1. Targeting Cost Cuts, FedEx Merges Express and Ground
Seeking $4 Billion in cost reductions as part of their Network 2.0 plan, FedEx announced last week they will merge FedEx Ground and FedEx Express into one operating company. FedEx had operated the Express unit for decades prior to acquiring their Ground unit in 1998. FedEx Ground is largely dependent on 3rd party contractors for last-mile delivery.
According to FedEx, they will be a “single company operating a unified, fully integrated air-ground network” by June 2024.
The move will make FedEx’s operations more closely resemble UPS’ single delivery network, which many attribute to UPS’ recent advantages over FedEx in profit margins.
2. FedEx Consolidation Could Be a Positive for Shippers
As one of the largest operational changes in company history, FedEx’s Express/Ground merger is raising some questions. Major factors shippers should keep an eye on include:
- Will reducing Express air cargo capacity run the risk of losing landing rights, which would disrupt volume flows?
- Will streamlining operations limit the capacity they could ingest in the event of a UPS strike?
- How will labor classification and laws come into play? Currently, FedEx Express employees are covered under the Railway Labor Act, and Ground contractors fall under the National Labor Relations Act.
- How will Ground contractors adjust daily operations to begin accommodating timely Express deliveries?
Still, the merger could benefit shippers. With one operating company, shippers using both Express and Ground won’t have to maneuver separate pickup and contract terms anymore. The simpler model is one UPS has touted as an advantage over FedEx. With that advantage gone, shippers could benefit from an increasingly competitive parcel market.
3. Experts Split on Optimism Regarding FedEx News
Ravi Shanker of Morgan Stanley is critical of FedEx’s plan to consolidate Ground and Express, particularly, how it fits into their greater DRIVE plan. Shanker noted that DRIVE largely consists of downgrading of service modes, which “should deliver cost savings on paper” but could also “end up slowing the entire parcel move and reduce service.” Another key element of DRIVE is outsourcing non-high-value parcels (through their contractor Ground network), but keeping higher-margin shipments on company equipment could raise questions about service quality control.
Shanker’s concern largely lies in the time it will take for FedEx to see the cost-cutting benefits of the consolidation. He said that they could be on track for the “holy grail” of integrations, but it will take time for the savings impact to be realized, as the company didn’t announce other major actions, such as exiting or amending its troubled European operations.
Still, others are optimistic that FedEx will see dividends from the move. Tom Wadewitz of UBS Securities noted that the move provides a significant opportunity for cost reduction through eliminating operational redundancies.