Brie Carere: Hi, Helane. Yes, it’s a fair question. We do have a healthy business in automotive here in the United States and around the world, but we’re also highly diversified. We have looked at the — our initial numbers and we have accounted for in our current demand forecast for some fluctuations in automotive. We do anticipate that there will be, in certain locations, some rolling strikes, and so we have accounted for that within the current demand outlook. Right now, we believe that both FedEx and the entire economy would benefit obviously from a fast resolution but we’ve accounted for it.
Operator: The next question will come from Bruce Chan with Stifel. Please go ahead.
Bruce Chan: Hey, good evening, everyone. Mickey, John, congrats to you both. If I could maybe go back to something that you talked about, Brie, FedEx having a superior value prop with regard to service and speed. Does Network 2.0 make FedEx even faster? And if so, do you think that opens more yield capture opportunity that maybe goes beyond some of the guidance that you’ve given around the initiative?
Brie Carere: So from a Network 2.0 perspective, I’m actually really excited about this from a FedEx Service perspective. The piece that I mentioned in my opening remarks is pickup, and I just wouldn’t underestimate this. We have long known that this was an opportunity. And when Raj talked about some of the early learnings in the US market, we knew it was an opportunity but the enthusiasm from customers on how much easier it is to manage as we collapse and make the — not just the pickup experience, the physical pickup one, but we also will rationalize our pricing there and we will automate pickups in a more streamlined fashion. So it’s a better customer experience. To date, we do not — we have not yet found opportunities to speed up the network from a Network 2.0 perspective, but we continue to iterate.
What we have found is it’s a lot easier to respond and adapt in the network as we bring them together. And so that has also been something that customers have asked for especially in the B2B space and health care. So we are learning a lot, but the net takeaway is customers are actually very supportive and excited about Network 2.0.
Operator: The next question will come from Ravi Shanker with Morgan Stanley. Please go ahead.
Ravi Shanker: Thanks to everyone and Mickey good luck and thanks for the help over the years. Brie, just one quick follow-up for you. You said that pricing traction was good so far, and you’re converting a pretty decent amount of the base rate increase. What percentage of that? I think historically, it’s been like closer to 50%. What rate are you converting right now? And also, you said that the pricing environment remains pretty rational. But you saw the US post office basically say they’re not going to have any pricing surcharges and the USPS, the UPS changes were noted on the call. I think Amazon is launching some competitive service as well. Do you think 2024 could be a tougher environment pricing-wise across the industry?
Brie Carere: Okay, that was a lot. But I think I got it, Ravi. Jump in here if I don’t get it all. So from a GRI perspective, if we go back to last January, the answer is the vast majority of our customers pay the full GRI. That is excluding the large customers where we’ve already pre-negotiated but the customers that are on our service guide terms, we get a very high capture rate. And so we anticipate that we will see the same thing this coming January. From a peak surcharge perspective, I think, it’s really important to understand that we structure our peak surcharge to really target volume that will surge and drive the network to flex. So the vast majority of our customers actually do not pay a peak surcharge because their volume just doesn’t flex up enough to qualify for the peak surcharge.
And so when we look from a competitive environment, I actually don’t think the USPS’ peak surcharge is particularly relevant in what we’re doing so I’m not worried about that and actually continue to feel good. And we’ve also pre-negotiated peak surcharges with the vast majority of those customers that pay them. So I feel good heading into peak. And then when you think about Amazon or ship with Amazon, I think it’s really important to remember, we spent the last 50 years building the best transportation network in the world. We get up every day thinking about nothing other than making our supply chain better for our customers. And the market and customers, I think, really value the fact that when they win, we win, and they don’t have to worry about a provider who is going to compete with them.
I do think that we’ve taken competition very seriously, and I’m focused on continuing to provide an even better value proposition. And we’ve got some things planned for 2024 that I’m really excited about sharing with you in a couple of months. So I feel good. Thanks, Ravi, for the question.
Operator: The next question will come from Stephanie Moore with Jefferies. Please go ahead.
Stephanie Moore: Hi. Good evening. Thank you for the question. I appreciate the color that you gave on the Freight segment and kind of what you’re seeing in August. But given just the major disruption in the market, can you talk a little bit about how some of those diverted volumes, just the mix, probably fits with FedEx’s current Freight mix would be helpful just for context? Thank you.
Brie Carere: Sure. Happy to answer that question. So when we talk about the volume that came on, I think it’s important to split it. Actually, if you look at both, half of it came directly from Yellow customers, so give or take, about 2,500 pieces a day. And the reason being is that Yellow had a lot of low-quality revenue. And so there was some revenue there and some customers that really didn’t want to pay for the value of the FedEx Freight fee and the quality that we provide. What happened, however, was some competitors took on more Yellow volume and their service was not what it needed to be. And so as a result, we went and got an additional 2,500 pieces from the market. Net takeaway is the margin of the 5,000 was very healthy. The sales team was incredibly disciplined and both Lance and I are very, very pleased with that volume that the network is running really well. And I am confident that we will keep the majority of that and that’s what we plan to do.
Operator: And our last question today will come from Jeff Kauffman with Vertical Research Partners. Please go ahead.
Jeffrey Kauffman: Thank you very much for squeezing me in. And congratulations, John. And Mickey, it’s been great working with you all these years, so thank you. John, a question for you, and I just wanted to go back and clarify kind of what Ken Hoexter was asking on the guidance. The adjusted earnings went up, I guess, about $0.25 at the midpoint and you highlighted the reasons why. But it looked like the unadjusted earnings went down about $0.15 at the midpoint. You took the high end of the range down to $16.60 and the low end up a little bit. And I just want to understand, you talked about the $100 million of incremental incentive comp. You talked about some of the continued yield pressure. You talked about some of the negatives.
And then I saw that it looked like you also extended the adjustment range for the business optimization costs up from about $500 million to $620 million. So is that the net that explains the difference between the $0.15 reduction in the unadjusted guidance and the $0.25 increase in the adjusted guidance at the midpoint?