FedEx Poises to Reach Goal of 8 Million Parcels Daily : Delivery: Fierce price competition is weighing on air cargo company’s domestic earnings.

MEMPHIS, Tenn. —  Each night at Memphis airport, about 750,000 packages arrive at Federal Express Corp.’s hub operation within minutes of each other around midnight and hundreds of employees start sorting.

The packages are offloaded, dumped into a 171-mile network of conveyor belts for sorting and redistribution and then reloaded, all within about three hours.

Many companies are taking shortcuts with storage and are instead using FedEx as an “airborne warehouse.”

For example, the parts of many personal computers may come together for the first time in a Federal Express truck.

And auto makers, health care producers and clothing catalogue merchants keep products in warehouses near FedEx’s hub to handle late orders.

About 1.9 million packages handled by FedEx each day are sent to its second hub in Indianapolis, or to regional hubs in Newark, N.J.; Oakland; Anchorage, Alaska or to sorting operations in Chicago, Los Angeles, Paris, Tokyo, Taipei and Stansted, England.

While Federal Express employs thousands of college students as well as aspiring professionals to help in the sorting process, it is not unusual to see Frederick Smith, the company’s founder, chairman, president and chief executive, sorting packages on heavy nights during the holidays.

The company started in 1973 with a fleet of 14 business jets and now has a total of 464 aircraft.

In fiscal 1983, its revenues hit $1 billion, making it the first U.S. company to reach that hallmark within 10 years of start-up.

It also boasts of a computerized information service that processes more than 20 million transactions a day. About 80,000 customers are plugged in and the locations of each of the 2 million packages moved daily are recorded six times during shipping.

Although FedEx is poised for continued growth and is already positioning itself to move 8 million packages daily, price competition has grown fierce in its domestic operations, weighing on its earnings.

There was a drop in first quarter domestic operating profits, but the air cargo company plans to reverse that trend, said Alan Graf, chief financial officer.

“Our objective is to raise domestic earnings by 10% a year. I’m not sure if we can do that in fiscal 1995 because of our start,” Graf said in an interview, “but we have several programs underway so that we expect to reverse the trend of declining earnings. As to when, I can’t say exactly.”

Last week, Federal Express reported net income of $61.1 million for the first quarter ended Aug. 31, up sharply from $32.9 million a year ago. But the company’s U.S. operating profits fell to $120.3 million from $135.1 million a year ago due to growing price competition.

“We’ve got to match the yield decline with cost decline and we have a lot better capacity of controlling the cost of transactions than the revenue,” he said.

Graf said the firm is seeking to cut its cost per package by 50% by the end of the decade from under $12 currently. Federal Express handles a daily average of 2 million packages worldwide.

Graf noted that he did not think it likely that FedEx would see 12% or 13% margins again in its domestic operations, but added it was possible overseas. The first quarter’s margins in domestic were about 7.1%, he said.

“I think the dynamics of the market are such that the market’s going to continue to grow very rapidly,” Graf said.

“FedEx has always been very lean and mean, and we have been reducing our costs on a unit basis for a long number of years,” he said. “We’re just in the process of continuing to do that and have a lot of programs that are in the planning stages or are just beginning to help us lower our unit costs.”

He cited new technology and information related projects that should make a big impact, saving the company tens of millions of dollars.

Moreover, starting this fiscal year, FedEx is adding 43 wide-bodied aircraft that are lighter but can carry more packages.

Federal Express stock closed 37.5 cents lower at $61.25 on the New York Stock Exchange on Friday.