Consultant Insight: FedEx fights back, but does it stand a chance?

[caption id="attachment_69752" align="alignright" width="298"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] FedEx’s origin story demonstrates the creative genius of founder and CEO Fred Smith. The idea was put forth in a Yale University undergraduate term paper in which Smith proposed a system specifically designed to accommodate time-sensitive shipments such as medicine, computer parts and electronics. Smith implemented plans put forth in his term paper, and Federal Express officially began operations in 1973, when 14 small aircraft took off from Memphis and delivered 186 packages to 25 U.S. cities from Rochester, N.Y., to Miami. Then, in 1998, Caliber System Inc. was acquired and through its subsidiary, RPS, FedEx Ground was formed. The company was reorganized and, because of its diversified solutions, was renamed as "FedEx." Since then, FedEx has expanded beyond the U.S. to become one of the leading global express providers. Ground and Express networks have always operated separately from each other primarily because of the lower-cost labor business model that FedEx Ground inherited from RPS. Questions regarding the integration of the two networks have always lingered, with some analysts insisting it is impossible for FedEx to integrate the two networks, while others disagree. Regardless, we are finally seeing some cooperation between the two divisions as FedEx faces a mighty battle not only to compete but to remain a viable solution in the e-commerce logistics battle shaping up against Amazon and UPS. Beginning in March, FedEx Express will contract with FedEx Ground for the transport and delivery of select day-definite, residential Express shipments. FedEx Express packages will be selected for delivery by FedEx Ground if they are residential deliveries for which FedEx Ground can meet the service commitment. Package labels have a code that allows them to go from the FedEx Express ramp into the FedEx Ground network for last-mile delivery, when applicable. The company will begin rolling out its new operational model in Greensboro, N.C., and will include other markets in phases throughout the remainder of the year. “This move makes residential deliveries more efficient by putting the right package in the right network at the right cost to serve our customers,” said Raj Subramaniam, president and chief operating officer at FedEx. “We continue to flex our network to stay ahead of e-commerce growth, and that includes adjustments to better handle the demand for residential deliveries while lowering our cost to serve.” Investment in technology, FedEx Ground’s recent move to seven-day delivery, and the integration of previously contracted U.S. Postal Service packages back into the Ground network are a few reasons this new initiative is possible, according to FedEx’s senior vice president of integrated marketing and communications, Patrick Fitzgerald. The cooperation between the two divisions will lower costs and increase efficiencies. It’s certainly a step in the right direction, but more will be needed to meet Smith’s goal of surpassing UPS in size to become the largest by-revenue transportation and logistics company in the next two to three years. Indeed, it’s going to take both air and ground to succeed. In UPS’ fourth-quarter earnings, it was noted that air and ground go hand in hand in today’s e-commerce world. If FedEx can capitalize on Express, which has always been its greatest strength, it could potentially give UPS and Amazon a run for their money. However, as noted in Cargo Facts , FedEx Express is removing excess capacity due to current demand trends. It recently removed two MD-11Fs and a 757-200F from service and sent them to Victorville (VCV) to be parked. Meanwhile, UPS continues to grow its MD-11F fleet. The company recently purchased two ex-Lufthansa Cargo MD-11Fs and will put them into service after modification work. Time is not on FedEx’s side. The collaboration between the Express and Ground divisions is great and a long time coming, but UPS never had to worry about separate networks and, as such, is still much further ahead. It will take creative genius, much like what built FedEx Express, to win this race.

Consultant Insight: FedEx fights back, but does it stand a chance?

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