Consultant Insight: FedEx struggles to return to normal operations

What goes up eventually comes back down. For many logistics carriers, this is the case as strong demand and higher rates begin to ease after two years of unprecedented growth. However, the decline in demand and rates happened fast and caught some carriers, such as FedEx, off guard. "Global volumes declined as macroeconomic trends significantly worsened later in the quarter, both internationally and in the U.S. We are swiftly addressing these headwinds, but given the speed at which conditions shifted, first quarter results are below our expectations," Raj Subramaniam, FedEx president and chief executive, said in a September statement days before the company announced disappointing fiscal Q1 earnings for the period ending Aug. 31. [caption id="attachment_68221" align="alignright" width="373"] Cathy Roberson, Cargo Facts Consulting senior consultant and Air Cargo World columnist[/caption] FedEx was already in the midst of changes, announced during its investors day in June. At the event, the company unveiled its Deliver Today, Innovate for Tomorrow strategy — a plan to integrate its networks, improve efficiencies and expand operating margins. Added to the earlier changes were additional ones to address the sudden downturn in global and domestic macroeconomic trends. As part of the latest changes, FedEx Express, the company's largest division, appears to be taking the brunt of the changes. Express cut between eight and nine international flights and around 23 domestic frequencies in October, Chief Financial Officer Mike Lenz said at the Bair 2022 Global Industrial Conference on Nov. 8. “We've got another eight or nine domestic frequencies that will go in, in November,” Lenz said. “So we're rigorously looking at that and evaluating our plans for post-peak here as we begin the calendar year after the holiday season.” Retiring aircraft Additionally, several planes will be parked, including the retirement of the carrier’s oldest 3-engine widebody aircraft at the end of this year. However, FedEx was already in the midst of parking the equivalent of seven widebody aircraft in January 2020 but reversed course when the COVID-19 pandemic hit two months later. Lenz noted that FedEx would return to leveraging passenger airline capacity for its deferred service. "We basically embargoed our deferred traffic over the Trans-Pacific over the past two years,” Lenz said. The company is also consolidating sorts and has eliminated about seven or eight intermediate sort points. As a result, FedEx has consolidated about 500 loads to drive more efficiency within its line haul. FedEx Freight is enacting furloughs in some U.S. markets as demand continues to ease. The move is due "to current business conditions impacting volumes," according to published reports. "The company will continue to evaluate the environment and bring back furloughed employees as business circumstances allow." The furloughs are expected to last around three months. Integrating networks One of the biggest problems preventing FedEx from operating more competitively and efficiently is having independent networks for each of its three divisions: Express, Freight and Ground. Each network was built with independent systems, different types of assets and different ways to deploy employees, Lenz noted. "For decades, the independent networks served us wonderfully in terms of executing against the day-definite product and demand for Ground and Express,” Lenz said. “The time-definite was e-commerce, which has grown explosively, with nearly 90% to 100% of the parcel market growth. It's changed circumstances, and the opportunity to optimize and harmonize the networks where you've got a preponderance of residential deliveries is significant." Holiday outlook Lenz described the last two peak holiday seasons as unprecedented. "We'll have a solid peak this year but a little more moderate perhaps than what we've experienced the last two years, which I think our operations team will certainly appreciate," he said.

Consultant Insight: FedEx struggles to return to normal operations

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