In an effort to reduce costs and better compete with United Parcel Service and Amazon, FedEx Corp. announced on Wednesday that it will combine its several delivery companies into a single organization.
Almost a year after activist investor D.E. Shaw campaigned for reform and secured two additional board seats, FedEx revealed its decision to combine FedEx Ground, its outsourced package delivery division, with the FedEx Express overnight air delivery operation.
The pressure on Chief Executive Officer Raj Subramaniam to reduce operations has increased in recent months due to the deflated e-commerce delivery bubble and the threat of a potential recession.
“We believe now is the right time to reorganize how we work together,” Subramaniam told 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.”
As part of a larger strategy by the Memphis-based corporation to slash $4 billion in permanent expenses by the end of its 2025 fiscal year, the combined operation is planned to handle all deliveries starting in June 2024.
Beginning on April 16, John Smith will supervise surface operations for FedEx Express, FedEx Ground, and FedEx Freight as president and CEO of FedEx Express’s ground operations in the United States and Canada.
According to the corporation, FedEx Freight will continue to operate independently under the Federal Express Corp name and offer freight transportation services.
Shares of FedEx, which on Wednesday also disclosed a 10% dividend increase, were down roughly 1% at $228.69.
Approximately 20 years of independent delivery operations would come to an end under the new structure, which would also create a company akin to FedEx’s cost-conscious rival UPS, which has beaten it despite using more expensive union personnel.
According to corporate executives, the new merged service is currently being tested in Minneapolis. In Alaska and Hawaii, where air service predominates, FedEx Express already handles FedEx Ground pickups and deliveries.
Concerns regarding their future roles at the corporation as a result of recent company changes are growing among Ground contractors. FedEx will make deliveries using a “hybrid” employee and contractor arrangement, according to Subramaniam. The CEO also said the business would continue to be non-union.
Analysts pointed out that the company’s “standstill” agreement with activist D.E. Shaw was scheduled to expire at the end of May, despite executives’ claims that FedEx has been “looking” at this project for the past couple of years. The agreement halted attempts to sway corporate governance or control.
Regardless of the time, the business has about a year to implement significant change.
Attending the meeting on Wednesday was Satish Jindel, who co-founded the business that later became FedEx Ground and currently serves as the CEO of consultant ShipMatrix. He told Reuters that it was a doable objective that would increase revenue and stock prices.
Critics pointed out that FedEx officials struggled for years to integrate TNT in Europe and allowed overhead costs to erode their labor cost advantage over UPS.
“There’s no way that this isn’t fraught with risk,” said Dean Maciuba, managing partner at Crossroads Parcel Consulting and former FedEx sales executive. But, he said, “if they do it right, they can evolve as a lower-cost service provider than UPS.”
(Adapted from CNBC.com)