And now, Fred Smith will share his views.

Frederick W. Smith -- Chairman & Chief Executive Officer

Thank you, Mickey. Welcome to our discussion of third-quarter earnings. First and most importantly by far, we are very thankful there were no serious injuries from the package that was detonated earlier at our San Antonio FedEx Ground facility. FedEx has provided law enforcement extensive evidence from our advanced technology security systems designed to protect the safety of our teammates, our customers, and the communities we serve. We continue to assist authorities.

Now, moving to the business at hand and specifically turnings to the earnings. Execution of long-term growth strategies, customer demand for the unique value of our broad portfolio of solutions, the healthy growth, and the global economy are driving our performance. We expect strong operating performance in that regard during the fourth quarter in each of our transportation segments and remain confident we will improve operating income at the Express segment by $1.2 to $1.5 billion in Fiscal 2020 versus Fiscal 2017.

We remain committed and optimistic about growing earnings, cash flows, returns, and margins. Economic growth around the world remains broadly based and we expect U.S. tax reform to continue to increase economic growth and investment. FedEx is concerned about the prospect of increased protectionist tariffs, as history has shown repeatedly that protectionism is counterproductive to economic growth. The better approach is to encourage open markets and free exchange of products and services and to reduce barriers to trade.

Congratulations to our team members around the world for another outstanding peak season with record volumes and high service levels.

TNT integration efforts are accelerating and we are well positioned for profitable, long-term growth due to investments in our network and people, such as our recent commitment to $3.2 billion in wage increases, bonuses, pension funding, and expanded U.S. capital investment. FedEx is proud to be in the Top 10 companies in Fortune magazines World's Most Admired List, and among its best companies to work for. We believe this reflects our team members' dedication to our Purple Promise, which states simply, "I will make every FedEx experience outstanding."

Now, let me turn the call over to my colleagues for their insight. First up, Alan Graf. Alan?

Alan B. Graf, Jr. -- Executive Vice President & CFO

Thank you, Fred. We included additional information in today's earnings release and I will provide additional detail during my discussion today about our third quarter due to unusually complex operating results and the impact of the Tax Cuts and Jobs Act, or TCJA. We will also provide additional details today regarding our expected fourth quarter financial performance, given the complexities of the TCJA and third quarter results in order to help you understand the underlying performance of our businesses.

Our adjusted earnings-per-share for the quarter was $3.72, up 62% from an adjusted $2.30 last year, primarily due to benefits from the TCJA. Operating income increased slightly year-over-year to $1.11 billion, with higher base rates at each of our transportation segments, increased volumes at Ground and Freight and a favorable net impact from fuel. These improved results were impacted by the timing of significantly higher, variable compensation accruals, which were up $140 million in the third quarter.

Variable compensation increased year-over-year due to sharing some of the benefits of U.S. tax reform with employees as we announced on January 26, our improved outlook for FY18, and the timing of recognizing expense in FY18 compared to FY17. Results were also impacted by higher peak-related costs at Express and adverse weather.

Before I talk about the operating results for the segments, I'd like to mention the tax benefits in our GAAP results, since they were significant this quarter. We recorded a benefit of $1.53 billion from the TCJA. This primarily includes a provisional benefit of $1.15 billion from the remeasurement of the company's net U.S. deferred tax liability for lower tax rates, which we have excluded from adjusted earnings; a benefit of approximately $200 million from an incremental pension contribution made in February and deductible against the company's prior year taxes at 35%; and a benefit of approximately $170 million, attributable to the phase-in of the reduced tax rate applied to the company's year-to-date earnings.

The contribution to our U.S. pension plans of $1.5 billion was debt financed. Our U.S. pension plans are currently fully funded. While the funding shows up on the financial statements as a reduction in operating cash flow, they provide a tremendous immediate return in terms of tax savings, as well as lower PBGC premiums versus funding the plan at a later date.

Turning to our segments and beginning with Express. Service levels at Express were excellent during peak. However, costs were impacted by lower-than-expected volume during the first part of December and higher peak-related costs. For Express, operating income for the quarter was primarily affected by an estimated net negative impact of approximately $170 million year-over-year from the factors outlined in the release and listed on the slide.

Ground's operating income improved 23% to $634 million due to strong revenue growth and ongoing cost management, partially offset by increased purchased transportation, seasonal staffing, and network explanation costs, as well as higher variable compensation accruals. Ground's margins increased 110 basis points to 12.1%. During peak, record volume was delivered with exceptional service through Ground's highly automated and flexible network. We believe Ground results will continue to improve.

Freight's operating income increased 34% to $55 million, primarily due to higher LTL revenue per shipment, partially offset by higher variable compensation accruals. Freight's continued efforts to better balance volume, pricing and capacity are paying off. We are also benefiting from an improving U.S. industrial economy.

The adjusted earnings forecast for FedEx Corporation is now $15.00 to $15.40 per diluted share for FY18. We expect Q4 operating profits to be up year-over-year for the Corporation and in all of our transportation segments. Our forecast for Q4's adjusted operating margin is 11% to 11.8% for FedEx Corporation. As Fred mentioned, we remain committed to our target of $1.2 to $1.5 billion in additional operating profit for the FedEx Express segment in FY20 versus FY17, which includes TNT synergies, as well as base business and other operational improvements across the global FedEx Express network. This target assumes current accounting rules and tax laws.

All of our forecasts assume moderate economic growth is before year-end and mark-to-market pension accounting adjustments and exclude expenses related to the TNT integration. Our FY18 forecast also excludes the estimate of the remeasurement of the company's net U.S. deferred tax liability and certain first quarter FedEx Trade Network's legal matters.

On March 1, we realigned our specialty logistics and e-commerce solutions in a new organizational structure under FedEx Trade Networks in the Express segment. The realignment improves our ability to deliver the capabilities of our specialty companies to customers. This realignment will benefit Ground and Freight margins and will negatively impact Express margins starting in Q4.

As we announced in January following the enactment of the TCJA, we are advancing our 2018 annual pay increases for certain U.S. hourly workers by 6 months to April 1 from the normal October date, which will have an impact in our year-over-year salaries and wage expenses beginning in Q4.

Our capital spending forecast for FY18 is now $5.8 billion, down $100 million from the prior forecast due to lower projected capital spending at Ground. As we mentioned last quarter, we are optimizing CapEx to capture the benefits of 100% expensing to further grow and improve the business.

Plans are under way to modernize our Indianapolis hub for Express, which is expected to cost $1.5 billion. We are also planning to modernize our Memphis hub for Express, which is estimated to exceed $1 billion. Both of these projects will span multiple years. These hub modernizations will bring substantial improvements in operational efficiency and reliability. For example, the Memphis project includes construction of a large new sort facility with state-of-the-art sort systems, construction of a bulk truckload building, and a new area to improve handling of oversized shipments that continue to increase with the growth in the e-commerce.

During the quarter, Express entered into an agreement with Boeing to accelerate the delivery of one 777 freighter aircraft to FY19 and three to FY20. We will announce our FY19 CapEx forecast in June.

Since our tax rates are fluctuating more than usual this year, I would like to provide some guidance for our estimated effective tax rates. All this guidance assumes no material impacts from future TCJA guidance or interpretation. Our adjusted FY effective tax rate is expected to be in the range of 20 to 21%. The lower ETR range is due to the benefits from the TCJA, combined with anticipated foreign tax benefits from our international corporate structure. This range does not include any impact from the items excluded from our FY18 adjusted EPS forecast.

In FY19, the TCJA's lower corporate rate of 21% will fully phase in, along with other tax costs also enacted as part of the new law. While we are still in the very complex modeling stage estimating these tax costs as we build our business plan, we currently expect our FY19 ETR to be in the range of 25 to 26%, excluding the impact from MTM in the mark-to-market pension accounting. The effective tax rate range for FY19 is expected to be higher due to tax benefits this year that will not reoccur in FY19.

To sum it up, we are expecting a great finish for the year. We are meeting our profitability goals, our investments are paying off, and our outlook is bright. Now I will turn the call over to Raj to talk about the success we are having with our revenue quality initiatives. Raj?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Thanks, Alan. I'll open with our economic update and outlook, and discuss our revenue performance and business conditions in each segment, and provide some commentary on broader industry trends and enhancements to the FedEx portfolio.

We continue to see broad-based growth in the global economy. In the U.S., tax reform is improving investment incentives and disposable incomes, while measures of consumer and business sentiment are at the highest levels in years. As a result, our 2018 U.S. GDP forecast is a half point higher than last quarter.

Internationally, trade and production growth are supporting solid momentum in the global economy. Last year's rebound in trade drove the best air cargo growth since 2010. With freight demand growing over three times than world GDP. Demand had outpaced capacity additions for 17 straight months.

The next few slides show details of revenue, volume, and yield performance by transportation segment. It is clear our pricing strategies that allow us to grow volumes that increase yields across the portfolio show continued success.

For our U.S. domestic Express business both revenue and yield increased 5%, excluding the impact of fuel, yield-per-package increased 3% due to our continued focus on revenue quality. FedEx International export package increased double digits to 10% year-over-year in Q3, primarily due to yield increase of 9%. Including fuel and exchange-rate impact, yields increased 2%. Ground segment revenue also saw a double-digit increase at 11% in Q3, with volume and yield each up 6%, as e-commerce continues to drive growth. Excluding fuel, yield-per-package included 5%. At FedEx Freight, LTL revenue per shipment increased 8%, mainly driven by our revenue quality efforts. Excluding fuel, LTL revenue per shipment was up 6%.

Let me know discuss some exciting new enhancements that we have to the FedEx portfolio. As we announced earlier today, we are going to increase our retail network footprint through the expansion of FedEx Office locations inside Walmart stores. We anticipate adding 500 FedEx Office locations over the next two years. This strategic initiative between FedEx Office and Walmart brings our brand even closer to busy consumers who are looking for reliable options for packing, shipping, and receiving packages.

Another new offering that has launched this month is FedEx returns technology. This is a solution that provides e-tailers with increased visibility, flexibility, and efficiency around returns management. For consumers, it enables simple and early credit for the returns at FedEx Office locations as determined by their merchants.

FedEx experienced record-breaking volume through our global network during the peak season, much of it driven by growth in e-commerce shipments and FedEx Ground. This was the first peak season that we had more than 10,000 FedEx Hold locations, including FedEx Office and well-known retailers such as Walgreens. We are pleased with how the retail network performed and expect this extensive convenience network to be a key part of e-commerce deliveries in the future.

The approach we took on our peak pricing strategy of not applying a broad additional peak residential surcharge to all customers helped us gain significant business in the small and medium customer segment. We are proud of the strong service levels we provided to our customers during this record peak, and we are excited about the portfolio expansions that are rolling out. We will continue to innovate and provide our customers with great service and value.

Let me now turn the call over to Dave Bronczek for his remarks. Dave?

David J. Bronczek -- President & Chief Operating Officer

Okay. Thank you, Raj, and good afternoon to everyone. We are proud to report improved adjusted results at FedEx. We are especially pleased with the results at FedEx Ground, where we have improved our operating margin. FedEx Ground segment achieved double-digit percent growth in revenue and operating income. We are seeing benefits from ongoing cost management efforts and improved revenue quality through a balanced approach of volume and yield growth. We are also reducing our long-term CapEx plan to better match capacity expansion with pricing and volume growth.

And, as Alan has already talked about, FedEx Ground is having a great year. We expect the fourth quarter segment operating margin at Ground of 17 to 17.5%. FedEx Express segment revenue growth of 9% was driven by our international business, despite the lingering impact of the cyber attack. We continue to see a runway for opportunity in international for years to come. As Alan has said, Express had 6 factors that primarily affected profitability in the third quarter. But we expect the Express segment adjusted operating margin in the fourth quarter to be in the range of 9.9 to 10.4%. The underlying fundamentals of the business remain strong with higher base rates across the board and volume growth in both international and the United States.

As mentioned previously, we remain committed to our target of $1.2 to $1.5 billion in additional operating profit for the FedEx Express segment in FY20 versus FY17.

I also want to provide an update on our TNT integration. As you know, this was the most significant acquisition in our company's history and dramatically improves our global capabilities and competitive posture. I'm happy to say that at TNT, we are seeing strong levels and the integration is accelerating. A key element of our acceleration plan was to enable the flow of packages between the legacy TNT and FedEx systems prior to full integration. This allows us to direct volume at the highest service, but the lowest cost networks. This capability is expected to be in place by May 31 of this year.

We are accelerating the migration of the FedEx clearance operations and systems as well, retiring dozens of legacies of TNT applications. Our investment in strengthening the IT environment continues on an accelerated base. We have made significant investments to improve the TNT information security posture and will continue to do so.

The integration of our global sales force, originally expected to be complete in Fiscal 2020 is now scheduled to be complete one full year early. During the third quarter, we accelerated the launch of customer migration activities in Europe and Asia by more than one full year.

Now, FedEx Freight continues to show improvement in revenue and profitability. As our pricing strategies drive revenue growth while investments in the network improve safety, efficiency, and lower our cost. As I said just last quarter, we expect these improvements to continue. FedEx Freight is indeed having its best year in over a decade and we expect the Freight segment will finish the year with an 8 to 9% operating margin in the fourth quarter.

Across the corporation, we are making progress toward improving our margins, our cash flows, returns, and earnings-per-share. We expect every segment will have year-over-year increases and operating income in the fourth quarter.

With that, we will now turn it over for your submitted questions.

Questions and Answers:

Frederick W. Smith -- Chairman & Chief Executive Officer

Thank you, Dave. We have several questions on the marketing front, which I'll ask Raj to answer. One, how important are FedEx fulfillment, FedEx supply chain, and other logistics offerings to the long-term strategies at FedEx? How attractive are contract logistics in markets versus traditional courier business? That's from Brandon Oglenski of Barclays. Raj?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Brandon, thank you for your question. Our strategy is to really offer value-added services to customers that will result in more volume through all our core transportation networks. As Alan pointed out, we recently completed and reorganization that allows us to offer a portfolio solution in a more seamless manner to our customers. I also want to point out here that this is particularly important to our profitable small and medium-customer segment as they expand their e-commerce offerings. Thank you.

Frederick W. Smith -- Chairman & Chief Executive Officer

Our next question on marketing is from Ken Hoexter of BofA Merrill Lynch. Raj, thoughts on postal commissions, rulemaking, hearing process, and potential impact on industry rates?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Ken, FedEx is not participating in the PRC docket, but we expect a final ruling to be issued this year. However, we continue to monitor PRC regulative developments with a view to the pricing aspect of it. We totally believe that over the cost of last-mile delivery will continue to go up in the years ahead.

Frederick W. Smith -- Chairman & Chief Executive Officer

From Matthew Ruestle of Goldman Sachs. Ruestle, I hope I pronounced that right, Matthew. Can you talk about your views on the future of consumer delivery? Do you think solutions such as FedEx On-Site can represent a material percentage of the market relative to residential delivery?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Matt, we don't view On-Site in terms of percentage of the residential market. Rather, we think it is a matter of customer convenience. What we know from e-commerce demand as it continues to increase, there is increasing demand from consumers to have convenient options where they can reliably receive their packages. In this context, we are very excited about the rollout of our FedEx On-Site program. As I mentioned earlier, we have more than 10,000 On-Site locations in the U.S., including FedEx Office and we dramatically increased our presence with Walgreens, adding more than 8,000 locations in the last year alone. We are very happy with the performance of this network so far.

Let me add one other point. Technology solutions are also going to be critical in this regard. That's why we are very excited about the fact that our FedEx delivery manager user base continues to grow significantly. Ultimately, a combination of these things, including our retail network and our technology, these things will result in win-win-win solutions for a shipper, for a consumer, and for FedEx. Thank you.

Frederick W. Smith -- Chairman & Chief Executive Officer

Raj, I think I'm correct. The 2,000 Rite Aids that Walgreens acquired as soon as they are rebranded and put in the Walgreens system will be 2,000 additional on-site locations, correct?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Yes, sir. They will get added in the next few months here.

Frederick W. Smith -- Chairman & Chief Executive Officer

Let me give Raj a breather and ask Dave Bronczek to answer a follow-on question from Matthew Ruestle. Where is competition most fierce across your business segments today? Is investment the only solution to offset this competition?

David J. Bronczek -- President & Chief Operating Officer

Okay. Well, thank you for the question, Matthew. Of course, we face competition across the globe all the time throughout our whole portfolio. The pricing environment is generally rational around the world -- great news. We have made significant investments in people. Our technology, of course, facilities over many years has paid off by creating large, highly flexible, and the most automated transportation network in the industry. These long-term investments have differentiated FedEx from our competition. But we also have something else that differentiates us. It's our people and it's our culture. Thanks for the question, Matthew.

Frederick W. Smith -- Chairman & Chief Executive Officer

We have a question here on trade protectionism from Benjamin Hartford, which I'm going to ask Raj to answer more fully. But I would like to do two things before I turn it over to Raj. I'm reasonably certain everybody listening to this call has some sort of electronic device in your hand -- a phone or an iPad of one sort or another. Go to your Google button and type in "DEF" meaning definition, and then put in the word "tariff" or "tariffs." T-A-R-I-F-F. Everybody at this table do it too.

What you'll read in the Google dictionary there or wherever it is, "Tariff: A tax or duty to be paid on a particular class of imports or exports." So, make no mistake about it, the great benefits that Alan talked about due to the tax reform bill to some degree will be offset by increased taxes due to tariffs. If we have for national defense needs, in particular, aluminum or specialty steel requirements, we would suggest at FedEx that those be bought by the government the same way we buy up 35 fighters or M1A1 Abrams tanks respectfully.

On the overall trade front, I'd like to give you a couple of numbers here that probably will surprise you. Our trade deficit in total, goods, and services 10 years ago was 4.9% of GDP. It's now 2.9%. It's down by 2 percentage points of GDP for a couple of major reasons. The first of which is the fantastic technologies that are being employed in our oil-and-gas sector now, called fracking, which has reduced our dependence on imported petroleum. It's very strategic, given a lot of that petroleum comes from unstable and unfriendly parts of the world owned by national oil companies of governments that aren't necessarily friendly to the West.

The second reason that is gone down is that our trade surplus and services, of which FedEx is a major component, has gone up almost $300 billion over the 10-year period. So, as I mentioned in my opening remarks and why I brought these two facts up, the correct way to go here is to deal with China on the issues with China, but overall, it's to lower trade barriers and to lower tariffs around the world, not to engage in less trade.

In any case, Benjamin wants to talk about trade protectionism in more specific detail and to ask the strength in the global air-freight market belies the increasingly trade protectionist tone from developed markets in recent months. One, are there any immediate thoughts on the direct impact of trade from the recently announced U.S. steel aluminum tariffs? And two, have you seen shipper behavior change in relation to supply chain design given the risk of reduced trade openness globally? Raj?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Ben, we have not seen any quantifiable shipper behavior change based on the recent developments in the U.S. trade policy. As I mentioned earlier, rebound in trade in 2017 drove the bet air cargo growth since 2010. With all that being said, as the Chairman just mentioned, we do continue advocate against any move toward protectionist trade policies that could slow economic growth and undermine all the positive impacts from the tax reform legislation. Thank you.

Frederick W. Smith -- Chairman & Chief Executive Officer

Let's move on to some questions about Express. What are you doing now to prepare for peak that's different from what you've done in the past? We'll start with Dave Bronczek and then Dave Cunningham will amplify.

David J. Bronczek -- President & Chief Operating Officer

Thanks, Fred. And thanks, David, for the question. Obviously, we're very proud of our peak this year and we have been for many, many years. I'm going to make some general statements here but I'm going to have David Cunningham at Express, Henry Maier at Ground, and Mike Ducker at Freight give a little bit more color to the answer. But generally speaking, we conduct our formal reviews of our peak performance really immediately after peak, which informs our actions for our coming years with our customers and with our employees going forward.

We are fully leveraging our big data. We have a lot of data, of course, in the artificial intelligence we have. We ensure we develop plans that optimize our customers' volumes, our capacities, and our service. In this regard, a big part of our success is the strong alignment of Don Colleran, who leads our great sales and solutions team, with our customers. Overall, we're very pleased with our peak performance. We've said it before and I'll say it again, it's what we pride ourselves on is our relationship with our customers and our service.

With that, I'm going to turn it over to David Cunningham to talk about Express.

David J. Cunningham, Jr. -- FedEx Express -- President & Chief Executive Officer

Thanks, Dave. I want to congratulate the Express team on the best peak service ever. In this age of e-commerce, our peak continues to evolve as the customers use both Express and our great ground company to meet shipping needs. As Dave said, we saw customers stay in the Ground system longer this year. This resulted in lower peak volume at Express and a more concentrated surge in the few days just before Christmas. Our peak planning is already under way and we'll take the key learnings and dial that into next year's plans to ensure great service, but improved efficiency and productivity.

Henry J. Maier -- FedEx Ground -- President & Chief Executive Officer

David, this is Henry Maier. I could not be prouder of FedEx Ground team's performance this peak. Flawless execution in every aspect of the operation drove record holiday service performance, which I might add was greatly appreciated by shippers and holiday shoppers everywhere. In spite of record-breaking volumes, more than 54 million packages were delivered at least one day early. This stellar service performance was due to a number of factors.

(1) Planning that started in January and included close coordination with customers every step of the way; (2) the network investments we've made over the last few years resulting in the most highly automated ground network in North America, if not the world; (3) excellent recruiting, staffing, and employee training leading up to the holidays; and (4) the entrepreneurial, real-time local decision making of contracted service providers which resulted in millions of outstanding customer experiences.

Michael L. Ducker -- FedEx Freight -- President & Chief Executive Officer

David, this is Mike Ducker. Let me just add a couple of brief comments. First of all, congratulations to the FedEx Freight team who had a tremendous peak season as well. As you know, it occurs a little earlier than does Ground or Express, and as a result of that, we were able to provide some support for our other operating companies during that critical time of the year, adding to the overall performance of peak system. So, very pleased and again, congrats to our team for a job well done.

Frederick W. Smith -- Chairman & Chief Executive Officer

The next question is, how is the recently opened Shanghai hub been performing? By the way, if I didn't give credit to asked the question about peak, it was David Ross of Stifel. I may have said it. This to David Cunningham, how has the recently opened Shanghai hub been performing? You called out the hub as a coaching center. What trends are you seeing in the healthcare industry in the region? Does this limit the amount of e-commerce demand the hub can handle? This is from Helane Becker of Cowen. Dave?

David J. Cunningham, Jr. -- FedEx Express -- President & Chief Executive Officer

Thank you, Fred. Thank you, Helane. The Shanghai hub is a fantastic, modern, automated facility with all of our latest technology. The hub is 130,000 square meter facility handling 66 flights and can process 36,000 packages and documents per hour. Healthcare is an important value-added sector for FedEx and the cold chain capability of temperature-controlled storage ranging from -22 to 25-degrees Celsius is a key part of all of our new facilities. Thank you.

Frederick W. Smith -- Chairman & Chief Executive Officer

Also to you Dave, what cost of network efficiencies do you anticipate gaining through the completion of the modernization and expansion project at your Memphis and Indianapolis Express hubs? That's from Jack Atkins of Stephens. And a related question from Jairam Nathan of Daiwa -- where are some of the opportunities you're seeing the automated increased capability utilization at your Express facility?

David J. Cunningham, Jr. -- FedEx Express -- President & Chief Executive Officer

Thank you for those questions. The investments in our Memphis and Indy hubs will modernize and automate these key facilities. Big data and our real-time ability to mine and improve efficiency and productivity of these facilities by directing packages most efficiently through the hubs. As Alan mentioned, at Memphis we will have a new bulk-truck-load facility, an oversize shipment handling capability, plus automated sorting and secondary sorting capabilities.

At Indy, we're increasing the box sort capacity from 111,000 packages to 147,000 packages per hour. We're putting in a small package sort system of 150,000 packages per hour, and we will have increased international sort capacity as well. These facilities will improve the reliability of our networks, lower cost, improve safety, for a better place to work for the thousands of team members who work in these operations.

Frederick W. Smith -- Chairman & Chief Executive Officer

Dave, the last pre-submitted Express question in light of the strong demand environment in international export, could you please update us on your progress managing capacity? Scott Schneeberger of Oppenheimer.

David J. Cunningham, Jr. -- FedEx Express -- President & Chief Executive Officer

Thanks, Scott. Commercial line haul continues to plan an important role as we develop solutions to facilitate international growth, ensuring we move the right traffic in the right network, which enables the growth of our priority products on the Purple Pail network. By partnering with commercial carriers across various international gateways, we're able to avoid flying empty space where we experience imbalanced trade flow, such as the Transpacific eastbound lane. Though we are experiencing constraints on some lanes, we are constantly working to balance and right-size the network with compensatory revenue.

Frederick W. Smith -- Chairman & Chief Executive Officer

Let's turn to Ground now. The one from Benjamin Hartford of Baird. Henry, do you still view mid-teens as an appropriate segment EBIT margin target? If so, what is a reasonable timeline for achieving such a level? Northeasters notwithstanding and we're in the midst of the fourth one, I guess. I mean, I'd say about too much would be about the target here, as we announce this. But at any rate, with that little funny aside, how much in incremental improvements from current levels is predicated on internal opportunities versus external help either through pure pricing growth or the macro? Henry?

Henry J. Maier -- FedEx Ground -- President & Chief Executive Officer

Well, let me say I agree with Fred. Mother Nature is not being too helpful for us in this business right now. Listen, I mean I think most of this is coming from the macro. Our business continues to be driven by strong volume and revenue growth, largely driven due to e-commerce. As I said before, we believe our investments in what is today one of the most highly automated networks in North America, if not the world. We'll continue to drive margin improvement, as well as industry-leading service. Our focus at this point in time is on maximizing utilization of those assets we've invested in and managing our existing capacity driving reduced CapEx.

Frederick W. Smith -- Chairman & Chief Executive Officer

We move now to Freight. Kevin Sterling of Seaport Global. Are you seeing any spillover of TL Freight into LTL given the tightness we're seeing in the truckload market? Mike Ducker?

Michael L. Ducker -- FedEx Freight -- President & Chief Executive Officer

Kevin, thank you. First of all, the LTL volumes have been very strong, including good contractual renewals. Our team is handled it quite well. Truckload shipments, 10,000 pounds or over typically account for less than 2% of our total shipments. While there's been some tonnage growth, it still remains a small share of our total tonnage. We also have an excellent transportation management team assembled to monitor and take steps to manage truckload volume if that becomes necessary.

Frederick W. Smith -- Chairman & Chief Executive Officer

So, Mike, our rail service issues impacting your economy LTL offering and that's also from Kevin Sterling?

Michael L. Ducker -- FedEx Freight -- President & Chief Executive Officer

Kevin, as you well know, we have a very service-sensitive product; therefore, we think it's really important to negotiate contracts with good service clauses in them and we've done that with all of our key rail providers. Those providers are doing a great job for us, as our rail, on-time service levels have actually improved overall during the third quarter. I think my partner Henry at Ground has experienced similar strong service levels from our rail providers.

Henry J. Maier -- FedEx Ground -- President & Chief Executive Officer

Yeah, we've had great service. I'm not seeing anything.

Frederick W. Smith -- Chairman & Chief Executive Officer

So this next question for Freight also, this question comes from David Greene of Bernstein. In the past, FedEx has discussed Deming LTL Freight shipments. What is the status of those efforts and what upside potential does the company see on that front? Mike?

Michael L. Ducker -- FedEx Freight -- President & Chief Executive Officer

Thanks, David. We currently have about 90 dimensional scanners and we'll soon be adding additional devices in many of our service centers across the network. Those devices serve a dual purpose. First of all, they allow us to capture incremental revenue on shipments that are density based commodities. Secondarily, we capture information for our costing system so that we can more accurately develop pricing for our customers.

Frederick W. Smith -- Chairman & Chief Executive Officer

Finally for Freight, how much volume can the FedEx Freight network handle without significant real estate growth? That's from David Ross of Stifel.

Michael L. Ducker -- FedEx Freight -- President & Chief Executive Officer

David, thanks. First of all, let me give a shout-out to our planning teams who have really done an excellent job in planning capacity in our network. We continue to make investments in the facility network and plan for the future. We add capacity strategically by market. For example, we just opened two new facilities in the Chicagoland market this January that added over 400 additional doors in the market, bringing total doors in the area to 1,500. So, we're also investing in technology to improve the throughput in all the facilities. That will provide additional capacity as well.

Frederick W. Smith -- Chairman & Chief Executive Officer

Now, we had a number of pre-submitted questions which we did not answer because they were covered in the press release itself or in the comments that were made by Alan, Raj, and Dave. But we do have one technology question which I'll ask Rob Carter to answer before we turn to some of the questions that have come in since the call began. That is, how will blockchain and use of cloud IT impact FedEx revenues and expenses? When will FedEx see this effect? This is from David Campbell of Thompson Davis. Rob?

Robert Carter -- Executive Vice President, FedEx Information Services & CIO

Well, thanks for the question, David. First, as a reminder, I want to point you back to last quarter's call, where we discussed points around blockchain and our charter involvement with the Blockchain and Transportation Alliance, own known as BTA, as well as the Blockchain Research Institute. You can find those discussions in a little bit more detail on fedex.com from last quarter. Of note though, Fred and I will be joining Don Tapscott at Consensus, which is the blockchain preeminent conference in New York City in May. In a much more detailed fashion, we'll discuss blockchain initiatives and how blockchain can impact so much about our business going forward. You may want to look at that.

With regard to cloud, our IT modernization initiatives are relentlessly focused on cloud technology. Cloud technology offers significant advantages for business, agility, and costs. Things like the ability to tap into elastic capacity, which allows us to provide compute capacity that grows with our peak seasons and our peak times in cloud environments, improve security, improve performance and scalability due to the modernization of these applications. Really terrific capabilities. And equally as important, the proximity that cloud computing environments provide to our customers in our operations around the world. So the answer is yes, we're leaning heavily into cloud technology with all of our IT modernization initiatives.

Frederick W. Smith -- Chairman & Chief Executive Officer

Thank you, Rob. From Tom Wadewitz of UBS, capital experiences in FY2019 and 2020, are there offsets to the additional aircraft deliveries in FY19 and 20 in terms of the total CapEx budget or should we add these to the $5.8 billion spend in FY2018 in order to estimate the ballpark CapEx spend in FY19 and 20? CapEx spend in Ground likely to be higher or lower in FY19 and 20 compared to FY18? Alan?

Alan B. Graf, Jr. -- Executive Vice President & CFO

Thanks for the question. We have a varied assortment of CapEx, pension, tax rate and cash flow questions and I'm going to try to answer in two minutes. First of all, remember that going forward, we just made this huge pension contribution. As I said, we're fully funded. I don't believe at this point with the facts that I have today that we're going to need to make big pension contributions going forward. Not that we might elect to, depending on circumstances, but we don't believe that's going to be an issue.

Obviously, with 100% expense and continuing, and with the lower rate and improved offshore earnings, our cash tax rate is going to continue to remain low for the foreseeable future, and we're going to have stronger earnings. So all those support higher cash flows. As for CapEx, it's really too early to talk about FY20; although, I will say we do have a few increased aircraft deliveries scheduled at Express for '20, which might have Express's bumped up. But we have projects are every single Upco right now with great engineering and finance teams working together with the operations teams to make our assets sweat more.

In the consistent of Express, for example, we can use passenger bellies to augment our international capabilities. At Ground, we are going to see, I think, going forward, reduced CapEx at Ground, as we look at better ways to build out the network and still support the growth that we are anticipating at actually even lower cost. Same at freight. Going forward, I don't think we're going to be needing to add as many doors per shipment as we had done in the past because of the great engineering work that's going on there. A lot of these we'll talk about later on, in the next several months, as we go forward. But I said I would talk about FY19 in June. I will just say this, I don't think it's going to be much different at all than what '18 is going to be. As I said, '20 might have an up-tick because of aircraft deliveries. So, from a cash flow standpoint, I think we're in fantastic condition.

Frederick W. Smith -- Chairman & Chief Executive Officer

Tom had another question here, which I think we need to answer. Is incentive compensation likely to be a significant year-over-year headwind to EPS in fourth quarter FY18 summer magnitude to the headwind and in the third quarter? Tom, I think the nature of the question indicates a bit of a misunderstanding about this. AIC's not going to be a headwind in the fourth quarter because, again, the weather will just stop. The fourth quarter is going to be gangbusters and because of all the noise, that's why we gave you this one-time special deal of showing you what the anticipated segment margins were going to be in the fourth quarter.

So what happened here is when tax reform took place and we felt it was appropriate to do all of the things that we described to you. What that required us to do is to pick up AIC, which had been reduced because of not [inaudible] and then it was put back in in the third quarter for the company as a whole, and of course, it especially affected the FedEx Express rate. So on a go-forward basis, it's baked in and the fourth quarter you can do the math with the range for the year that Alan gave you. It's going to be in the numbers and the quarter should be quite good year-over-year for all of the segments.

Again, I'll give the caveat because, you know, if we're in the midst of some sort of weather system where the Northeasters keep going to July, that's a different matter. But they're fairly confident that we're at the end of that.

Now, there's a question from Jeff Kaughman of Tahoe Ventures about electric vehicles for commercial trucks. Many OEMs following suit. What's FedEx's view on emerging and green technologies and where is the company in terms of adoption and commitment to green technologies? Does FedEx believe these technologies are ready to meet the company's needs?

Frederick W. Smith -- Chairman & Chief Executive Officer

First of all, I would recommend to you, Jeff, that you go on our website and read FedEx's social responsibility report, which shows our enormous efforts in terms of environmental efficiency in many, many different areas. And, specifically, to the issue of the commercial trucks, I'm going to ask Mike Ducker if he'd just comment on that for a second.

Michael L. Ducker -- FedEx Freight -- President & Chief Executive Officer

Yes, as a matter of fact, this company has long been known for its innovation. So, we're on the leading edge of many of these technologies. We believe that the faster adoption of those will greatly improve efficiency and customer experience in the trucking industry. So, we're heavily invested in our safety systems and artificial intelligence, with many companies, and are using advanced drive-assist systems. That includes platooning, telematics, and many other features. So, we're working hard on the new technologies that are coming out to adopt and use the advantages that they provide for our system.

As a matter of fact, soon to be announced, that we will be purchasing some Tesla electric vehicles in the near future. Small order, but we think they will have great benefit in our system. We're testing them in the near future. As soon as we can get them off the line.

Frederick W. Smith -- Chairman & Chief Executive Officer

So, here's a couple of related questions I'm willing to pass on to Dave Bronczek and Dave Cunningham, but I'll give you an overarching comment first. From Todd Fowler of KeyBanc. Please discuss what drove the decline in international U.S. domestic volumes when in the express segment in the quarter? How important is volume growth and achieving FY2020 profit improvement plan?

The second is from Jack Atkins of Stephens. To what degree did the June cyber attack at TNT negatively impact 3Q results? I guess it is, did negatively impact 3Q results at Express and would you expect any lingering in the fourth quarter. Now, I think these questions from Todd and Jack, and I'm going to ask again, Dave and David Cunningham, to amplify this, reflects a bit of a misunderstanding here, in that please recall that when we started this fiscal year, we told you that we were no longer going to be talking about Express and TNT.

The numbers that are in the Express segment now are the combination of the two. So the reality is, the FedEx Express volumes are growing but the TNT volumes were adversely affected by not touch you, and we are now growing back up to where we would have been had this attack not happen. Let me, again, give enormous thanks to our sales, our customer service, and particularly our IT professionals that did the most unbelievable job of recording from this attack, which the U.S. government now says was a government or government-sanctioned attack on the Ukraine and TNT was just a side victim of it.

So, the fourth quarter will, I think, begin to show these in a more granular fashion, but we're not seeing a decline in the Express traffic. The fourth quarter, we will have recovered most of the [inaudible] volume from TNT. Now, put some meat on that [inaudible].

David J. Bronczek -- President & Chief Operating Officer

Yeah, this is Dave. Thanks for the question. Fred is 100% right. The reason that actually we went through all the detail we did in the fourth quarter, along with all the reasons that Alan talks about on the tax reform bill, is to give you an idea of where the fourth quarter is forecasted to be, which is significantly different and better than the Q4 numbers. In my comments, I said that they could run up to potentially 10-point, 4% operating profit margin at Express. That's actually very strong revenue across all of expense, so the reason we put in Q3 and put in the six items that affected A3 by far and away was the variable comp and so on. It was because of the reason that you just suggested, that we talk about Q4 and it's very strong in Q4. David?

David J. Cunningham, Jr. -- FedEx Express -- President & Chief Executive Officer

Yeah, I'd just add a couple comments to what Fred and Dave just said. I think the first thing you've got to remember is the effects in Q3 were mostly one-off type of effects. Q4 end start-up being a seasonally strong quarter and we've already told you what that's going to be. Our TNT network was fully restored and back to business as usual as of the endo f 2017.

The recovery of the business over the last five months has been remarkable. And given the value population of the TNT road networks, our freight volumes have been strong and we are experiencing solid growth in these products. The cyberattack continues to have a lingering effect in the third quarter. Our existing customer base has not fully restored all volume, as they continue to gain confidence in our ability to provide service and recovery of our business. Our outstanding performance during peak is evidence of the strength of our network and our recovery and our sales teams who are leveraging this in the fourth quarter and growing and winning business.

Frederick W. Smith -- Chairman & Chief Executive Officer

Okay. Question from Ken Hoexter, B of A, Merrill Lynch. In this robust growth, e-commerce market, why were the third volumes up only a tenth of a percentage on 1% growth, comp, and yields negative? Raj?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Thank you, Ken. I believe you're talking about the deferred and Express. Really, our volumes are impacted by the way we managed one large customer whose volume was at forecasted levels. If you look at the base volume growth, the underlying base, especially in the small and medium customer segment, we saw very robust growth. And oh, by the way, don't forget the strong growth we saw in the Ground segment, which also carries e-commerce traffic.

Frederick W. Smith -- Chairman & Chief Executive Officer

Here's one from Scott Group, Wolfe Research. Now that Express includes GENCO and Custom Critical, do you plan to update your Express long-term guidance? Scott, we did. We told you that we intend to increase our Express earnings from FY17 to FY20 by $1.2 to $1.5 billion. So, I hope that clarifies it.

Question from Christian Weatherbee of Citi. How much of the year-over-year gross margin expansion expected in 4Q is driven by the reclassification? How much of it is from core improvements? Henry?

Henry J. Maier -- FedEx Ground -- President & Chief Executive Officer

Core improvements represent about 100 basis points of margin.

Frederick W. Smith -- Chairman & Chief Executive Officer

Here's one again about Express 3Q and 4Q. I hope I explained that. It's 6 items, but a big part of it was the variable compensation when we decided to, because of the Tax Act, as Alan described to you, increased wages for our hourly teammates and we had the benefit of the tax bill. So, obviously, we weren't going to penalize our participants in our AIC program, which are thousands of our frontline managers that required a refunding, if you will, of the AIC in the third quarter. So the fourth quarter is essentially normalized.

Bobby Shanker -- what was the strategic rationale for putting FedEx Office locations at FedEx Walmart locations? Well, the strategic rationale, Robby, is because they will make us more money. But the broader points you made, where they just serve for customer pickup and drop off, or also serve as omnichannel service points? Raj?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Well, Bobby, I think the strategic initiative that we have with Walmart is based on a shared goal of providing customers convenience and value. That really makes, both of us can save time and money, as the Chairman talked about. As I mentioned earlier, this is an opportunity to serve customers who are seeking secure, reliable options, for shipping, packing, and receiving packages.

Frederick W. Smith -- Chairman & Chief Executive Officer

So, Scott Schneeberger asked a similar issue about the financial impact of adding FedEx Office to 500 Walmart stores. Obviously, there's a bow wave of small proportions when you open these things up, but remember we said in our press release if you read it, we tested these at 47 locations. We had a rapid payback so this is going to be inconsequential on the expense side in the near term and I think quite an important channel for us in our retail and customer convenience channel in the next several years after the opening expenses are, in essence, covered. But they're not significant in the scheme of a company this size.

We've got three questions from Brian Ossenbeck, Matthew Troy, and Alison Landry about DHL's launch of their new service. So I'll ask Raj and Dave if they want to comment on that, and then I'll turn the call back over to Mickey and we've exhausted all of your questions. Raj?

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

Brian, Matt, and Alison, thank you for your question. We don't comment on specific competitor's strategies, but there are multiple new tests and pilots where companies are considering variations of crowdsourcing or other options for last-mile delivery. As you know, e-commerce is increasing demand for last-mile delivery, but there are operational costs, safety, and brand considerations for final-mile delivery that need to be factored into the ultimate potential new offering.

FedEx has unique capabilities in this regard and we'll continue to work with retailers to provide a differentiated value proposition and ultimately a superior service to the end consumer.

Frederick W. Smith -- Chairman & Chief Executive Officer

Dave?

David J. Bronczek -- President & Chief Operating Officer

The only thing I'd add because Raj is, of course, right. We focus here at FedEx on our customers and our strategic value proposition and I would direct you to our dream video that's out there. We have it out there so you should take a look at that. I think it's very self-explanatory. It's how we feel about our business and everybody else's that we compete with.

Frederick W. Smith -- Chairman & Chief Executive Officer

I think that's a wonderful way to end up before I turn it back to Mickey. I'd urge all of you who've not done it, the FedEx e-commerce video. It's fedex.com/green. It's 2 minutes and 37 seconds long and it can tell you in that 2 minutes and 37 seconds what it would take us an hour to tell you. Thank you for your participation. Mickey, close it out.

Mickey Foster -- Vice President, Investor Relations

Thank you for your participation in the FedEx Corporation's third quarter earnings conference call. Feel free to call anyone on the investor relations team if you have additional questions about FedEx. Thank you.

Operator

That does our conference for today. Thank you for your participation.

Duration: 67 minutes

Call participants:

Mickey Foster -- Vice President, Investor Relations

Frederick W. Smith -- Chairman & Chief Executive Officer

David J. Bronczek -- President & Chief Operating Officer

Alan B. Graf, Jr. -- Executive Vice President & CFO

Mark R. Allen -- Executive Vice President, General Counsel & Secretary

Robert Carter -- Executive Vice President, FedEx Information Services & CIO

Donald Colleran -- Executive Vice President & Chief Sales Officer

Rajesh Subramaniam -- Executive Vice President, Chief Marketing & Communications Officer

David J. Cunningham, Jr. -- FedEx Express -- President & Chief Executive Officer

Henry J. Maier -- FedEx Ground -- President & Chief Executive Officer

Michael L. Ducker -- FedEx Freight -- President & Chief Executive Officer

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