Airfreight & Logistics (Market Underweight): We spoke with a parcel industry contact regarding FDX package trends at Home Delivery (HD) and SmartPost. SmartPost has typically been marketed as a low-cost option for lighter-weight, less service-sensitive high-volume shippers. However, beginning this week SmartPost will be marketed to a broader customer base, with fewer volume requirements. 

    According to our contact, FDX’s HD customers may now choose between HD and SmartPost for residential ground shipments. As the SmartPost network will still cater to those smaller, less service-sensitive shipments, we suspect most of the volume that could migrate from Home Delivery would be relatively lighter in weight than a traditional Ground/HD parcel. By shifting the lighter-weight parcels away from the HD network, FDX will likely reduce its final-mile delivery costs and its dependence on its HD Independent Contractor network (final-mile delivery provided by the USPS rather than a FDX independent contractor), while affording their customers a lower-cost shipping option. Recall, FDX’s average SmartPost package yield is just under $1.50, well below the average Ground/HD yield of roughly $7.50. However, our contact believes FDX will achieve a better margin on the lighter-weight volume at SmartPost relative to HD by leveraging off of the USPS’s final-mile delivery. 

    Over the past year, FDX has seen robust growth at SmartPost (up 73% y/y in F1Q ending August), primarily due to the DHL @home volume wins surrounding its exit from the U.S. domestic market in January. Although SmartPost comprises over 20% of FDX’s daily Ground/HD and SmartPost volume, SmartPost still only comprises 5% of total FDX Ground Segment Revenue. [Whether the migration of volume to SmartPost from HD alleviates any pressure surrounding the challenged independent contractor model remains to be seen, but after the most recent unfavorable IRS tax ruling at Home Delivery, we suspect management is actively examining its use of that contractor model – Wolfe Research Comment].
    Ed Wolfe can be contacted at