LAKELAND, FL-In a move that will see 100 truck terminal properties across the US shuttered, FedEx is merging its FedEx Freight and FedEx National LTL networks. FedEx will cmbine the operations by Jan. 30, 2011. About 1,700 workers will be terminated.
Memphis-based FedEx made the announcement in its fiscal first quarter earnings report on Thursday. The FedEx Freight business reported an operating loss of $16 million on revenue of $1.26 billion. Last year, revenue was $982 million, but the company had an operating income of $2 million. The LTL business posted operating losses in the quarter, driven by lower yields and higher volume-related costs. Yields declined 3% year-over-year.
“As manufacturing is down in the United States, so too is the demand for this type of space,” Ted Morandin, founder of Morprop Advisors, a commercial real estate underwriting and investment firm in Annapolis, MD, tells GlobeSt.com. “The FedEx consolidation comes at a time when we are already looking at a 40% vacancy rate in the transportation real estate sector. It’s extremely soft.”
After seeing rapid declines since 2007, manufacturing is only about 11% of US gross domestic product. Although the Institute for Supply Management reports its US manufacturing index rose to 56.3% in August from 55.5% in July, manufacturing has yet to officially recover from the worst recession since the 1930s. FedEx is not the only freight liner to suffer—or the only one to put industrial space back on the market.
“There are other very large players in the sector that have excess space,” Morandin says. “In all likelihood, FedEx is going to need some inventive people to try to figure out alternative uses for this property. FedEx might not be able to sell it right now. They might have to lease it because this isn’t traditional warehouse space. It’s harder to move.”
In fact, it may not only be hard to move. It may be obsolete. Transportation real estate may not recover in six months, 12 months or even 20 months, Morandin says. And it’s not just cross-docks for shipping that are seeing vacancies and potential obsolescence.
“It has been a brutal three years for the transportation sector,” Morandin says. “If you looked at the national vacancy rate on industrial, I guarantee you it’s nowhere near 30 percent. But when you get into the transportation sector, including ports, rail yards, container yards and intermodal facilities, you see widespread vacancies due to the decline in manufacturing. Some of these properties may have lost their original purpose.”
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