FedEx to Merge Ground, Express Units
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FedEx Corp. will combine nearly all of its ground, air and other operations by June 2024 as part of a $4 billion cost-cutting initiative, the company announced April 5.
The planned 14-month, phased-in transition ultimately will consolidate FedEx Express, FedEx Ground, FedEx Services and other FedEx operating companies into Federal Express Corp., which will become a single company that the company said will operate as a unified, fully integrated, air-to-ground network under the FedEx brand.
The effort, which the company has labeled the DRIVE transformation, spans 14 domains across four major areas: Customer, Surface Network, Air Network & International, and General and Administrative (G&A).
“Over the last 50 years, we built networks that have created a differentiated and unmatched portfolio of services,” FedEx President and CEO Raj Subramaniam said in a statement. “This organizational evolution reflects how we represent ourselves in the marketplace — focused on flexibility, efficiency and intelligence. As one FedEx team, we are well positioned to execute on our mission to help customers compete and win with the world’s smartest logistics network.”
Subramaniam
Subramaniam, who took the reins at FedEx in March 2020, will retain his current titles with the combined organization. Since taking over, he has battled economic headwinds amid declining package volume in the post-pandemic economy.
Subramaniam said the highly anticipated change would push FedEx’s multiyear effort to improve the company’s efficiency in how it picks up, transports and delivers packages in the U.S. and Canada.
“We are building a simplified experience for our customers, who are at the center of everything we do, so they can adapt to the market,” Subramaniam said. “This combination will allow us to provide customers with even greater value, offering the most advanced data-driven insights to help them make smarter decisions for their business.”
Subramaniam added that the unified organization would bring distinct focus on the air network and international volume, and a more holistic approach to operations on the ground utilizing both FedEx employees and contracted service providers.
Other leadership moves were announced with the consolidation. Beginning April 16, longtime FedEx executive John A. Smith will become president and CEO of U.S. and Canada Ground Operations at FedEx Express, and assume leadership of surface operations across the FedEx Express, FedEx Ground and FedEx Freight businesses.
Richard Smith will serve as president and CEO of Airline and International at FedEx Express, overseeing all other regions and FedEx Logistics. Richard is the son of FedEx founder and Executive Chairman Fred Smith. John A. Smith is not a family member.
FedEx outlined the savings it expects to realize from the combination by fiscal year 2025:
- $1.2 billion in Surface Network
- $1.3 billion in Air Network & International
- $1.5 billion in General & Administrative
Last month, FedEx said it was on track to hit $1 billion in permanent cost cuts this fiscal year ending May 31, putting the company well on its way toward the 2025 goal.
The new corporate structure is expected to facilitate the company’s DRIVE transformation program, including Network 2.0, a multiyear effort to improve the efficiency with which FedEx picks up, transports and delivers packages in the U.S. and Canada. Network 2.0 is expected to generate an incremental $2 billion of savings for FedEx in fiscal 2027. With the reorganization, the company is targeting $6 billion in savings for FedEx over the next four years.
We are excited to announce that we are moving forward as one FedEx team. Our new operating structure will provide greater flexibility, efficiency, and intelligence. Learn more: https://t.co/uM6Qk9cnKV pic.twitter.com/AELspSfYEF
— FedEx (@FedEx) April 5, 2023
“FedEx is at a pivotal moment in history,” Subramaniam said. “There is significant value in FedEx that’s being unlocked for shareholders. We’re transforming our operating model to be a more flexible, efficient and intelligent global network. We’re moving with urgency and implementing DRIVE with rigor to deliver $4 billion of savings over the next two years and these savings are starting to materially impact our financial outcomes today.”
The company also previously announced plans to adjust and reduce its flight network to combat failing volumes.
FedEx has trailed UPS Inc. in profit margins even though its larger rival has a unionized workforce and pays its drivers more than twice what drivers at FedEx’s ground network make, Bloomberg News noted. Many analysts point to the efficiencies of UPS’ single delivery network as the reason. In the latest quarter, UPS reported adjusted operating margins of 13% compared with just 5.2% for FedEx.
FedEx made no specific comment on possible job cuts as part of the plan.
“We will continue to focus on responsible head count management in our operations as well as corporate functions,” spokesperson Rachael Simmons told Bloomberg.
FedEx ranks No. 2 on the Transport Topics Top 100 list of the largest for-hire carriers in North America.
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