FDX FSC Cut Effects

Implications: The FedEx Freight (FDX) fuel surcharge (FSC) cut was a well planned shot at weaker player YRCW that involves leadership personalities who have a long history. The FSC cut may be a well advised legal ploy as the legality of the LTL FSC is called into legal question

Analysis: The FDX fuel surcharge cut is an interesting play by FedEx Freight. On the surface they seem to be pushing an already financially fragile YRCW group. I guess one must remember the personalities at play here. Doug Duncan, a longtime Roadway Express employee, left to head up (Roadway Services Inc.) RSI's Viking operation. There were some hard feelings between RSI and Roadway Express leadership, as during the spinoff of Express, employees were ask to choose sides. It was especially hard for the Express employees to watch RSI grow and prosper under FDX, as it was the money from Express that built what is now FedEx Freight West, FedEx Custom Critical, Logistics and FedEx Ground. Duncan is squarely aimed at knocking YRCW out of the market with this FSC cut (along with the Watkins acquisition).

Also the FSC cut takes share from smaller weaker LTLs and TL carriers. Remember, the new FSC table has the TL percentage matching the LTL. To me this will take lower weight truckload shipments from TL carriers. Last month the fuel surcharge for TL was close to 40% (while LTL was 19%). Now FDX's TL rates looking very attractive to many cost conscience shippers. I would expect to see a noticeable change in FDX freight profile next quarter. I would expect to yield lower, average weight per shipment higher and volumes in the double digit growth area. This FSC cut by FDX goes well beyond the LTL market.

There is also another factor in play here. There have been a few lawsuits that have risen--stating that the LTL FSC is illegal and should be considered pricing fixing. Time will tell the merits of these actions. But, I wonder if FDX's legal team advised or influenced this FSC cut to the market as a way to get some goodwill with the shipping public and slow down anymore legal actions