FedEx to combine delivery units as part of a $4 billion cost-cutting push
FedEx said on Wednesday it will consolidate its separate delivery companies into a single entity, as the group slims its bloated infrastructure to compete better with United Parcel Service and Amazon.
The move to integrate FedEx Ground, its outsourced package delivery arm, with the FedEx Express overnight air delivery business was announced almost a year after activist investor D.E. Shaw pushed for change and won two additional board seats.
The deflating e-commerce delivery bubble and specter of potential recession over the past year has intensified pressure on Chief Executive Officer Raj Subramaniam to streamline operations.
"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."
The combined delivery business is expected to handle all deliveries from June 2024 as part of the wider plan by the Memphis-based group's plan to cut $4 billion in permanent costs by the end of its 2025 financial year.
'Hybrid' model
The new structure would end roughly two decades of separate delivery operations and create a delivery entity similar to that of cost-conscious rival UPS, which has outperformed FedEx despite having a more expensive union labor force.
FedEx Express is already handling FedEx Ground's pickup and deliveries in Alaska and Hawaii - fueling concerns that Ground contractors in the lower 48 states could be let go.
Under the new structure, FedEx will use a "hybrid" employee and contractor model for deliveries, said Subramaniam, who added that the company will continue to fall under a law that allows it to remain non-union.
FedEx executives last month said they were on track to hit $1 billion in permanent cost cuts in the financial year to May 31.
John 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 from April 16.
FedEx Freight will continue to provide freight transportation services as a standalone company under the Federal Express Corp banner, the company added.
Shares in FedEx, which also announced a 10% dividend boost on Wednesday, were up about 2% in mid-morning trade.