borne container business.
There's a tremendous movement of the lower value added traffic off of the traditional freighter airplanes onto the water, onto the sea. We pick that traffic up in FedEx Ground and FedEx Freight as it comes into the United States and we manage a fair amount of our FedEx Trade Networks unit. That's one of the reasons we bought Watkins and converted it into FedEx National. It is perfectly suited to move items that are coming in on the water into the interior points of the United States in the absolutely most efficient manner. So these long-term segular trends play to our strengths. It's exactly the way we're configured. And I just came back from Europe last week and again went to a couple of our locations and you can see this taking place right in front of your eyes.
Those comments were made on the June 18 conference call. And sure enough, FedEx Trade Networks is trying to attract new customers just as FredEx said.
-- June 25
Ohio Finds FedEx G/HD Drivers are Employees; Company Appeals
According to Bloomberg:
Kenneth Kies, a Washington tax lawyer and lobbyist whose firm has been paid $540,000 by UPS since 2002, sent Ohio officials a 562-page report in December 2006 alleging that FedEx misclassified truck drivers as contractors. A copy of the report, including a cover letter in which Kies asked for confidentiality, was released to Bloomberg News by Ohio officials.
``We took it and opened our own investigation,'' said Judi Cicatiello, Ohio's unemployment compensation deputy director. She said it was ``very'' unusual to get such detailed allegations. Her agency determined in May 2007 that the drivers were employees and FedEx owed $654,000 in taxes and interest. The company is appealing.
Must include Ohio in the list of "approximately 25 state tax and other administrative proceedings that claim that the company's owner-operators should be treated as employees, rather than independent contractors" that FedEx admitted to in its March 2008 quarterly SEC filing.
-- June 24
FedEx Officers on Ground Legal Challenges
FedEx Corporation held its quarterly conference call on June 18. The full transcript is available at SeekingAlpha.com.
Management painted a bleak picture for the corporation overall. There were some very tough questions posed by analysts and reporters.
Especially on the Ground segment:
Ed Wolfe - Wolfe Research
Can we talk a little bit about the Ground side? Ground operating income is down 26% and the margin at 750 basis points of year-over-year deterioration seems the worst since you've owned this business year-over-year. The fuel impact is great but should be less at Ground. Can you talk to what's really driving what's been a slow decline at Ground at profitability?
David F. Rebholz
First of all, let me point out it's not directly related to your comment but I think it's important. I'm extremely proud that FedEx Ground has achieved an all-time record service level both quality and unplanned service in 98.5 and what's important about that is we now deliver more than 56% of our packages in two days or less and 23% of the Ground packages are delivered the next business day. And you're aware of the fact if you follow us closely that part of our investment this past year was to speed up the lanes and recognizing some of the fundamental changes that have already been discussed. So we're very proud of having about a 13% advantage over UPS. Fuel was singularly the largest absolute dollar difference in the quarter and I think it has already been stated by Alan we did have costs related to the contractor initiatives that we've talked about in the past which come in two flavors - the conversion which I'm proud to say we are completed in California and some additional incentives for our multi-work area contractors. Purchase transportation and other cost lines are really where those numbers reside. The net of it, Ed, is we had a record fourth quarter last year at plus 17% and from a comparable basis along with these investments and one-time costs, I think we have performed extremely well inclusive of our improvement in our service offerings.
Ed Wolfe - Wolfe Research
Dave, can you give more sense in terms of the conversion costs? How much costs are still in front of you? How much of this is ongoing and what percent nationally of the drivers are now single contractors versus multi-route franchisees?
David F. Rebholz
Well, Ed, first of all the bulk of the costs from this conversion are in our numbers with the exception of the trailing [MWAs] in the fourth quarter so there will be a slight amount moving into the first quarter but the bulk of the numbers are baked into our base right now. We've had a substantial improvement in multi-work area contractors. Today if you look at the multiple work areas, they roughly are about 3,500 of our contractors, 3,600, are in control of about 10,000 of the service areas. Single work areas are about 7,600 for the organization and, of course, they are one-for-one even though they periodically employ their own employees for peak times, etc. We've had a substantial improvement in the MWAs with the last 500 additions all being 100% MWAs and as I mentioned out of the 489 single area work contractors in California, 410 of them have converted to multiple work area performance. So we have the vast majority of our contractors that have converted and our ongoing growth is in the multi-work area. Our long-term goal is to continue to reinforce that part of the model.
William Greene - Morgan Stanley
I think you're talking to the IRS this quarter. I don't know if it was in June or May, but can you give us an update on how those talks have gone?
Christine P. Richards
We've started those conversations. At this point in time there's a good chance they'll continue on into the first quarter. We're still at the audit level and depending upon the outcome at that level, we will then see how we go forward.
-- June 20
ATA Airlines Sues FedEx for Cancelled Contract
FedEx has its fingers in lots of pies.
Although the company is recognized primarily for its delivery services for the public, FedEx has long been a large contractor for the federal government and military. FedEx in 2007 was the 35th largest federal contractor and 25th largest contractor for the Defense Department alone.
FedEx has a line of business where air passenger services and "urgent missions to move mine resistant, ambush protected vehicles" are provided to the Department of Defense to ferry servicemen and women around the globe. The "Federal Express Charter Programs Team Arrangement" seems to be a consortium of FedEx and other airline and air cargo companies and is one of many such "teaming arrangements" that receive DoD contracts.
Up until very recently, ATA Airlines was a member for many years of the "Federal Express Charter Programs Team Arrangement" contract. Early in 2008, FedEx notified ATA that they were out of the teaming arrangement. Due to this loss in projected revenue, ATA management felt they had no choice but to file for bankruptcy and immediately cease operations. This led to hundreds of passengers - including many returning military personnel - stranded. More than 2,200 ATA employees lost their jobs.
Now, ATA is suing FedEx for deciding to not include ATA in the next go-round of the teaming arrangement contract. This lawsuit must be in the proper context as part of the ATA bankruptcy proceedings. But certainly some decisions taken in Memphis will be scrutinized in the course of this suit.
-- June 13
FedEx Ground Sues Washington State
If FedEx is so conscious of its brand, it seems odd to go around suing state governments and keeping your name in the news.
FedEx Ground is now suing the Washington Department of Labor and Industries to obtain a copy of a report analyzing its "independent contractor model."
FedEx Ground states in the lawsuit that it was contacted by an employee of the labor department in late 2006 or early 2007 who stated that the department had received a report addressing FedEx Ground's classification of "pick-up and delivery drivers" from an entity named Clark Consulting.
In February 2007 FedEx Ground said it issued a Public Disclosure Act request to the labor department seeking a copy of the report and information about who compiled it. The labor department originally refused to release the report, FedEx Ground said in its filing.
"While the department eventually produced a copy of the report, it unlawfully redacted and continues to withhold key information," FedEx Ground added in the suit.
We'll try to track down the complaint in this case. And we'll watch the proceedings.
At a minimum, this lawsuit must mean that Washington has to be added to the list of "25 state tax and other administrative proceedings that claim that the company’s owner-operators should be treated as employees, rather than independent contractors."
-- June 11
Review of The Big Squeeze
There seems to be a growing chorus of critics - from those of the political left and the political right - that FedEx Ground's contractor scam is the ailment of a larger sickness in the American economy.
The New York Times journalist Steven Greenhouse covers the "working" beat for the newspaper. An excerpt from his most recent book talked about Ground's abusive contractor model and its impact on one driver.
Greenhouse's book takes a broader look at the daily struggles of working Americans. Reviews of his writing and thesis are spreading on the web.
-- June 06
"Great Shipper, Dumb Owner"
After what seemed like a re-organization announcement per year, FedEx has another stylistic change for Kinko's. Or should we say, Office.
FedEx Corporation is taking a sizable write-down as it plans to turn its retail storefront brand into "FedEx Office."
Something has been afoot at Kinko's since at least last year's shareholder's meeting. Prior to September 2007, Kinko's was a stand-alone reporting segment of FedEx Corporation. Investors could see how Kinko's was performing. But last September, FedEx management decided to place Kinko's under something called "FedEx Services." This jiggling of the reporting structure was under-reported at the time because the FedEx Ground "California Plan" made the headlines .
But investors have watched the Kinko's acquisition weigh heavily on FedEx Corp performance. And some observers are making more noise about it.
-- June 04
