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Overnight delivery loses appeal, hurting FedEx

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FedEx releases its second-quarter earnings today. The company with the largest air cargo fleet in the world announced restructuring plans in October in the hopes of trimming $1.7 billion in operating costs. Today’s earnings report will be an early indicator of how that restructuring is going.

Airline analyst Jonathan Root at Moody’s expects FedEx‘s story line to sound a lot like it did in the first quarter: “Weak on express, better story on ground and freight.”

For the company that invented overnight delivery, this is a big shift. The cause of the shift: Customers are willing to wait longer and companies are cutting costs in their supply chains.

“More shippers are looking to ship with a deferred product,” says Kevin Sterling, a senior vice president with BB&T Capital Markets.

Deferred shipping means it takes two, three or four days, instead of one, to deliver a product. Sterling says those deferred shipments are the reason FedEx is making adjustments to its air cargo fleet. “If you are not flying full planes, it really eats into your utilization and your profitability. That’s why we are seeing this change.”

Sterling says the demand for deferred shipping continues to grow. “My sense is this deferred or slower shipment mentality is here to stay.”

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