Tag Archives: Sanford C. Bernstein & Co.

Fast Versus Cheap: Sea Change in Shipping Trends


Faster Not Necessarily Better

FedEx Corp is experiencing a decrease in the demand for their fastest and also most profitable services as companies are deciding that cost-cutting trumps speed of delivery. This trend is not necessarily linked to the slowing economy, the world’s largest cargo airline is noting; it may be a permanent feature of the new business climate. Overnight delivery is simply not as important as it once was to business.

“There has been a secular shift from ‘got to get it there overnight’ to more deferred products,” said Jeff Kauffman, a Sterne Agee & Leach Inc. analyst in New York. “Not because they can’t afford it, but because they are finding out the deferred choices are just as time specific.”

This trend will affect other shippers besides FedEx, including United Parcel Service (UPS) and Deutsche Post AG (DPW)’s DHL Worldwide Express.

Fred Smith, the CEO of FedEx was a pioneer in the early days of the modern air-freight industry. The idea was hatched in a college essay which Smith turned into the reality of the company he still runs 41 years later.

“When It Absolutely, Positively Has to Be There Overnight” was the popular cry of FedEx in its early days during the 1970s, made popular as the trademarked slogan of their fast-growing brand which put a premium on speed and reliable delivery.

Today speed is becoming less of a concern for many businesses as the US continues its lagging economic growth and demand from overseas customers who have never used overnight delivery services. Often three to four day delivery is fast enough.

“You’re seeing a demand for slow instead of a demand for fast. That’s a structural change,” said David Vernon, a Sanford C. Bernstein & Co. analyst in New York. “You either create a service that takes more of that volume shift or you end up in a much worse position.”