FedEx will consolidate all but LTL into one organization

Editor’s note: This story was updated at 5:45 p.m. on April 5 with new information.

In one of the most significant moves in its history, FedEx Corp. said Wednesday that it will combine three operating units into a single company to be known as Federal Express Corp.

move will fetch (New York Stock Exchange: FDX) air, ground parcel and FedEx Services businesses under one umbrella, effective June 1, 2024. FedEx Freight, the company’s LTL operation, will continue to operate as an independent entity within the new company.

FedEx Corp. CEO Raj Subramaniam will manage the new venture as president and CEO, the company said.

Effective April 16, John Smith, current CEO of FedEx Ground, will become President and Chief Executive Officer of all FedEx Express and FedEx Ground operations in the United States and Canada. Smith will also manage surface operations across FedEx Express, FedEx Freight and FedEx Ground units.

Richard Smith, president of FedEx Express and son of its founder Frederick W. Smith, will be president and CEO, aviation and international, of the Express unit.

Since its founding in the early 1970s, FedEx has operated in a silo fashion with each business unit operating on its own. That model, which had worked well for decades, faded in relevance as a new system led by Subramaniam took over and the elder Smith stepped down as CEO in 2022 to become CEO.

“This is a huge milestone for us,” Subramaniam said during a presentation in New York, where the company gave more details about Drive, a multi-tiered cost initiative that aims to save $4 billion by the end of fiscal 2025. 2023 on May 31.

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The new organizational structure, called One FedEx, is designed to support the company’s Drive-In transformation.

Part of the program is Network 2.0, a multiyear effort to improve the efficiency with which FedEx picks up, moves, and delivers packages in the United States and Canada. This program aims to cut $2 billion in additional costs by fiscal year 2027.

Subramaniam said the company will come to market with a more streamlined operating structure that will put it in a better position for its clients to compete.

The company has been moving, albeit sporadically, towards a unified corporate and operational vision for several years. FedEx Express and FedEx Ground are testing combined deliveries in Alaska and Hawaii.

There will be more mixing and matching at FedEx than she has ever seen before, and there will be little left on the table. For example, FedEx Ground, which hopes to save $1.2 billion in fiscal 2025, expects to double the portion of its rail miles to 15%, John Smith said. Almost all volumes will move in company-owned double bins, Smith said.

Another major goal is to achieve the so-called “one truck, one neighborhood” proposition. Today, it is common for FedEx Express and Ground trucks to circle around a neighborhood several times a day, sometimes within hours of each other. “If you’ve ever seen a Ground and Express truck in your area on the same day, or watched them pass each other on the street, you know what we’re trying to achieve,” Smith said.

Richard Smith said Air Express and the international business, which aims to save $1.3 billion in driving-related costs by fiscal 2025, will focus on flying more balanced corridors and leveraging third-party partners for non-urgent flights. He said the company is grounding planes, cutting planes and flying hours, and is looking at ways it can replace truck service for a second air leg on lower-priority international flights.

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The company said savings in procurement, an increased focus on functional excellence, and effective investments in information technology are expected to save $1.5 billion out of $4 billion.

Although LTL was not part of the merger, company executives remained adamant about its role in the company. It was a vital part of the business, said Subramaniam. FedEx is the only major carrier offering an LTL parcel package, said Brie Carere, who oversees all customer-related functions, which makes it very sticky for many shippers.

The company said the overall economy remains uncertain and lackluster. Inflation remains an issue although executives expect it to return to normal over time. The company’s volumes remain under pressure, which has led to the urgency of the moves highlighted today. But given the mindset of Subramaniam and Richard Smith that the company had outgrown its reclusive ways, change was inevitable.

Carrere said e-commerce will account for 90% of all new business through 2026. Through 2026, the company expects e-commerce to grow at a rate of 4% to 5% dating back to 2022. The business-to-business segment, which has struggled, “will do better in The next two years than it was she said “in the past three years.”

Carrere said prices remain strong despite the slowing economy. FedEx implemented a record 6.9% increase in the general rate for 2023, and said the company is very pleased with the extent of that increase that it was able to get.

Separately, the Board of Directors approved a 10% dividend increase due July 3 to shareholders of record June 12.

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FedEx, which has been criticized in past years for seeing operating margins drop to single-digit levels from its historic double-digit margin perch, is seen consistently achieving adjusted operating margins of 10% year-over-year, said Michael Lenz, president of FedEx. company. CEO.

Nate Skiver, who runs consulting firm LPF Spend Management, called the project “huge” and questioned how they could remain service-oriented and profitable while bringing their two largest networks together and completing a corporate restructuring.

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