LOS ANGELES, April 5 (Portal) – FedEx Corp (FDX.N) announced Wednesday that it will consolidate its separate delivery businesses into a single entity to reduce costs and better align with United Parcel Service (UPS.N) and United Parcel Service (UPS.N) to be able to compete with Amazon (AMZN.O).
The decision to integrate FedEx Ground, its outsourced parcel delivery arm, into FedEx Express’ overnight air delivery business was announced nearly a year after activist investor DE Shaw pushed for change and gained two additional board seats.
The dwindling e-commerce delivery bubble and the specter of a possible recession over the past year have increased pressure on Chief Executive Officer Raj Subramaniam to streamline operations.
“We believe now is the right time to reorganize our collaboration,” Subramaniam said at a company meeting in New York City.
“We will be leaner, more agile and better positioned to execute on our mission to help customers compete and win with the world’s smartest logistics network.”
The combined company is expected to complete all shipments beginning in June 2024 as part of the Memphis-based group’s broader plan to reduce ongoing costs by $4 billion by the end of fiscal 2025.
John Smith will become President and CEO of US and Canada ground operations at FedEx Express, taking over as President on April 16.
FedEx Freight will continue to provide freight transportation services as an independent company under the Federal Express Corp banner, the company added.
Shares of FedEx, which also announced a 10% dividend increase on Wednesday, were down about 1% at $228.69.
[1/2] A Federal Express truck is shown on October 16, 2019 in Los Angeles, California, United States. Portal/Mike Blake/File Photo
“HYBRID” MODEL
The new structure would end about two decades of separate delivery operations and create an entity similar to cost-conscious rival UPS, which has outperformed FedEx despite having a more expensive unionized workforce.
The company is testing the new combined service in Minneapolis, executives said. FedEx Express already handles FedEx Ground pickups and deliveries in Alaska and Hawaii, where air travel dominates.
Recent changes at the company have raised concerns among soil contractors who are worried about their continued role in the company. Subramaniam said FedEx will use a “hybrid” employee and contractor model for deliveries. The CEO added that the company will remain non-union.
Executives said FedEx had been “looking at” this project for the past few years, but analysts noted the company’s “standstill” agreement with activist DE Shaw would expire at the end of May. This agreement put an end to activities aimed at influencing the company’s control or management.
Regardless of the reason for the timing, the company now has about a year to make massive changes.
Satish Jindel, who helped found the company that eventually became FedEx Ground, attended Wednesday’s meeting and now runs consultancy ShipMatrix. He told Portal it’s an achievable target that should boost earnings and shares.
Critics noted that FedEx executives had struggled for years with TNT integration in Europe, eroding the labor advantage over UPS through overheads.
“It’s by no means risk-free,” said Dean Maciuba, managing partner at Crossroads Parcel Consulting and former FedEx sales manager. But, he said, “if they get it right, they can evolve into a more cost-effective service provider than UPS.”
Reporting by Lisa Baertlein in Los Angeles and Abhijith Ganapavaram and Kannaki Deka in Bengaluru; Editing by Krishna Chandra Eluri, David Goodman, Paul Simao and Bill Berkrot
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