Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Ed Wolfe – Wolfe Research
Ed Wolfe – Wolfe Research
Can you talk a little bit about the impact of DHL in terms of which products are you mostly seeing the volumes? You noted in the release and talked about SmartPost, where else are you seeing more versus less of the DHL volumes? Over time what do you see as the pricing potential if you could talk about that from DHL?
Mike Glenn
Clearly DHL decision in the United States has presented a unique opportunity and one that we began planning for many months ago. Early in the stages we saw actually a higher level of ground volume coming on, it seemed to be the first to activate then that balanced itself out and actually skus now are a little bit more towards Express. SmartPost has also benefited significantly as the result of DHL’s decision.
It’s very difficult to predict how this will settle out because our average yield per transaction is much higher than what DHL was carrying the traffic at. It will take some time for us to see how this volume settles in the various modes. I don’t think we’ll have clear visibility to that until after the holidays. We’ll just have to wait and see how the mix of traffic settles out in the various networks because I think that can be skewed to some degree by the holiday and the Christmas season.
Ed Wolfe – Wolfe Research
In the results it seems like your Ground results when you take out fuel feel much better than your Express results. Is that driven by seeing the Ground earlier at DHL or is that just the nature that there are more fixed costs in Express than Ground?
Alan Graf
It’s definitely some of both but mostly the later. As I said, when we talked to you at the end of our first quarter we weren’t expecting the decline accelerations that we saw and the numbers that I mentioned to you on the trends. With the size of the fixed cost network that we have at Express chasing that decline in revenue down with cost reductions takes us longer.
We will get there and as I’ve said we’ve done quite a few things already and we have more levers if we need to pull them. At the same time we don’t want our service levels to do anything but improve which we think is one of the keys for our longer term success. We’re behind at Express in terms of getting our cost structure in line with the amount of revenue that we’re seeing but we will catch back up.
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