FedEx at Bank of America Conference: Strategic Initiatives and Market Adaptations

On Monday, 12 May 2025, FedEx Corporation (NYSE:FDX) participated in the Bank of America Industrials, Transportation & Airlines Key Leaders Conference 2025. The company outlined its strategic initiatives and financial performance amidst evolving market conditions. While FedEx is optimistic about its long-term growth, it acknowledges challenges such as tariff changes and the end of the de minimis exemption.

Key Takeaways

• FedEx is driving improvements in operating income through its DRIVE program and Network 2.0 initiative.
• The company is adapting to tariff changes with China and a new agreement with Amazon.
• FedEx is committed to enhancing profitability in Europe and refining its SMB strategy.
• The executive team remains cautiously optimistic about long-term growth prospects.

Financial Results

• FedEx is on track to achieve $2.2 billion in DRIVE savings for fiscal year 2025, with an additional $400 million expected in fiscal year 2026.
• FedEx Express margins are projected to be in the mid-9% range for the fiscal fourth quarter, showing an improvement of 220 basis points.
• The company aims for a 10% margin at Federal Express Corporation upon reaching $100 billion in revenue.
• A 91% renewal rate in the SMB market has been maintained over the last 20 years.

Operational Updates

• Network 2.0 is progressing, with service quality prioritized over speed. A 12% flow through is expected, rising to 40% by the end of fiscal year 2026.
• A new agreement with Amazon is anticipated to enhance average weight per package and yield domestically.
• FedEx has reduced 30% of total domestic flying, impacting 60% of the daytime network.
• The company is focusing on aligning assets with products through the Tricolor initiative.

Future Outlook

• FedEx expects the freight market to moderate, with potential sequential improvement.
• Technological advancements are a focus to enhance capabilities and customer value.
• A new leader for FedEx Freight will be appointed soon.
• The company plans to double down on its B2B strategy and navigate postal service headwinds and inflation.

Q&A Highlights

• FedEx is refining its commercial strategy to maximize capacity utilization.
• The freight division is investing in technology to improve the customer experience.
• A new surcharge is being introduced to cover incremental costs, aligning with DRIVE targets.

For further details, readers are encouraged to refer to the full transcript.

Full transcript - Bank of America Industrials, Transportation & Airlines Key Leaders Conference 2025:

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Everybody. We’re gonna go ahead and get started. Welcome to our thirty second annual BofA Industrial Transportation and Airlines key leaders conference, the twenty fourth one that I’ve hosted. I’m Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst. I’m here along with my teammates, Adam Roszkowski, Tim Chang over there.

So thank you everybody for taking time out of your evening and joining us. We will, of course, delineate next time that we’re talking Eastern Time, not Central Time. We kick off our event with dinner with FedEx. It’s really a nice tradition for us to start the conference over the past dozen or so years. Joining us from FedEx on the day is we’ve got John Dietrich, EVP and CFO.

This is John’s second time joining us for the conference, as well as Brie Carrera, EVP and Chief Customer Officer for her first time at the event. So thank you very much for joining.

Brie Carrera, EVP and Chief Customer Officer, FedEx: First invite, Ken.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: What’s that? First invite. Well, originally from Ontario, we’ve got a lot to talk about. I I wanna interview her on if the Leafs, now that they’ve made past the first round, if they’re gonna keep going. Yeah.

Or if the Jets or Oilers are gonna gonna do well since I’ve been to all three arenas in the past month, it was it was a fun trip. We’re also joined by FedEx’s IR team here tonight. Jenny Hollander is on stage. We’ve got Steve Hughes and Matt Matt Deberry in the audience. Steve’s there.

Matt is over there in the corner. And we welcome FedEx here for the eleventh time in our twenty four years hosting the event. Steve, this is your seventh time here, so only three more times you get the nice jacket. Pat and Jenny, second time at the conference, so again, thank you. We’ve got a lot to unpack tonight.

At the company, you’ve got Drive, Network two point zero, Tri Color Achievements, One FedEx Progress and more. But if the end of de minimis wasn’t enough, then you’ve got last night the tariff agreement with China. If that wasn’t enough to shake it up, just over an hour ago, saw that FedEx is now taking Amazon back as a customer for the first time since 2019. Hopefully, Brie will will talk to us about that. As UPS sheds 50% or 5,000,000,000 of the Amazon freight over the next six quarters, we look to get your thoughts on the negative GDP growth, ISM sub 50, but overall a really good discussion.

So with that, before we jump in and get started, know Jenny’s got a quick Reg FD intro. And then while you’ve got the floor, I’ll just turn it over to you guys. If you want to just John and Brie, if you want to just do a few minute overview intro and then include three things you want us to take away from tonight and then we’ll jump into questions.

Jenny Hollander, IR Team, FedEx: Thanks, Ken. So I’ll just kick off with a quick disclaimer. Certain statements may be considered forward looking statements as defined in the Private Securities Litigation Reform Act and are subject to factors that could cause actual results to differ materially from those expressed or implied. And for additional information, please refer to our press releases and filings with the SEC.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Great, so

John Dietrich, EVP and CFO, FedEx: I’ll kick it off just very briefly and Ken, thank you so much for having us. We really appreciate this opportunity to talk about our company and meet with all of you. I will say on the drive down though Brie was talking about, I don’t think she cares if it’s the Leafs or the Jets, but she just wants a Canadian team

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: to finally get it from the top, right?

John Dietrich, EVP and CFO, FedEx: So I can understand that. But for me, where we are in our journey and all the idiosyncratic benefits we have and levers that we have to pull is really what I see as one of the key themes to take away from today. You mentioned several of them in your introductory remarks between Network two point zero tied in with One FedEx, as well as Tricolor and all the driving issues we have going on. It’s really generated a lot of positive momentum for us and really helped us to kind of secure our earnings over the last couple of years. And we’ll talk more about drive, I expect, but from my standpoint, all those initiatives taken together makes our story in my opinion very exciting.

I know Brie from a commercial standpoint, we cover the landscape in terms of volumes and so forth.

Brie Carrera, EVP and Chief Customer Officer, FedEx: We do. So Ken to answer your question, I think like what are the top three we would like you guys to take away? I think the first to John’s point in the last three years, we’ve done something with Drive that we’ve never done, which is improve OI as revenue was down. I think it’s really important for everyone to recognize how proud we are of the execution that we’ve had over the last three years. The pressure on the domestic parcel market and the COVID reset was greater than 02/2008, ’2 thousand and ’9 for us.

And our ability to focus discipline both on the cost side, as John mentioned, but also commercially is incredibly important too. John just covered. We are really excited about our idiosyncratic opportunities in the near term. Network2.o, still the majority of benefit is coming. Number two, Tricolor.

We are going to disrupt, a market ripe for disruption profitably. Number three, Europe is upside for us relative to the market. We feel really good about the traction. And then to John’s point, the piece that I am the most excited is about what’s next for FedEx. We have a pretty remarkable business, and the moat that we have built is just profound.

We cover 220 countries. We have real estate everywhere you need to have real estate to operate the global network that we have. That is not something we think people can replicate overnight. As a result, we have about 2.5 to 3,000,000 customers. What do I say about?

It changes depending on the frequency of shipping. But let’s say 2,500,000 customers. These customers generate $2,000,000,000,000 of GMV. And so while the number of customers sometimes when compared to, like, a CPG company or a consumer brand seem low, we do business with every major industry and those who generate the world’s value. So that mode of a customer penetration is just really, really profound.

We believe, and I know we were gonna talk about this from a future of logistics perspective. We have a physical moat. We’ve now built a digital twin, and our ability to help those 2,500,000 customers define their future growth strategy with the most flexible, efficient, and nimble supply chain in the world is pretty profound. So I’ve got twenty four years at FedEx. I wouldn’t be here if I wasn’t excited about the next twenty.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So I want to get to today’s news really quick, but what’s backdrop heading into this economically? What was your look at B2B, B2C growth just to set the stage the backdrop that we’re dealing with?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yeah. The backdrop is not great from a b to b perspective. So, you know, pre tariff announcements or actually even pre the revision now, we were not predicting a technical recession. The consumer, you’ve all seen this, the consumer is strong. Our economic forecast had a reasonable growth.

The challenge, of course, is the b to b business we did think was in recession. And what we’ve seen over the last year is you’ve all seen the pressure from an LTL business. And I guess I should give this context from a FedEx Corporation perspective. Our LTL business is 90% b to b. Our FEC business is 60% to 65% B2B.

So we have not seen the recovery in the B2B base in our business. From a b to c perspective, actually we see consumer sentiment showing up. In particular here in the domestic market, we’ll talk about that, happy to go into more detail. We still saw strong consumer confidence coming in the way from our biggest B2C customers throughout the last quarter. So we’re feeling pretty good about consumer sentiment.

But the backdrop from a B2B perspective has been pretty tough.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So let’s jump into the weekend news, right, which is let’s talk big picture for a minute on the tariffs change with China. I know you were just talking in detail kind of, you know, we’ll get into the de minimis leaving that off just talking about what changes quickly for you and in in in in the volumes and and what is what does this mean for This

Brie Carrera, EVP and Chief Customer Officer, FedEx: means this is good. I think we all know that that was we all were excited. And, again, there is so much media around potential trade deals. This is the deal that matters. Like, yes, of course, we would love to see.

We were excited about the The UK deal. Of course, we’re rooting for all trade deals. We believe in trade. We believe that, we are better from a not just a business perspective, but from a societal perspective. We believe in the advanced productivity that globalization has given us over the last fifty years.

But the deal that matters is the China deal. You know, yes, our customers are looking at China plus one, China plus two, forward stocking. Our customers are pulling every lever they can, but with China being up approximately 30% of manufacturing, this is the deal to watch. So we were very pleased this morning. Our government affairs team, I think, has done an outstanding job of working with the administration and really helping guide what we think would make sense from a trade perspective and a a tariff perspective, but the news this morning was good.

It admit I believe what we will see, and you tell me if you want me to stop and you can come back to this, but I believe what we will see is you will see near term reactions. The noise so from an international volumes perspective, March looked reasonably good. April softened. Now we also have to remember that we have Easter falling in different months. So Easter from a year over year perspective, Good Friday was in March last year, so we knew that April would be a little softer.

We knew Transpak volume would be impacted in May. The sharpness was surprising. How quickly customers paused shipping to, I believe, wait and see, quite frankly. I was just telling my table when I was in China in January, there was a lot of sentiment of this is not sustainable. It is not sustainable for The US economy, and so there was a lot of hedging.

So I think you also saw some customers pause. They had some inventory that they could use here in The US, see if they would get relief. So now what do I think you’re gonna see in the next ninety days? I think you’re gonna see for a lot of forward stocking for peak. That was the biggest kind of conversation we were having with our customers is they were good from a inventory perspective, and that’s a very general, not technical term.

But our customers were starting to get worried about the holiday season and being able to react. So I think that you will see folks take advantage of the ninety day reprieve.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Do we actually, because of the shipping stall that occurred that we’re now seeing hit our shores now, do you have a catch up via air that needs to be made or were they, as you mentioned, pre stocked ready for this and then they can start pre shipping holiday?

Brie Carrera, EVP and Chief Customer Officer, FedEx: At this point, it’s a little difficult to tell. I don’t think you’re gonna see I don’t think it would be prudent for us to plan for an air surge as a result.

John Dietrich, EVP and CFO, FedEx: Okay. Not not to plan, but if I could just add a little bit to this, just given my past experience in the aviation side. Generally speaking, when there is some ocean disruption, that usually bodes well for air freight when that demand returns for the speed and the reliability to get kind of the flywheel going again. But I agree with Brie, it’s a little too soon to tell what’s actually happening right now.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Because you need lead time on the orders to get going or there wasn’t stuff at the dock ready to go in terms of that process?

John Dietrich, EVP and CFO, FedEx: I think it’s a little bit all of the above. And you know one of the terms I hear in talking with the various modes is uncertainty. You know how and now we cannot have this ninety day reprieve, but how long is that going to let? Will it continue on beyond that? It takes some time to get all that reactivated again and make some key decisions from a business standpoint, some of the shippers making these key decisions from a shipping standpoint.

They’re looking for certainty. Does ninety days give them that certainty? It may for some, but

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: I don’t know for all. But to Brie’s point, within that ninety days you now think there’s going to be a hurry up and get stuff done within that ninety days, not take the risk that anything goes lower afterward. Where do you think we settle in with tariffs?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Where do I think we settle in? Oh, wow. That’s a that’s a what I will tell you is we’ve done some analysis. If you were to optimize for tariff or tax revenue, you would settle in between 2040% in the short term. Now, again, long term, our company believes deeply that you remove as many trade barriers, any friction as possible.

That is what’s best for not just The US economy, but the world’s economy. But in the short term, if you wanted to optimize for tax revenue, it would definitely come in around 20 to 40%. You would not go back to and our math says that at its peak, if you were a de minimis shipper using a retail value, the tariff was a hundred and 60 8 percent for low value ecommerce shippers out of China.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Going back to 30% though, you think that keeps the flow moving? That’s not prohibitive to the cost?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Our math says it’s not 30, it’s closer to 50. And so I think this is really important is when you read these executive orders, they are incredibly complex. We were on a call this morning at 7AM trying to decipher what exactly, was the what was the reprieve. Initially, government, and this is hot off the press, I will reserve the right to correct, but our initial teams was that it was closer to 50, not 30. Okay.

For the most impacted shipments coming out of China, which would be somebody selling at a retail price, previously using de minimis coming into The United States.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So we’re talking about de minimis type products? Yes. Absolutely. As we talked about before, there were 37 pages of exemption.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Exactly.

John Dietrich, EVP and CFO, FedEx: Well, that just goes to the complexity. Your question earlier about what our shipper and our customers are going to do. They need to sort all this out as well. And Brie hit the right theme. We’re working very closely with our customers.

What are they seeing? How can we help them? Leveraging our capabilities,

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: our clearance capabilities, which we believe are superior to make them successful during this very challenging period as well. So Brie level set just before we keep going over John, percent of your business is international versus domestic?

John Dietrich, EVP and CFO, FedEx: So from an international standpoint, roughly 75% of our revenue is US domestic based, so very large percentage. And then after that, roughly another 15% is interregional outside The US. And then the remaining balance is within the international space with no one market really more than 2.5% of revenue.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay. So now let’s jump into you brought up de minimis, right? So let’s jump right into the end of de minimis exemption. What does it mean? Can you tell us what percent of the business is Chinese e commerce, Team Muxi and others, whatever you want to box it into?

What does the end mean in terms of volume, aircraft? You wanna know if you wanna bring into Tricolor into the discussion and the financial implications as far as you wanna educate us?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yeah. So I think in the short term, as we’ve talked about and John just mentioned, no one trade lane is more than 2.5%. It is the China US trade lane that is our largest trade lane. And I think honestly we’re proud of that. As we just covered, China is the world’s manufacturing.

So for us not to have a strong presence, that would mean that we’ve done something wrong. And again, we do believe that over the long term, markets will be rational and that China still will be, you know, the world’s manufacturing center. Yes. Of course, we’re supporting customers everywhere they are to diversify, And that’s, you know, at the top of our commercial list is as customers evolve that we’re gonna evolve with them. From an overall ecommerce perspective, this is the majority of our ecommerce business coming out of China.

I think there’s a perception that just large customers were using de minimis. It was the easiest way for a small business in China to ship goods in The US. You don’t need to have a US entity. You didn’t need to lose formal clearance. This was not only just from a a cost of goods, was very impactful, from an ease and a facilitation of trade.

This made small businesses be able to enter The US with ease. So it is going to be a significant impact to Transpac Lane. I’m not gonna get into exactly what percentage of our Transpac business, but it is a significant portion of the ecommerce coming out of China. But not just for large customers, it’s for all size customers coming out of China.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Has it completely ceased?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Has it completely ceased? No. Was the impact in May significant? Yes.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay.

Brie Carrera, EVP and Chief Customer Officer, FedEx: And I think I should say, and John jump in here, equally so, we were really impressed with the AirOps team. Their pivot, and again, we were on at 7AM this morning, their pivot back to respond to customers who are going to move is the fastest I’ve ever seen it in company history in twenty four years. So our ability to agilely respond, we are flexing white tail. We are also flexing purple and orange very, very rapidly. We’re changing some of our airline platform.

What do I mean by that? We are centralizing where some of the flights will take off so that we have more control and move quicker. I’d also say our pilots have been really, really responsive. We feel good about our response. You feel good?

Do you want to add anything?

John Dietrich, EVP and CFO, FedEx: No. You’re the aircraft

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: guy.

John Dietrich, EVP and CFO, FedEx: Well, you’re spot on. I think to your introductory comments, FedEx serves over two twenty countries and we’re very adaptable and we can pivot and divert. We have a very flexible network and we can adapt to where the traffic patterns will flow. Ken, you talked a little bit about Tricolor, and we expect the e commerce volumes will continue, but Tricolor is all designed to put the right assets with the right products, with the purple being our organic purple fleet tails focused on our express business. Our orange, that’s what we use for our international air freight business.

And it’s a little bit of a slower network and it’s focused on tapping into the general freight market of which we’re not a big player right now, but it’s roughly an $80,000,000,000 business opportunity out there. So we’re going to go after that. And the Orange Network is designed to not only capitalize on that market, but also to relieve some of the pressure that our Express business thrives on like the Hub and like the Purple Tails. And then as Brie mentioned, the Whitetails, that’s really commercial belly capacity and that’s designed to accommodate some of the lower yielding e commerce type freight matching the right cost structure with those lower yielding products. So that’s really what Tricolor is all about and so we’re constantly focused adjusting and adapting, just to your question on Tricolor’s role in this.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Priy, just to clarify, de minimis is dead in terms of the terms and the 50% is terms of off rate or were you throwing in that 50 percent of de So you can now move down to 50% of minimis product?

Brie Carrera, EVP and Chief Customer Officer, FedEx: That’s what we believe from this morning, yes.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So they’re bringing the capability of de minimis shipments back?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Well, the 1 60 8 is at they’re not bringing

Unidentified speaker: de minimis back. No. Let me let me

Brie Carrera, EVP and Chief Customer Officer, FedEx: be clear. That is it is still excluded. But the the language in the executive orders are additive. Okay. So even though so de minimis still will be will not be in place.

However, we know that some customers who were previously de minimis, they now have less impact because of our estimates of what they’re actually shipping. Does that make sense?

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Yes. So they don’t have to ship the whatever the de minimis charge was, hundred 68. You can now ship what you want at about a 50% rate.

Brie Carrera, EVP and Chief Customer Officer, FedEx: But still formal clearance.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Formal clearance versus getting in under the 800.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yes. So and again, we have to separate. There’s like a literal cost from a tariff perspective, and there is a complexity of a shipper who’s basically had to say nothing other than one line description of their goods, they now have to tell us, which is where you were going with some of our our clearance capabilities, they now need to formally clear what the good is, where it was manufactured, an exact composition and the level of granularity that is expected is quite high. We were talking about aluminum steel. As an example, the minimum requirement was 1%.

So if you had a good with 1% with aluminum and steel, you were going to be impacted by the tariff. So if you’re shipping sunglasses and you have a Bolt, you have to determine, is it 1% or no, I don’t need the tariff. That’s the level of granularity that is required. So there’s not just an immediate financial barrier. There’s an audit, a compliance barrier.

And so we will help customers through that. We are just launching some new technology right now. The early response has been outstanding. So we feel good about that.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So they’ll be able to move it. It’s just now more complex. They have to file, but it’s a death knell to them. It’s Yeah, exactly.

Brie Carrera, EVP and Chief Customer Officer, FedEx: I think the other thing when we got into the EO, it’s really important, is the international postal operators, it does not apply to them. So from the original executive order on de minimis, it only applied to China Post and Hong Kong Post. And so one of the unintended consequences is we did see some volume impact in Asia, but we’ve also seen customers looking I’m sure you’ve read some of the media on this, where they’re tariff washing or, or origin washing. They’re moving goods, number one, to a different place, but also they’re looking to use postal operators. So we are working with the administration to close that, but that will be a near term headwind is if postal operators outside of China are allowed to use the de minimis exception still.

John Dietrich, EVP and CFO, FedEx: And there’s a bit of an irony to that too. There’s a bit of an irony given that the the innovators like FedEx are better suited in terms of kind of safety protocols and the investment in protecting the shipments from the kind of things that are looked to be protected against. And there’s a bit irony in the outcome of those unintended consequences. So are

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: you saying Canada Post could fly it to Canada and then it could come cross border without the

Brie Carrera, EVP and Chief Customer Officer, FedEx: That’s exactly.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Without the sound. Okay. Understood.

Brie Carrera, EVP and Chief Customer Officer, FedEx: For our customers, we’re working with them. We feel really good about our relationships. They’re asking for counsel. We’re working every day. And to John’s point, we’re pivoting with them, but we’re working equally as hard to get these down.

Okay. Let me jump over to we got a

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: lot to cover. I hope I’m gonna touch on some of these things. But Amazon tonight, right? So just before we all walked in the room, I’m sure everybody saw a couple of things stuck out, right? The cost benefits that you’ve got lower price points than what UPS provides indicating Amazon saves money on the deal.

I don’t know if you wanna maybe you wanna just start out with what the agreement is, and then I can I can check on some of the questions?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Okay. So I think we have to put some context in this. We were disciplined in 2019 when we didn’t renew the the deal. And I think that has to set the foundation is we only want deals that are financially accretive to FedEx. We would not go back and open a deal after walking away five years ago Yes.

If it did not make financial sense. So let’s start there as a premise. I think two, there was a whole lot of drama in 2019 that it was a breakup. No. It just didn’t make sense financially.

We’ve had a relationship with Amazon since then. We have always supported their seller fulfilled prime portion of their business. And so we’ve always been in conversations, I will admit, at lower levels of

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: the

Brie Carrera, EVP and Chief Customer Officer, FedEx: organization. About a year ago, we reopened those conversations. We have now just struck a new deal. A couple of things. The first one, because this will be visible, is the yield will be accretive to our system average in the domestic market.

We have a very unique capability that we cover all zip codes in The US, and we also move heavy, to handle packages better than anyone at all. You can kinda speculate why others might struggle to do difficult things, but this is a very unique part of our business. And you will see that this business is predominantly large package. So it is not the average weight that Amazon and UPS have. So we feel really good about this deal.

It is positive.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So this is big and bulky? Is it in freight or is it

Brie Carrera, EVP and Chief Customer Officer, FedEx: still It’s going to move in their surface network. It will be part of the FedEx Ground portfolio. So it’s not quite that that big.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: That big.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Okay. It will be parcel, but it is heavier weight. So it’s gonna push up our average weight per package, and it will push up our yield. And we feel I can’t comment to why UPS, why have a hypothesis, I suppose. I think our cost structure is moving one way and I think theirs is moving the other.

But I didn’t get to see the document that was referred to in the media.

John Dietrich, EVP and CFO, FedEx: And I think if I could, one of the themes to take away from everything Breej has said, which I agree with everything you said is mutually beneficial. Yep.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Are you talking to the size of the contract, right? We all know that UPS is losing $5,000,000,000, but in

Brie Carrera, EVP and Chief Customer Officer, FedEx: This will not be our largest customer. Period. Okay. That won’t be anywhere near the size.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: The size of the post office?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Oh, the post office or UPS’ deal with Amazon?

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: You tell me.

Brie Carrera, EVP and Chief Customer Officer, FedEx: It will not be our largest customer.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: And your largest customer is?

Brie Carrera, EVP and Chief Customer Officer, FedEx: It will not be our largest customer. But it’s a good deal for us. We feel good about this. We want all profitable business.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Break out your largest customer in terms of revenue?

Brie Carrera, EVP and Chief Customer Officer, FedEx: We do not.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: No.

Brie Carrera, EVP and Chief Customer Officer, FedEx: We do not need to because it’s not material.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay. And this won’t be the largest customer?

Brie Carrera, EVP and Chief Customer Officer, FedEx: It will not be.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Is this big and bulky? Is this rural? Is it everything? People ask me, UPS was known for getting RIV unprofitable lanes. It was rural.

Is this everywhere? Is this

Brie Carrera, EVP and Chief Customer Officer, FedEx: I think we have to maybe dispel a couple of myths. One, we like rural business. We like any business priced right. And business that is more difficult to move is where we get more value. I I really don’t understand our primary competitors’ need to pull back from rural.

We’ve actually won business, very profitable business as a result. And so I know that there’s a perception, but, we’ve done this for a bit. We have all of the controls needed, to make sure that we have approval on peak volumes. We have peak caps. We have distribution approvals.

It is not just large package, but that is definitely how we started the conversation because they had a need and we had an ability to help them.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So just to clarify the largest customer comment, I’m trying to think of different ways that I’m gonna get asked this over the next few days.

John Dietrich, EVP and CFO, FedEx: Just like it boring. Kenny, old lawyer days asked an answer.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: I’m just kidding. If they’re giving up 5,000,000,000 of revenue, you’re saying it’s not that all coming to It’s not I am sure that

Brie Carrera, EVP and Chief Customer Officer, FedEx: there is lots that didn’t make sense. We started with where

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: What makes sense. What made sense. Just so I understand that sentence, in terms of you’re in the midst of blending ground and express, we’ll talk about, does that process matter in terms of this or just your ground capabilities now as they stand?

Brie Carrera, EVP and Chief Customer Officer, FedEx: So that process matters for everything, right? It lowers our cost to serve, so it will make this deal even better.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay. All right. Let’s put it on FedEx drive. Think I Can

Brie Carrera, EVP and Chief Customer Officer, FedEx: you see Ken?

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Be done. Okay. Yeah. I’m getting So drive, you targeted $2,200,000,000 this year, total of $4,000,000,000 over the last couple of years. How does it shape up in terms of actually seeing it to the bottom line?

John, we talked about this a lot last year, And everybody just wanted to know the net number, not the gross number. How do we, as investors, see that move to the bottom line? How do we think about it? Think you’ve got what, only $625,000,000, 6 50 million left in the last quarter, then we’re now on to Network two point zero. So we’re coming up to the end of the program, but there’s always been this debate about the gross number, net number.

Any way you can kind of talk to us about that?

John Dietrich, EVP and CFO, FedEx: Well, I think if I could, Ken, the debate started was what could you meet that $4,000,000,000 number? That’s where it started. And I feel very good about the fact that both FY24 and the 1.8, we delivered what we said we’re gonna deliver and we’re going to deliver on the 2.2 for FY25. So I wanna put that out there because there were some very rigorous programs in place to make sure we achieve that. And to your question, how much flow through to the bottom line?

I think it’s important to remember that there were some pressures as well. In the meantime, we lost the U. S. Postal Service business, the IE yields were under pressure, Inflation for a good part of that was significant. And we had two fewer operating days, just to name a few.

So there’s a lot of pressure on that. And so we feel really good about the results. You know, there’s going to be some additional benefit into FY ’26. I think we said $400,000,000 Drive is gonna be here to stay for us. It’s not kind of a destination, it’s a journey for us.

So constantly feeding the pipeline with more and more ideas. But with regard to the flow through the bottom line, you see it in our earnings with all those offsets and pressures I just talked about.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: All right, so then next up is Network two point zero, right, which jumps in next month or at this end of this month. Wow, we’re there. That’s amazing. So you target an additional 2,000,000,000 of savings, but let’s talk about kind of where we are in that process, right? I think you had five markets that were going be integrated last quarter, 45 coming up this quarter, right?

So is that by May and then you would finish Canada, I think by the April, Is that done now? Talk to us about the progress and maybe potential plans to accelerate. Have you been successful at it? And so what have you learned and does that mean we go faster or is it on target? So I’ll say it’s

John Dietrich, EVP and CFO, FedEx: on target and there’s a lot behind that question in terms of accelerating or not accelerating. You know, I think from a Network two point zero standpoint, what we’ve said is roughly by the end of this fiscal year 12% flow through will have been achieved and we’re looking at 40% by the end of FY ’26 with the majority finishing off in FY ’20 ’7. These are very detailed plans. There’s a lot of, again, rigor that goes behind this. And trust me when I say I hear from Brie on a constant basis and Raj, we have to be mindful not to disrupt service.

So this is not a speed race for us. This is a journey that we intend to get right. And we want to be sure we get it right to line up two point zero facilities in a way that are delivering the results we want them to deliver. So to the extent there are opportunities to accelerate, of course, because we get the benefit of that, but we’re not going to prejudice our service. We’re not going to disrupt our customers.

We’re going work closely with them. We know there are people out there saying any kind, there’s one level of See, we told you so they can’t do it, they can’t deliver, but we are delivering and we’re seeing the benefits of that. But we’re not going to hurry up on the deadline just for the sake of hurrying up. We’re going to want to be sure we get it right and continue to not only meet and exceed our current levels of service excuse me, meet our current levels of service.

We want

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: to exceed them and get the financial benefits of that. Is there any example you can just walk us through, like in terms of how do you determine the ground contract or the express driver? How does that work in a city where you’ve got, you know, as far as I understood it when I was coming into the business, right, you talked a lot about sorting at the airports. Ground was done near the downtown business districts Now you’ve got two different sort centers, so how does that mesh?

Then as I understood it, there was a different software at Express and Ground. How did that blend together and be able to keep that service level while you were doing it?

John Dietrich, EVP and CFO, FedEx: Sure. So, you know, similar to the example I gave with Tricolor, kind of designing our assets in our network to the most efficient use and purpose, Network two point zero is very similar to that. Our facilities are going to be designed to have our express assets used in the way they were intended to be used and that’s for our express products. And with Network two point zero redesign facilities, we’ll be able to utilize those facilities to also accommodate some of the non express business and take advantage of the ground network that Brie talked about as part of that rather than having them in separate facilities and carrying that overhead. So there’s a lot of art and science to that, but that’s our ultimate objective to be able to utilize those assets for their intended purpose similar to what I described with Tricolor.

And there’s roughly a million express packages just using some general numbers that can be segregated out from roughly 1,600,000 that can be absorbed into the ground network. So all that’s part of our planning process and some of that takes time. The express products is largely going to be courier based, but we’re still working through all those details kind of on a station by station basis as we go forward. Leveraging technology, part of your question was technology. Brie, I don’t know if you want to talk at all about some of the technological advances, but IT is a big part of it.

Allowing us to segregate and manage those flows relies on technology. So that’s a big piece of it too, which is more difficult in the more populated areas. Yeah.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yeah. The the so I I would think about technology in a couple of different ways. One, from a network 2.o, we have what we need to implement and execute the network 2.o. The next wave of technology enhancement from a a fundamentals is what we’re calling our tech simplification. So when we think about OneFedEx and we brought all the operating companies together, prior to OneFedEx, we had different p and d, different line haul, different sort, different clearance systems, not just for the domestic operating companies, but there was a lot of, I guess, allowance within the international regions for separation.

So a big part of what will be drive2.0 is tech simplification. There is no reason that you should have separate well, first of all, applications. You don’t need applications anymore. We’re moving everything to a data first technology stack, but we are simplifying the entire operational IT infrastructure. That is a big part of what will be the next wave of drive.

There will be some cost savings there, but more importantly, speed to market. Because previously, every time we built a product around the world or had a change picture proof of delivery, we had to interface with regional and operating company systems. It was not as efficient as it could be. That’s a big part of what Shri Ram is working. And then, of course, the digital twin and some of our digital innovation is layered on.

But tech simplification, we’re gonna have one dispatch system, one sort system. It sounds obvious, but when we look back at the last fifty years, how do we get as big as we were? We let everybody run. And it worked. And now from a technology perspective and a pace, we’ve got some cleanup to do.

It made sense previously because it

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: That will be done by the end of network two point zero or is that a

Unidentified speaker: No.

Brie Carrera, EVP and Chief Customer Officer, FedEx: It’s it’s a different piece of work. It is additive. We don’t yet have a date. That is one of the things that we are working on for the next commitment for drive.

John Dietrich, EVP and CFO, FedEx: Got it. So if I could just pile on just a little bit on that because this is something that we’re all passionate about, but Raj is particularly passionate about taking us to the next level from a digital technology standpoint. You know, starting with enabling our capabilities, differentiating our capabilities, and then adding value for our customers and for ourselves. The amount of data that we collect and generate is incredible. When you look at $2,000,000,000,000 worth of goods moving a year and the multiple scans those packages go through per shipment, we’re able to gather a lot of very valuable data that can help our customers and figure out ways how it can add value to us as well.

So it’s really important of our next generation journey. All right.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So your competitor talks a lot about focusing on SMBs, right to get up to 30% of the business. You started off with how much is B2B already. How do you direct your sales in that environment where somebody is going to chase that SMB customer? What what is how is your focus on

Unidentified speaker: the customer?

Brie Carrera, EVP and Chief Customer Officer, FedEx: How is our focus on the customer? I think it’s pretty good. We have the largest actually, we have the only small business loyalty program in the industry. In addition to that, you’re you’re not hearing, exactly what the DAP program means. At FedEx, our SMB strategy is a direct relationship with nine more than 90% of our revenue is sales supported.

Now I know that some of you are probably thinking in 2025, well, do you really need a salesperson for that much revenue? Yes, you do. We have a renewal rate of more than 91%. We have grown market share for the last twenty years. We’re really proud of our SMB share.

As a percentage of revenue, we’re about two points. Two and a half points is our best estimate versus and, again, we have to listen to the same calls you do. We have to do the same math. So this is, you know, this is our best estimate using their definition of SMB. We think we’re about two points behind, but not all SMB revenue is created equal.

Our SMB revenue is direct. The vast, vast majority of our revenue is a direct contract between me and John Dietrich tennis rackets. Our primary competitors’ growth is between them platform, and the platform has the relationship with John Dietrich’s tennis rackets. That is a really important diff distinction. Yes.

We do business with the platforms. We are opportunistic. The cost of acquisition with platforms, you’ll notice our primary competitor never talks about that. Ask them. It is shocking what they’re paying for those positions and that growth.

We’re working really hard. Our sales team, we’ve just benchmarked. McKinsey did some work for us in The United States, our cost of acquisition, and our sales and marketing costs were a top right quadrant for the industry. There is no doubt in my mind we have the better commercial engine. It’s not both skin.

John Dietrich, EVP and CFO, FedEx: And they’re the best tennis rackets out there.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Yeah.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Sorry it.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: I’m not

Brie Carrera, EVP and Chief Customer Officer, FedEx: tennis anymore.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Alright. So

Brie Carrera, EVP and Chief Customer Officer, FedEx: So yes, we’re focused on small business. We have the better value proposition. We have a loyalty program. We have sticky relationships direct with customer.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Is there a Salesforce number that you you use? I know you’re talking about building up on a freight, which we’ll talk about in minute. Is there a number of salespeople?

Brie Carrera, EVP and Chief Customer Officer, FedEx: I don’t know that number right off the top of my head that’s specific to to small business, and I also don’t know it with their definition of small. Our metrics and the way that we segment is far more nuanced. Yeah. So no. I don’t have it right off top my head.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So so jumping out before we leave drive altogether, I get a lot of questions still on on FedEx Europe, and I’m not sure how many people in the room would still remember TNT or as a standalone company. But you talked about being on track for $600,000,000 of savings. How much further does Europe have to go to be breakeven in terms of beyond the $600,000,000 Does it get to breakeven? What’s left to achieve after that?

John Dietrich, EVP and CFO, FedEx: Sure. So first of all, one of the things I identified pretty quickly is all the challenges that Europe had with the TNT acquisition, the cyber event and we had some facilities challenges. So notwithstanding all that, Europe is a top priority of ours and we feel really good about the progress we’ve made on the $600,000,000 of drive savings. Again, that fits into the bucket I talked about earlier. Perhaps folks not believing we could achieve it, we’re going to achieve that.

We’re also going to continue to focus on the efficiencies that we can gain out of Europe. We’ve been improving our service levels and gaining profitable share in Europe. We like the fact that we’re pivoting more to a truck fly truck environment in Europe, bringing our cost to serve down. So a lot of opportunities for us from, you know, as we go forward here too, it’s been in place a little bit now, but we have a change in leadership that not only includes the leader, Wilder Rawls, who’s out there in Europe, but we also brought a lot of capabilities from The U. S.

Over to Europe to leverage our ground capabilities that we do extremely well here in The U. S. To help us continue to improve in Europe. So a lot of opportunity there. I’m not going to talk much specifically about probably because we don’t report out that way, but we’re very pleased with the progress we’re making.

Brie Carrera, EVP and Chief Customer Officer, FedEx: I think the thing that people don’t spend enough time thinking about from a Europe business perspective is the market is a ground based market. Right? It is yes. To John’s point, we’re we’re very confident in the 600,000,000 of improvement. But this should be a market that looks lot like your FedEx surface history from a margins perspective.

There is upside here. The two or growth engines for Europe because we are still under shared are going to be ground parcel intra I think that’s really important. We’re not focused on the domestic markets in Europe and LTL. And we are the only provider, sounds a little familiar to The US, that has both the parcel and the LTL capabilities.

The flywheel is moving to John’s point seven consecutive quarters of profitable market share growth on international business. We feel really good about the momentum in Europe. So deviate a little bit.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: I remember post the acquisition, you had the cyber attack. It seemed like you didn’t know who the customers were, so they would still go out there and then obviously the customer was saying, I’m not going to trust you with my high value stuff, but we have good relationships, so more LTL type freight, right, became more freight. Has that transitioned like maybe can you talk about how the mix has changed over time in terms of how you get to that profitability? Is that now a small package network, good blend network, does it still have a way to Where are we in that evolution back to what it was pre the cyber attack?

John Dietrich, EVP and CFO, FedEx: Well, I’ll speak from my perspective and Brie, you have a lot of experience here as well, but from my perspective our service quality has improved exponentially and we’re recapturing a lot of that business. This is taking share. One of the things I observed is I think we were a bit of a victim of our own customer service. What I mean by that is we were so focused on not disrupting the orange TNT customers that from the purple, the FedEx customers, that it created a lot of dis synergies for our operation and our cost structure almost to our detriment, right? So now as part of our focus on bringing us all a lot of streamlining taking place, a lot more technology that’s being used, the engineering and the parcel flows and freight flows to make us better so that we’re not going to leave our customers vulnerable.

But at that time, we didn’t have those capabilities. And so we kind of trudged along, even though we were integrated in many ways, we were still very separate in many ways. And it led to a lot of customer disruption. I think we’re in a much better place now.

Brie Carrera, EVP and Chief Customer Officer, FedEx: This is the best, you know, we have seen continued quarter over quarter improvement in sentiment from just market studies perspective. We’re seeing it show up in the numbers. We’re seeing it show up in customer confidence. We also put in a brand new sales leader. He has doing a very good job.

So to John’s point, I think it’s also important to know we have a new president. We have a new head of operations. Pat Super grew up in our Surface Network here in The United States. He is an incredible operator. And as we’ve talked about, we had a a team that was very focused on the airline.

That was kind of the core business from a Europe perspective. Then we started to integrate TNT, and I think we lost our focus on what is the core business, which is a ground based business. And so we have the right leadership there. We’ve put in a new head of sales. We feel we feel good.

Mhmm.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So if I caught it right, I’m gonna completely keep jumping around. You added surcharges. Maybe it was back in April. What what is that gearing up for this shortage of freight in anticipation? Was that preparation for peak season?

Can you run through what was the goal of the surcharges?

Brie Carrera, EVP and Chief Customer Officer, FedEx: I’m assuming you’re talking about the export surcharge?

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Yes.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yes. So from an export surcharge perspective, as we just talked about, things are more complex for our customers. They’re also more complex for us to operate. We had significant flow volume flowing through de minimis, and that did not require the same amount of brokerage oversight. And so, yes, we had to put in a new surcharge to make sure that we were covering some of the incremental costs.

I will say that the work that our clearance operations team is doing from an efficiency perspective, they have a a pretty significant drive target. And we saw last week that they are on track for their target as well. But that’s what that was.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Export imports into The US or exports? Yes. Yeah. Okay. Update on the the freight spin separation.

Sure. Target for May. Anything about current valuations that have really changed in the freight market that gets you to reconsider and keep the asset? Is it still on the

John Dietrich, EVP and CFO, FedEx: valuation has changed pretty much today.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: That’s fair. This question was written before today. Right. Right.

John Dietrich, EVP and CFO, FedEx: I mean, and it goes to the comment I was making earlier, just the uncertainty out there until things settle down. No rash decisions until things settle down in so many aspects of the business. For us we’re staying the course there’s a tremendous amount of value to be unlocked with our freight spend. We have in-depth project plans in place to our separation management office. We’re going to be the leadership in the very near term here.

So we’re on track and you know we look forward to unlocking that value and keeping you posted as we go. I’m sorry, so leadership or freight

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: will be announced? In the near term.

Unidentified speaker: With results or before? Near term.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Got it.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Near term.

John Dietrich, EVP and CFO, FedEx: I can put it this way, no later than results. Okay.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Potentially sooner. From the industry from FedEx? I’m sorry? From the industry, from FedEx?

John Dietrich, EVP and CFO, FedEx: I’m not going to comment on that. What I can tell you is we’re looking for the best candidate for the role and we’re going to find that person. And we’re to build a great board of directors and freight is going to be ready to run. Okay.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Last quarter you lowered your EPS target about 6% to midpoint, 18 to 18 point 6 0 dollars indicating kind of a fiscal fourth quarter ’5 point ’8 ’3 dollars to $6.43 a fairly wide range. I presume you’re going to tell me just given the volatility of what we’re seeing in the market. But you noticed weakness and uncertainty in The U. S. Economy and that was only March when we last talked before Liberation Day or tariffs, whatever you want to call it.

What are your latest thoughts in terms of bottom end of range, top end of range? What gets us there? Not where we are, but unless you want to tell us where we are.

John Dietrich, EVP and CFO, FedEx: Think you’re right. We went out with our earnings and our updated guidance on March 20 and that was pre Liberation Day. That’s not to say that we’re in some discussion on tariffs at March 20, but we based our guidance on what we knew at the time and we put a lot of thought into that. Since then, Liberation Day has occurred and depending on how things settle it absolutely will put some pressure on flows out of China for example as we talked at length about. But we’re monitoring it closely and we look forward to updating you at our next earnings call, but you know it’s just one of those things where the world is a different place now.

Today was, you know, if I were to have had this conversation two days ago or, you know, the end of last week, I’d be thinking a lot differently than I do as what happened over the weekend. So, you know, you’re right. Different time, different

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: place. Given what we saw in terms of the almost the complete suspension of of some of that freight, the need to figure out how it flows, was there any commentary in terms of should we expect negative volumes at Domestic Express?

Brie Carrera, EVP and Chief Customer Officer, FedEx: So from a a domestic domestic express

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Yeah. Or Domestic package.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Packages. So from a domestic perspective, honestly, the domestic volumes from an ecommerce perspective are resilient right now. May, now I will say that we have seen some of our largest retailers pull levers, extend sales. So it it’s a little hard to decipher how much of that is pull forward, but I I definitely think in May, are seeing a consumer pre tariff shopping. That is definitely it it appears this is a consumer trend more than just a normal seasonality because May domestically is stronger than our normal seasonality up until this point.

So that was encouraging. As we talked about internationally, the April and the May from a Transpac perspective, that was worse than we anticipated.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So international was worse, domestic was holding strong?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Domestic was holding on the e commerce side. On b to b on the parcel side, it’s about what we thought. LTL looks a little softer in May than we thought it would be at this point of year.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay. Anything on the LTL side driving that?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Honestly, there is not a single customer geographic. There is no outliers. But when we looked at the seasonality, I looked at it this morning knowing was coming to talk to all of you. And May is softer from a seasonality perspective.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: And that’s more IP Exactly. 90%

Brie Carrera, EVP and Chief Customer Officer, FedEx: of it’s B2B, so this is a reflection of

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: But not a reflection of stuff that needs to come in, just domestic movement of the freight. Yes.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Okay. Okay. Now part of that might be a lack of inventory. It’s hard for me to tell, but April looked about what we thought.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: You wouldn’t have had the stuff not hitting the shores yet because that’s just happening now. Right? So that would have been

Brie Carrera, EVP and Chief Customer Officer, FedEx: feels like this is an industrial indicator.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Just a sign of the weakness of the industrial economy. Very much aligned with our truck shipper survey, which is weak. FedEx Express margins, Federal Express, FEC, what are you guys doing?

Brie Carrera, EVP and Chief Customer Officer, FedEx: I know, it’s hard.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: FEC margins, yeah, it’s acronym, expected to be in the mid-9s for the fiscal fourth quarter, up about two twenty basis points sequentially. Given the combination, the Express combination, is that a fair level to be thinking about? Are there other things we need to toss in there just given the integration? So if you reflect back to April 23 time period during Drive Day, we put a number out there at the $100,000,000,000

John Dietrich, EVP and CFO, FedEx: mark, we should be at 10% margins. Now, some things have happened since then, the announcement of the freight spin and you’re taking roughly 10,000,000,000 out that’s somewhat higher margin, but from my perspective we’re going to be focused on margin expansion at FVC. Feel really good about the programs we have in place. So, you know, that $100,000,000,000 mark seems to me to be still a reasonable number. However, my goal is to achieve the 10% margin as soon as possible, and that’s a

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: goal of all of us here at FedEx. But for thinking more fiscal fourth quarter, if we’re talking year end, that kind of the range to get to your numbers right? Is that what in your outlook? Yeah, I’m not going

John Dietrich, EVP and CFO, FedEx: to comment on that. But I look forward to updating you when we get together in June. Understood.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: BRE average yields have stepped up in fiscal fourth quarter, February, March, April. Why is that? I mean, you were talking about the new revenue stream will be even more yield accretive. Is there something that drives that as you go through the quarter?

Brie Carrera, EVP and Chief Customer Officer, FedEx: So honestly, from a pricing perspective, as you know, we talked about this, we are being really disciplined. So we’re proud of the execution from a yield growth in the immediate term. I I think I guess if I could back up, maybe the most important thing when you talked about what do I want this group to think about is yield matters, capacity utilization matters more. And we are and you’re gonna see some pivots in our pricing strategy over the couple the next couple of months to lean further into capacity utilization. Historically, the industry has been very focused on simplification because that mattered a lot for our small customers.

For the majority of our buyers, they are already making very complex decisions. And as a result, you’re gonna see us move to a pricing strategy that better reflects total cost. What do I mean by that? We might be looking at headhaul and backhaul pricing strategies that we we do on a customer by customer, but that is not if you look at our zone based pricing and our distance based pricing, it doesn’t purely reflect trade lanes even in the domestic market. So from a yield perspective, we are looking at a couple of things.

One, capacity utilization. It matters if trucks are full. It matters if planes are full. Headhaul and backhaul, we’re not gonna change the market. Every I love all my finance peeps, but I love every time there’s a new finance analyst who’s like, you know what you should do?

You should sell more in backhaul. Thanks. What we need to do is to make sure sorry.

John Dietrich, EVP and CFO, FedEx: That was the most polite insult I’ve ever seen.

Brie Carrera, EVP and Chief Customer Officer, FedEx: We’re not gonna change the world’s trade lanes. What we need to do is to make sure that those that drive the headhaul pay for the headhaul. That is where the demand is going to be, and we do that really well internationally. Domestically, the industry has some opportunity. So from a pricing strategy, I want you to be looking at yield, of course, but we’re very focused on capacity utilization.

We’re very, very focused on making sure that we are compensated where things are more difficult, heavy, hard to handle. So it’s not just about absolute yield growth. We need to have different conversations.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So my first thought of that, could see the room kind of light up on that, is that we’re back to pre-twenty nineteen and therefore you’re going to chase price. How do you alleviate that we’re not? And then how much capacity do you think is out in the market that you need to fill?

Brie Carrera, EVP and Chief Customer Officer, FedEx: So from a capacity utilization, I think the good thing is that in general capacity is coming out of the market. Obviously, network2.o, we will reduce facilities. I think we’ve seen some other players in the markets who are also reducing, so I think that’s it. No. Nothing I said assumes that we’re chasing volume.

Volume is our friend, but volume always at the right price. So, you know, there’s unfortunately, business is nuanced. I cannot say with the exception of, you know, small customers, all all other volume matters at what price and what mix and what direction. And we have the world’s I think are the industry’s best pricing team that will help guide us through that. So, no, this isn’t about chasing volume, but we do want to grow, just grow profitably.

John Dietrich, EVP and CFO, FedEx: And our comparative yields are stronger.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yeah. We get more in each one of our product segments than our primary competitor.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So UPS at their Analyst Day, what about a year and a half

Unidentified speaker: ago or two years ago, forgot how long ago

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: it was now, said there was about 12,000,000 average daily packages, about 12,000,000 12% excess capacity. What would you think that is in today’s environment?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Honestly, I don’t know. And I don’t know how they got to that number, to be really honest. We’ve looked at it. To define capacity, are they talking about store capacity? Are they talking about PND capacity?

Are they talking about line haul? I don’t I guess you could go and say how how much could we deflexed up during COVID and come to that number, but I don’t think it’s relevant because there’s a difference between fixed and variable. And obviously, I think everybody’s taken the variable out. And then from a fixed perspective, you’re seeing a lot of that come out.

John Dietrich, EVP and CFO, FedEx: And as I recall, it also included postal service capacity, think was a large

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: component of it. Half of it. Yeah.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Change.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay. I want to come back to freight for a second. Your shipments were down 8% sorry, moved from down 8% in the second quarter, down 5% in the third, so got better. And I think the industry was down a little bit more. So it seems like a little bit outpacing the market.

Your thoughts on the freight market? Yeah, we think it’s

John Dietrich, EVP and CFO, FedEx: going to continue to moderate and be better than it was last quarter, but still probably down year over year.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay. Amazon has been mentioned as moving into the freight market. Is that something you see or is that I know they’ve talked about doing inbound freight, is that something you as the largest provider out there, see them coming into the market?

John Dietrich, EVP and CFO, FedEx: I personally don’t see that anytime soon. We have a tremendous amount of infrastructure already in place. I think Amazon probably doesn’t have too many barriers to entry. We just don’t see that happening in the near term.

Brie Carrera, EVP and Chief Customer Officer, FedEx: No. I think we have to go back to 90% of our business is b to b, which requires a pickup. They’re not in the business of picking up freight. They’re a last mile provider. Also, think I’m hypothesizing that if I’m over there, I’m looking at my ability to just use my excess capacity in my own network.

Well, then you have no ability to respond to peak. If you’re just selling excess capacity, that is not what our customers want. I’ll tell you I haven’t lost a customer to Amazon from an LTL perspective. We’re not that is not the conversation that our commercial teams are having.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: John, you talked about new leader being appointed soon at freight. How about the progress on building the sales force?

John Dietrich, EVP and CFO, FedEx: Yeah, I think we’re making great progress here. We appointed a leader, someone who knows the business quite well and you know our focus as Brie has talked about, our focus is on you know the specialized cell for freight it’s different than the express. So we’re pleased with the hires we’ve made thus far making great progress on that to focus on that specialized cell for LTL freight. I know some area of opportunity for us is on some backhaul lanes in LTL. And when you have a specialized sales team, in my opinion, you’re able to develop those relationships, connect customers and just generate freight.

So I’m excited about our refocus on that and look forward to it yielding results.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So Brie, on pricing for the LTL, we’ve had some carriers talk about moving into transactional pricing, some that are lowering GRIs to keep business. What are your thoughts on the underlying pricing within freight segment?

Brie Carrera, EVP and Chief Customer Officer, FedEx: So honestly, an underlying perspective, we think for the most part, the industry is still being quite disciplined at the freight side. I have not seen any kind of dramatic, and and I think you have seen us I think we’re being the most disciplined. And so we that has had some pressure on share, as you’ve noticed, over the last year. But we’re trying to make sure that we are really focused on that. I think we do have some opportunity on weight, so you might see some changes in the weight pricing strategy.

If you guys have spent any time talking about LTL pricing, it’s a little archaic. But I do think that you’ll see some shifts in some of the cap load movements and the focus there on weight. At least our focus is on weight and getting the weights up because it’s more profitable.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Why is your weight so different than the industry?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Well, think one thing is that we were very and are conservative. We want to make sure that we protect ourselves from any truckload getting in and that we optimize all the utilization in the trailers. Think we’ve gone a little too far, to be honest. I think that we’ve got an opportunity to

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: do a better job of attracting weight. It’s definitely my top priority for the commercial team. So, John, freight margin was 12.5% deteriorated 300 basis points year over year in the third quarter. You noted you expect the pace to decline or to decelerate in fiscal fourth quarter. Is that still reasonable given the demand backdrop or drying up that you were talking about earlier?

John Dietrich, EVP and CFO, FedEx: Yeah, I think we’re going to see some modest improvement actually. Modest improvement?

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Yeah. Year over year or sequentially?

John Dietrich, EVP and CFO, FedEx: Not year over year, but sequentially. Sequentially, yeah.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Okay. given the blending of Express and Ground, how does that panned out for distribution for employees in the cities?

Brie Carrera, EVP and Chief Customer Officer, FedEx: I think what’s important to note is the vast majority of our business today is the the FedEx Ground portfolio, so the previous FedEx Ground operating company. So the majority of our business will continue to be delivered by contractor. We are being very strategic and supplementing from a courier perspective where it makes sense, where we need overlay, where we have stem time. We are really looking at couriers to offset the stem time and some of the challenges in the that maybe not challenges isn’t the right word. The FO and the PO product are our most highest yielding domestic services with the highest expectation from our customers to continue to deliver that.

They are also always bundled with the ground business. When you look at trying to hit a 10:30AM commitment from a PO perspective, you have very little wiggle room. And so you need to have a model that is incented for that route to be able to flex to any delay in dispatch, any delay in aircraft arrival time. And so I think you will see that we are going to supplement the contractors with couriers specifically for those FO and PO, and then the majority of the volume will be delivered by contractors in the future. But that is the case today.

Just want to make that really clear.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So your competitor blended in Shorepost into their core network. You did it years ago with SmartPost. Is that back in ’19 also? Somewhere it was

Brie Carrera, EVP and Chief Customer Officer, FedEx: a while ago. Yeah, 2020 maybe. When

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: you did it, do you remember No, ’18 I guess it would have You took all of it onto your network. Did you have to do pricing actions to get that to align? Did you say we’re going to keep only 75% of it because it blended? Is there a general understanding of how that market went when you brought it all on board?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Well, ours is a little different because COVID hit. And so if you’ll remember, we had to optimize and we actually had to shed a big portion of the volume. So I can’t comment on what they’re planning. What I can tell you is it’s now our FedEx Ground Economy product. It is a far more competitive product to the alternative.

It has picture proof of delivery, and it does not have the guaranteed time delivery that the home delivery product has, but it is very efficient. John Smith has done an outstanding job of keeping costs down by using rail. We feel really good about the positioning of this product. And it’s growing. As we’ve talked about many calls, it is always with an HD package.

The vast majority of ground economy customers are bundled with our higher home delivery product. Remember, took you guys forever to use the rail. That was like a What are you saying?

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Burden. So the Postal Service contract you had for twenty years went from making money to breakeven at end as they moved to minimum volume commitments. Talk about how has this freed up your network in terms of are you done pulling the excess costs out? If not, what’s left to do? How many flights did you end up going to?

I think you had 110 at the peak. I think you had 30 before you brought it on board. Maybe anything to understand what’s happened with FedEx’s network post?

John Dietrich, EVP and CFO, FedEx: Yeah, the team has done an excellent job of executing on the transition. While we were in negotiations, as you can appreciate, we were planning for both scenarios, one where we would keep the contract and one where we would not keep the contract. And just from a flying standpoint, we’ve taken down 30% of our total domestic flying, which translates into 60% of our daytime network. So the team executed fantastically on that, and all the other expenses that came out as part of that contingency planning. And you’ll recall on our last earnings call, I also mentioned that from kind of a total headwind standpoint, we brought them down by about a hundred million dollars from 500,000,000 to $400,000,000.

So I feel really good about our transition away from that contract. Now, we’ll still have some headwinds from an earnings standpoint for the first four months of FY twenty six, you know before we lap the termination. But from an execution standpoint, the team did brilliantly.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: I think you reiterated your $4,900,000,000 CapEx target for the year, about 5.5% of revenues. But I think there was a mention of either some new aircraft included. I know you had always included about a billion, billion and a half if I remember in terms of the number, but it seemed like you were exercising options, which seemed a little odd to me given what you’re talking about, about trying to decrease rate. Maybe just walk through your thoughts on CapEx and then your thoughts on the aircraft.

John Dietrich, EVP and CFO, FedEx: So first with regard to CapEx, one of my goals was to reduce the amount of capital intensity, focus on that capital we were spending on the highest ROI and the team’s done a great job coming together as we continue towards one FedEx. We had separate operating companies in the past that had capital budgets and many of them were spending capital without regard to what some of the other op companies were doing. I’m not being critical, I’m just saying that from a centralized standpoint not as much coordination as I felt there could have been, not as much perhaps rigor as there could have been. It’s possible that Express was investing in a facility and ground you know a block away when perhaps they could have joined forces, joined buying power. So bringing that centralized focus on our capital spend has yielded a lot of results.

We’re also finding that some of the budget we had for Network two point zero facilities is coming in better than we thought. So that altogether with I’ll get to the aircraft in more detail in a moment altogether allowed us to bring our total capital spend down considerably from where it was. Now with regard to aircraft, you know, there was a point in time where the company was running about 2,000,000,000 or north of $2,000,000,000 a year in capex on aircraft and related spend, and I think company did an amazing job of investing in the best assets out there, particularly the seven seventy seven. Over time, you know, we’re rationalizing our fleet. We’ve retired a number of aircraft.

We have currently a number of aircraft parked. We have a plan to retire the MD11s over time. We extended that out a little bit to allow us the flexibility to take advantage of the lower yielding e commerce because those aircraft are almost fully depreciated, so the asset itself isn’t really costing us. It’s the variable expense we need to cover. Could we, if we need to accelerate those retirements if the demand falls up?

Yes, we could and we can do so efficiently, Which leads me then to the recently announced 777s. We announced we’re going to stay within that $1,000,000,000 range and achieve that by FY twenty six. We’re going to achieve that. These aircraft fit within that budget and for the following years for the near term we also committed to that neighborhood of a billion dollars. These aircraft will not cause us to go beyond that budget.

I can tell you coming from the air side, these are extremely attractive assets. I’ve never said FedEx is not going to order any more airplanes. FedEx’s strength is in its modern fuel efficient fleet. The best assets and youngest assets in the business. We get tremendous operating leverage by doing so.

But importantly, these were also the last triple sevens that are ever going to be delivered in this configuration, this design before the next generation of what’s called the seven seventy seven-eight, which is several years out. In my prior life, I bought the last 4,740 seven-eight’s that were ever to be produced. They will continue to be extremely valuable assets. So it was one of those opportunities for us that we didn’t want them going anywhere else because they’re very attractive, very attractive pricing. So that’s what went into that acquisition and it may allow us to retire some other aircraft sooner as well.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: I’m surprised given the aircraft background you couldn’t just go ask somebody to give them to you for free because I hear that’s a thing now.

John Dietrich, EVP and CFO, FedEx: Free has been interesting. I want to know the terms and conditions of that Qatar Seven Forty Seven.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: There’s a lot of news flow coming in. Don’t worry, we’re almost done and everybody you can make the Nick Celtic game real soon. We used to hear about UPS and FedEx would mention we’re faster in this percentage of lanes than the other guy. We haven’t heard that for a while yet you’re focused on building a combining the network and keeping speed and efficiency. They talked about fastest I want to make sure I use the right term fastest network ever

Brie Carrera, EVP and Chief Customer Officer, FedEx: for them.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Where where are you on that process? Is that a competitive thing still or is it is that not

Brie Carrera, EVP and Chief Customer Officer, FedEx: Shame on me. Yes. We are still faster. By Friday, we have 53% speed advantage from an ecommerce perspective. Speed matters.

We are faster, and maybe we should have been more clear when we talk about our Saturday and our Sunday coverage. We’re talking about it because it enables speed for all of our ecommerce customers. We know there is a correlation between checkout cart conversion for all of the world’s retailers that we serve and speed to market. So yes, for ecommerce on Friday, I think the number and I’ll fact check me later. I think it’s around 50 faster for zip codes across the country on Friday.

That’s pretty powerful.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Yeah. No. It’s just something we used to hear on the road a lot from you in terms of the

Brie Carrera, EVP and Chief Customer Officer, FedEx: Steven, make sure you hear it again.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Used to be a slide you had in your roadshow, so it’s not his fault.

Brie Carrera, EVP and Chief Customer Officer, FedEx: It will be again.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Alright. What’s on Amazon’s third party service? You know, they took that down during COVID, right? In terms of they had to use their network for them. They’ve come back out, they’ve said we’re here, open doors to provide service.

Haven’t heard much about it since then. Where does that stand?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Look, I think first and foremost, we see Amazon as a great retailer. We do not see them as a pure competitor. What have they built? They have built a last mile delivery service. I am not discounting that.

It is a very important part of their strategy. From a competition perspective, they don’t do pickups. You need to do pickups.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Have they not launched a trial to do pickups?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Oh, maybe there’s a trial somewhere. I have not seen any scaled pickup capabilities in either parcel or LTLs we were talking about earlier. I do not believe they have the sortation capabilities to offer the express portfolio as we’ve just talked about. They don’t have the ability to do extended or large package. So right now, no, I don’t see them as a pure competitor.

I’m not trying to be dismissive or defensive. When we think about who I have to compete with, they are not at the top of my list.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So even with the 100,000 delivery vans or whatever, they can’t have those drivers go out and pick up?

Brie Carrera, EVP and Chief Customer Officer, FedEx: They have not. And again, when we think about the complexities of a pickup and the delivery side is a far more efficient operation, right? You get up in the morning, especially as if you think about what Amazon does for last mile delivery. For the most part, those drivers get up in the morning and they run a straight optimized route. Trust me, putting pickups in your routing capability is very difficult.

You also then have to be prepared to wait and manage the customer expectation. Pickup and delivery, these are not the same thing. So right now, no, this is not something when I think about what are the complexities of our business that’s at the top of my list. We’ll continue to prepare for that moment, but it’s not imminent from my perspective.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Alright, so I’ll give you two last ones, long term and a short term, because I have to give you the short term stuff. But long term, what does the industry look like? What’s the success at the end of this overall?

Brie Carrera, EVP and Chief Customer Officer, FedEx: That’s your best question.

John Dietrich, EVP and CFO, FedEx: You want to start? Oh, please. Ladies first.

Brie Carrera, EVP and Chief Customer Officer, FedEx: From a long term perspective, the way that we are thinking about logistics is first, as we have seen in the last four years, and Raj has talked about this so much, is supply chain is now a boardroom conversation. Right? We think that the world supply chains are going to get more complex. We think the geopolitical environment will not ease anytime soon. We think that the world’s manufacturers and retailers are going to have to have redundancy and resilience like they’ve never had.

And and it’s not just geopolitical. Look at what we’ve seen from a port strikes perspective. Look at what we’ve seen from a weather perspective. We’ve had more weather challenges in the last year than ever before. So supply chain will get more complex.

Who’s gonna win? We think that what matters the most in the future is, first of all, scale, as we’ve talked about, is you need to be able to pivot. You need to be able to support a customer who is thinking about standing a new line in Guadalajara that was previously dependent on their line in Guangzhou. That matters. Scale, not just from a physical perspective, but from a commercial perspective, that as a customer is moving or setting up a new partner, who are they going to think to call?

So number one, think scale matters. Number two is digital. You cannot manage this complexity as it was in the last ten or twenty years. We have built our new Atlas data platform. We’ve built a digital twin of our network.

The future supply chain decisions will be not only automated, but all ML and AI based. And we don’t think that a lot of the smaller players that are in the industry will survive the next ten years. They won’t have the digital prowess that we have. And then from that, we think that the world supply chain companies, in particular FedEx, we’re gonna move from talking about transit times in price and talking about facilitating trade. What do I mean by that?

We’re working on sustainability insights. We’re working on fraud. We’re working on free trade zones. How do we help customers leverage them? So we think scale, we think digital, we think reach matters, and we think complexity will increase dramatically and so too will our value.

What did I miss?

John Dietrich, EVP and CFO, FedEx: No. No. I echo everything you just said and and with an emphasis on the leveraging the technology piece. Think it’s just gonna make us better, faster and more reliable in everything we do. And it’s gonna be a focus as we go operationally, but then strategically as well, how can we leverage our capabilities and all the great data we have access to.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: I think that as an outsider, I mean that’s one of the most exciting things to see in terms of Network two point zero and as you blend a network, how you get that one technology to integrate without interrupting customer service, which you can’t interrupt customer service.

Brie Carrera, EVP and Chief Customer Officer, FedEx: We cannot. So

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: earnings John, can earnings be positive in ’25 and any initial read on ’26?

John Dietrich, EVP and CFO, FedEx: Well, the short term, look, in times like these we’re focused on those things within our control, helping our customers, minding our cost base and all those things that go into what we talked about drive and advancing the ball in our strategic initiatives. So we feel really good about the progress that we’re making. Look with regard to FY ’25, look forward to talking to you in June on that. And FY ’26, as I talked about, we’re not I talked about this in the last earnings call. We’re going to have some carryover benefit from drive roughly in that $400,000,000 range.

We’re not expecting the macro environment to improve materially, although that goes to the wait and see certainty. Again an underlying theme is to focus on those things within our control during this period. There’s still going to be, as I mentioned, four months of postal service headwind, inflation still a factor, but you know we’re encouraged by some of the things we’re seeing on the yield side in the pricing environment and just overwhelming our customers with great service. And we think that’s going to distinguish us from the competition.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Are you excited to go back to a calendar fiscal year?

John Dietrich, EVP and CFO, FedEx: Oh, I’ve been excited about that since the get go, right? It’ll make a lot of these comparisons a lot easier, right? And so it was one of the things I had focused on since I started, the freight transaction gives us an opportunity to kind of bundle that all and wrap that all up in one kind of transition. So yes, I am excited.

Brie Carrera, EVP and Chief Customer Officer, FedEx: And no earnings

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: in

per ’26.

Brie Carrera, EVP and Chief Customer Officer, FedEx: It will be nice too.

John Dietrich, EVP and CFO, FedEx: So that will be our first full in mid year FY ’26, but our first full calendar year reporting will be q one twenty seven.

Jenny Hollander, IR Team, FedEx: ’20 ’7 is when we’ll be on a calendar year. Yeah. So I will have a transition period at the end of FY twenty six,

Unidentified speaker: which will end at the May

Jenny Hollander, IR Team, FedEx: until we get to that actual calendar year.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: So we’ve run out of time. I’m going to summarize what kind of our key takeaways were. But do you have time for two or three questions from the audience? Sure. Can we do that?

Okay, so while we wait for the question, I guess if I just summarize, seems like volume is decelerating, but now things have changed, right? So maybe we’ll see from here. You’ve got I wrote so quick, can’t even read my handwriting you’ve got the Network two point zero, right? It’s really the you can really see that integration really kick off here. I’ll go to the question and I’ll try and organize my handwriting a little better.

What happens when I’m writing on my knee?

Unidentified speaker: Sure. Thanks for taking the question. Fri, just I wanted to get some clarification on when you said maximizing your your capacity. What what what sort of items are you thinking about to to try and achieve achieve that outside, you know, just pricing?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yeah. So like I said, we are putting more nuance in the pricing to John’s point. We are also I think some of the conversations, some of the work that we’ve done from an LTL perspective has been important from a commercial perspective. So we are continuing to refine our commercial strategy for specialization. One of the things that we’ve talked about is our healthcare.

We didn’t even talk about our healthcare strategy. We’re so proud of the work that the team has done prior to UPS’s announcement. A couple of weeks ago in the acquisition, we believe that we were about to be the largest transportation healthcare company in the world. We’ve onboarding 400,000,000. So from a capacity utilization, specialization matters.

We’re looking at like revenue per flight. So getting denser, right? Double using our sort. So looking at customers who can come into a sort off cycle. There’s all kinds of things that we’re doing, but pricing will matter.

Focus, to John’s point, from a commercial perspective will matter. Then we really didn’t even talk about it, but we are doubling down on our b to b strategy. Ecommerce will be the growth engine, of course, and parcel. But we think both from an air freight and a parcel perspective, doing a an even better job on a vertical approach for commercial will We’re taking the healthcare work and we’re standing up in automotive vertical. We’ve already had a couple of wins right out of the gate.

So specialization within our commercial strategy will be really critical.

John Dietrich, EVP and CFO, FedEx: And if I could on top of that, mean, the tri color network, particularly orange is all focused on improving density and utilization of our assets as is Network two point zero. So operationally those two initiatives are focused on maximizing asset utilization.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Go ahead.

Unidentified speaker: LTL had a share donor for many years that had high union costs. They’ve exited, those capacities are coming back to market, and there are now more than one, maybe three growth stories before you come to market. Volumes on Mike Bloomberg tell me I’ll tell you, volumes are flat relative to 02/2006. Maybe just spend a second how you think about you’re gonna balance volume growth and price cost in an environment where costs are growing significantly than the people that aren’t discounting price or losing share, it looks like to me?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Mhmm. So I think a couple of things. One, we have we’ve done a really good job, and, again, part the last year or so of profitably taking share. When I look at our segment analysis, however, we are underpenetrated relative to our share position in small business. So number one at the top of the I keep calling it SpinCo, but FedEx Freight’s list is we actually have not done a good enough job in acquiring small customer.

So from an overall mix perspective, you’re gonna see us invest, and you’re gonna see the freight company invest in technology to the shipping experience. Our billing experience, the transparency and pricing is not where it needs to be from a FedEx freight perspective. So we think we fixed those three things. Why haven’t we fixed them? It actually goes to a little bit of the prioritization issue that we had is that, you know, from a FedEx freight perspective, we did a really good job, but it was competing with FedEx Ground for a lot of investment on the IT side.

So in hindsight, we probably underinvested. So we’re gonna fix that, give them a better experience. We’re gonna improve SMB. We’ve also, from a FedEx Freight Direct perspective, ecommerce, although it’s only 10% of our existing base at FedEx Freight, will grow faster. We have done a really good job with our FedEx Freight Direct.

It’s actually our highest NPS score within the company outside of FedEx office. It’s an outstanding service. We’re gonna grow faster than market there. Grocery is an underpenetrated market for us. We have never really been focused on grocery.

You need a technical term, a lumper, a second driver to really serve grocery. But we’ve made some inroads there as well. So we’ve got a pretty good handle on where we can kind of profitably take the next couple of points of share. And to John’s point, having a dedicated sales team and focused commercial strategy, we think will give us a real boost.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Do have a fixed target

Unidentified speaker: in the OR for the next sprint of what you should achieve at some point in time? Who would have been able to afford to take the next?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yes. We have a business case.

John Dietrich, EVP and CFO, FedEx: One other thing I’d like to add, it’s tough to acknowledge areas where you don’t do as well as you’d like to do, and one of the things that came as a bit of a surprise to me is in our billing, our invoicing capabilities, some basic blocking and tackling because we were so integrated with the other side of the house that it wasn’t as efficient as some of the competition is certainly not as efficient as I would like it to be. If you’re not billing properly, you you’ve got some work to do. So all the things that Brie talked about are process improvement. We’re just going to continue to add more and more value than we already do today and we’re already the biggest with the broadest network today. So there’s going be a tremendous increase in the value proposition of our freight customers that’s going to allow us to grow and get share.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: With that last question, go ahead Corey.

Unidentified speaker: Closing it down. Alright. Just to clarify on the de minimis, this one was at a 68%. What were the customers shippers doing? Were they not shipping at all?

Brie Carrera, EVP and Chief Customer Officer, FedEx: Yes.

Unidentified speaker: They were not shipping at all. So what would you expect at the 40 to 50% range? Is that enough? And then is also, Ocean an option for these for these customers?

Brie Carrera, EVP and Chief Customer Officer, FedEx: So I I would say for the customers that are using, you know, us, our primary competitors, they’ve evaluated ocean. They have different business models. And, again, a lot of our customers, it’s an and. Right? Most businesses have some ocean, especially if you’re thinking about ecommerce.

You’ve got some ocean business and then you’ve got you know, you’re flying it for a variety of reasons. Either it’s specific lines, it’s shortages, you don’t wanna lose that momentum from a commercial perspective, you’ve got a hot item. There’s some ecommerce customers who have built their entire model on speed. Shein is a great example of that. They are winning in the market because of speed.

They’ve taken a lot of the Amazon playbook and applied it. There’s some nuances there, obviously. So I think in the short term at 168 as we talked about, we saw immediate impact. We saw those customers pause, use inventory wherever they could. They raised prices to adjust those prices, preferred sales.

It was, you know, demand destruction. I do think you’re gonna see those customers come back. Some of them have looked at postal, as we’ve talked about. But in the near term, I think in the 40%, we’ll see volumes come back.

Ken Hoexter, BofA’s Air Freight and Surface Transportation and Shipping or Marine Analyst, BofA: Great summary. Thank you so much for your time. So just to summarize, I can now read what I wrote. So volumes decelerated. We talk about acceleration.

Amazon profit, we didn’t even touch on Amazon profitable revenue that you’re going to absorb. Were very crystal clear on what you’re Profitable, yes. Profitable, but it’s not revenue. Profitable revenue. Drive, you know, really successful.

John was talking about the details of Drive and how you do that. I think Network two point zero, do it with precision is the most important part to protect the service. That was clear. Thank you very much for all the details tonight. I got through virtually every question, so truly appreciate you taking the time for joining us again for the conference.

Thank you.

Brie Carrera, EVP and Chief Customer Officer, FedEx: Thank you. Thank you for having us. Appreciate it.

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