FedEx Corp. (NYSE:FDX) is a global leader in logistics and transportation, with a market leadership position in express airfreight services. The company competes with other logistics players such as United Parcel Service (NYSE:UPS) and international players like TNT and DHL, in the $4 trillion logistics market. Its service model, featuring extensive express airfreight services, differentiates it from the rest of its competitors who have a larger footprint in ground operations.
FedEx recently extended its alliance with healthcare products provider Cardinal Health, a multi-billion dollar healthcare services company, to expand its healthcare shipment services. In this note, we take a brief look at the global healthcare product logistics industry and focus on the positives of this alliance for FedEx. We have a Trefis price estimate of $139 for FedEx, which is marginally higher than its current market price of $137.
Logistics Provider Reach To Support Healthcare Shipment Market Growth
Global healthcare shipments are estimated to be worth $7.5 billion today and are expected to reach $9.3 billion by 2017. This represents a 4.5% growth in logistics spend for biopharma products annually. In comparison, the overall biopharma sector is expected to grow at 6.6% annually, from $209 billion in 2012 to $288 billion by 2017. This higher growth rate in the biopharma sector, compared to the logistics spent on part of healthcare product manufacturers, is driving investments into new supply chain service offerings into the market.
Demand for biopharmaceutical products is on the rise due not only to advancements in medical technology and personalized medicines, but to innovation driven demand in emerging economies and increasing life expectancy globally. In order to maximize their growth from this surge in demand, healthcare product manufacturers are expanding both their offerings across service channels and their product portfolios. By partnering with global logistics players, healthcare players gain additional opportunities to grow the top line by expanding the domestic and international reach of their products.
FedEx May Be Looking To Emulate UPS' Success In Healthcare Shipment Division
The latest partnership between FedEx and Cardinal Health is an indication of the company's attempt to bolster top line growth through services other than its principal operating division, FedEx Express. The Express segment has been under pressure due to a heavier impact from increasing fuel costs, resulting in a migration of customer demand from faster airfreight services to longer and cheaper modes of transportation. Express segment revenues account for 62% of the total $43.5 billion revenues for FedEx.
FedEx's Supply Chain and Trade Network division includes various supply chain service offerings for cold chain, and other temperature and time sensitive products. Revenues from the segment grew 23% annually compared to flat sales for UPS' supply chain business between 2008 and 2012. However, absolute revenues of $1.21 billion from FedEx's supply chain division are significantly lower than the $6.77 billion generated from supply chain operations by competitor UPS in 2012.
UPS had the first mover advantage in the niche healthcare logistics market, though it has posted flat revenues in the past four years. The company allocated 30 of its 130 global distribution facilities to dedicated healthcare logistics operations and recently added two new facilities in China to cater to the fast growing Asia-Pacific pharmaceutical market. With the extended alliance, FedEx plans to pursue a similar business model and ship Cardinal Health's medical equipment and biopharmaceutical products through its 40 domestic warehouses and distribution facilities across the U.S. We believe that the healthcare alliance strengthens the company's position in the global supply chain service market, which is expected to grow approximately 10% annually through 2017.
FedEx's current offerings of various temperature sensitive, monitoring and visibility services should bode well with the current trend in the healthcare shipments market. Going forward, we expect FedEx to increase its service offerings in its healthcare logistics segment in response to an increase in cold chain shipments of medical and pharmaceutical products. On the flip side, the lack of sufficient footing in ground-based operations could force the company to have higher pricing per shipment, resulting in a significant drag on top line growth for its supply chain business.
Disclosure: No positions
This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read the FAQ at fivefilters.org/content-only/faq.php#publishers.
from SeekingAlpha.com: Home Page http://seekingalpha.com/article/1869771-cardinal-health-alliance-could-boost-supply-chain-revenues-for-fedex?source=feed
Aucun commentaire:
Enregistrer un commentaire