FedEx Express Reexamining its Business Model - August 08, 2008

At least, this re-examination is the focus of an analysis by a writer for Air Cargo News.  Reporter Michael Fabey writes, "While harboring hopes the U.S. economy will turn around and fuel prices will start to level off, FedEx is positioning itself for what company officials say is an altered industry landscape."

Over the history of Federal Express and FedEx, the overnight delivery service has been the primary revenue generator for the company.  The profits earned by FedEx Express allowed Federal Express to grow into the FedEx Corporation through a series of pricey acquisitions - Flying Tigers, Caliber/RPS, American Freightways, Kinko's, World Tariff, Watkins and others.

But even as FedEx Corp diversified into other lines of services, FedEx Express remained the golden goose.  Express accounted for 58% of operating income in fiscal year 2007 and 64% of operating income in fiscal year 2008.

Customers, however, are becoming much more cost-conscious.  UPS and FedEx are competing for customers across all delivery services - overnight letter and box, small parcel, supply chain services, expedited freight, less-than-truckload and truckload freight.

UPS and FedEx may sell the consolidated services to customers in similar ways.  But the way the two companies are structured to carry out those services is quite different.  So it is not only FedEx Express that is the object of Fred Smith's re-examination.  It is the whole 'segmentation' of FedEx services. 

FedEx got along for a period of time with its "Compete collectively, operate independently, manage collaboratively" strategy.  (It also makes for a great anti-union structure with employees and even "independent contractors" all broken apart.)  Under this "strategy," one FedEx company would pay "intercompany charges" or "purchased transportation charges" of another FedEx company for its services.

The slowing economy and sky-high jet fuel, diesel and gasoline prices are spurring FredEx's mind into action.

But in the end, FedEx Express has all those planes in their hangars.  A single customer still gets its overnight letter delivered by a FedEx Express driver and gets its three-day package delivered by a FedEx Ground "contractor."  And FedEx Express linehaul and FedEx Ground linehaul and FedEx Freight linehaul all must ‘operate independently.' And a FedEx Express courier and a FedEx Ground "contractor" and a FedEx Freight drivers all must make separate deliveries and ‘operate independently.'

This story is to be continued...