FedEx Expects E-Commerce to Generate 86% of ‘Market Growth’ in 2022

The U.S. domestic parcel market is expected to grow to 101 million packages a day by calendar 2022, with e-commerce “contributing 86% of total U.S. market growth,” said Brie Carere, FedEx chief marketing and communications officer, on a Thursday earnings call for fiscal Q3 ended Feb. 28. E-commerce was about 21% of U.S. retail sales in calendar Q4 2020, “significantly above the pre-pandemic level,” she said.

FedEx remains “excited about the diversification and evolution of the e-commerce market,” said Carere. “Some of our largest retail customers reported e-commerce growth rates in the high-double and even triple digits through 2020.” As the U.S. relaxes its COVID-19 restrictions, “we recognize the potential for a short-term deceleration in e-commerce shopping,” she said. “However, we are very confident that e-commerce as a percentage of retail has a long growth runway.”

E-commerce demand is expected “to remain high for the foreseeable future,” said CEO Fred Smith. FedEx completed a holiday shipping season that was “historic” in its dimensions, he said. Carere described the holiday period in which FedEx delivered nearly 500 million packages as “a peak upon a peak” season.

Parcel volume growth for fiscal 2021 ending late May remains strong, “supported by a portfolio of e-commerce solutions growing at double digits,” said Carere. FedEx Ground seven-days-a-week residential delivery “is one of the fastest-growing services in e-commerce, with 70% volume growth in Q3,” she said. The $702 million operating profit that FedEx Ground generated in Q3 was the highest for any Q3 in the segment’s history, said Chief Financial Officer Mike Lenz. The stock closed 6.1% higher Friday at $279.58.

Carere said “the short answer is yes,” when asked if FedEx thinks e-commerce volume could grow in the fiscal year that begins June 1 despite tough year-over-year comparisons. It’s anticipating that 90% of the market growth “is going to come through e-commerce,” she said. The “long-term outlook” is for e-commerce revenue to rise at a 10% compound annual growth rate, she said. U.S. domestic residential packages were 70% of the FedEx “volume mix” in Q3, compared with 62% in the year-earlier quarter, said Lenz: “I think that speaks to how we plan to execute on the continued growth of e-commerce.”

The “same story” in the U.S. “is playing out everywhere in the world,” with more than 85% of overseas FedEx parcel growth coming from e-commerce,” said Carere. It’s launching FedEx International Connect Plus (FICP) to serve e-commerce traffic between the U.S., Europe and Asia, she said. FedEx is “underpenetrated” in services for exploiting “this massive growth opportunity” internationally, she said. “We are behind both DHL and UPS in this market today, so we see there only upside.” FedEx sees FICP as “a rapidly growing opportunity for e-commerce,” she said. It bills the contract-based FICP service as lower-cost with easier customs clearances compared with other overseas shipping options.