FedEx plans to consolidate operating companies into one organization
FedEx Corp. plans to consolidate its operating companies into one organization to partly achieve a long-term goal to permanently save $4 billion by fiscal year 2025, FedEx announced Wednesday.
The consolidation will be a phased transition that ultimately brings FedEx Express, FedEx Ground, FedEx Services and other FedEx operating companies into Federal Express Corporation, becoming a single company operating a unified, fully integrated air-ground network under the respected FedEx brand, according to a news release. Full implementation is expected in June 2024.
FedEx Freight will continue to provide less-than-truckload freight transportation services as a stand-alone company under Federal Express Corporation.
Current FedEx President and CEO Raj Subramaniam will serve in the same roles of the combined organization.
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“Over the last 50 years, we built networks that have created a differentiated and unmatched portfolio of services,” Subramaniam said. “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.”
The announcement comes as Memphis-based FedEx plans to cut about $3.7 billion over the current fiscal year due to continually decreasing demand and high operating costs. In recent months FedEx also announced cuts to officer and director team jobs and additional furloughs at FedEx Freight. The company also previously announced plans to adjust and reduce the company’s flight network to combat failing volumes.
FedEx's transition will come in two phases. The first part begins April 16 when 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 W. Smith will serve as president and CEO, Airline and International at FedEx Express, overseeing all other regions and FedEx Logistics.
FedEx’s new structure is expected to facilitate the company’s DRIVE transformation, including Network 2.0, the multiyear effort to improve the efficiency with which FedEx picks up, transports and delivers packages in the U.S. and Canada.
The logistics giant hopes the unified organization will bring distinct focus on the air network and international volume, along with a more holistic approach to operation on the ground utilizing both FedEx employees and contracted services provides.
“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.”
The DRIVE transformation spans 14 domains across four major areas: customer, surface network, air network and international, and general and administrative.
FedEx expects DRIVE to generate $4 billion of permanent cost reductions in fiscal 2025 due to the consolidation.
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“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.”
FedEx hopes to save $1.2 billion in surface network costs, $1.3 billion in air network and international and $1.5 billion in general and administrative.
DRIVE is also part of Network 2.0’s implementation, which is expected to generate an incremental $2 billion of savings for FedEx in fiscal 2027. That’s $6 billion in additional savings for FedEx over the next four years.
On how Wednesday’s announcement could impact the company’s labor force, FedEx said in a statement following the event: “We will continue to focus on responsible headcount management.”
During a call with investors in March, Subramaniam said the company would "continue to aggressively manage headcount" and that by the end of this fiscal year, U.S. headcount would be down about 25,000 people year-over-year.
FedEx said the company will not change its financial reporting segments during the transition period until June 2024.
Omer Yusuf covers the Ford project in Haywood County, FedEx, tourism and banking for The Commercial Appeal. He can be reached via email Omer.Yusuf@commercialappeal.com or followed on Twitter @OmerAYusuf.
This article originally appeared on Memphis Commercial Appeal: FedEx plans to consolidate operating companies: What we know
