FedEx to consolidate companies, pilots frustrated over contracts

FedEx announced today it will consolidate most of its existing operating companies to operate an integrated air-ground network under the FedEx brand , to run a “more profitable enterprise.” FedEx Express, FedEx Ground, FedEx Services and other branches of the company will be reorganized under a single entity: Federal Express Corp. This excludes FedEx Freight, which will continue to operate as its own brand to provide less-than-truckload freight transportation services under Federal Express Corp. Full integration of the brands is expected by June 2024. [caption id="attachment_68831" align="alignright" width="371"] Photo/FedEx[/caption] FedEx said the move is a part of its strategic Drive transformation — an initiative to bring more efficiency to transports, deliveries and pickups throughout the United States and Canada. In terms of airfreight, the company looks to adopt a smoother, more integrated approach to international shipments. The Drive transformation could save $4 billion by fiscal 2025, according to the release. “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,” Raj Subramaniam , president and chief executive at FedEx, said in a release from the company today. “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.” As recently noted by Air Cargo Next consultant Cathy Roberson, " After 50 years of siloed operations, the company is realizing that operating collaborative operations between its divisions is critical in today’s environment. This is why the company is trying to reduce costs and implement key technologies quickly." A risky undertaking Merging FedEx Express and FedEx Ground, each with different operating models, poses challenges, Dean Maciuba, managing partner at Crossroads Parcel Consulting , told Air Cargo Next . “One thing to keep in mind is FedEx is desperate right now. They are hemorrhaging volume on the Express side , so they have no choice but to undertake this incredibly risky initiative,” Maciuba said. The two are “very different companies. And the Express model is the one shrinking dramatically. ... The Ground company is a much lower-cost contractor model, where contractors hire drivers in specified territories to make the pickups and deliveries,” he said. “So, they’re going to move most of the business from the standpoint of pickup and delivery operations to the Ground model, because it’s a lower-cost model. And there is a lot of risk there,” Maciuba added. On April 16, John A. Smith will take over as president and CEO of FedEx Express operations in the U.S. and Canada while also overseeing FedEx Ground and FedEx Freight, according to the release. Additionally, Richard W. Smith will take over as president and CEO, Airline and International of FedEx Express as well as all other regions of FedEx Logistics. Maciuba said the move by FedEx is in response to pressure from Wall Street to increase profits while slashing costs. Consolidation could mean job losses because the Ground model is contractor-based, rather than employee-based, as on the Express side. “Ultimately, if they are successful, they will significantly reduce their operating costs, which will drive improved profit margin, which will result in a higher share price for the stock,” Maciuba said. “And remember, this is what it all goes back to Wall Street, putting pressure on FedEx, to drive the cost of the stock up to drive the share price. At the end of the day, that is what it’s all about.” Tension looms over pilot contract negotiations While FedEx announced its Drive initiative during an investor’s event in New York, several of the company’s pilots participated in an “informational picket” near the building to demonstrate their frustration over contract negotiations, according to a news release by The Air Line Pilots Association (ALPA). For nearly two years, ALPA and the FedEx pilots it represents have not been able to solidify a deal with the company, leaving many with growing concerns. “It’s extremely disappointing that negotiations remain open,” Capt. Chris Norman, chair of the FedEx ALPA Master Executive Council, said in the release. “We want to reach a fair deal with management, but it must be one that recognizes the value we bring to FedEx every day.” Authorized by FedEx pilot leadership in February, Norman could call for a strike action if negotiations do not head in the right direction. But Maciuba does not believe it will come to that. With FedEx Express recognized as an airline, the federal government has a considerable influence over its actions. Not only will the government be heavy-handed before a strike happens, Maciuba said, but FedEx managers will likely want a resolution sooner than later. “In the middle of consolidating these two separate companies that are under FedEx, now they have to manage renegotiation of the pilots’ contracts,” Maciuba said. “And I think ultimately, they’re going to settle. ... Their hands are full. And here’s the question: Is FedEx management up to this?”

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