Tough times for cargo providers as trade patterns shift and economies
remain dicey. This week, FedEx CEO, Fred Smith, delivered his annual letter to
shareholders. Within the letter, Smith
noted the difficult market and the need to remain nimble. According to Smith,
the company’s strategy to enhance efficiency, improve customer experience and
adapt to market dynamics will boost its competitiveness and financial
performance.
As part of this strategy, last spring, FedEx announced plans
to restructure its US domestic Express division. Included in the restructuring
plan, the company accelerated retirement plans for older aircraft in the US and
deferred delivery of some new aircraft.
Earlier this week, the company announced that it would offer
buyouts to employees in an effort to reduce costs. These buyouts are expected
to be mostly in the US within the Express and shared-services units and are to
focus on support services rather than operational groups. Although an exact
number of buyouts have yet to be decided, FedEx expects severance costs to be
spread over fiscal year 2013 (June 1, 2012 – May 31, 2013) and into 2014.
Additional details on FedEx’s US domestic Express restructuring
plans will be announced in October during the company’s investors’ meeting.
Until the October meeting, as the company works on their
restructuring plan, a couple of other recent announcements may play a part in
its plan. Firstly, the United States Postal Service (USPS) announced plans to
bid its domestic express contract in September. FedEx has transported Express Mail,
Priority Mail and First Class Mail on behalf of the USPS since 2001 and has
become the post office’s largest contractor generating over $1bn in revenue for
the company. This could be a serious blow to FedEx if all or even a part of the
contract is lost.
Secondly, the US Federal Aviation Administration (FAA) has accused
FedEx of “failing to properly document hazardous materials shipments” in August
2010 after it carried shipments of hazardous cargo across the US. In addition,
the FAA reported that FedEx failed to give pilots accurate and legible written
information regarding hazardous material shipments on a total of 19 flights.
FedEx has 30 days to respond to the allegations and the FAA has proposed a
$681,200 civil penalty. Even though the incidents occurred in 2010, this could
have a negative effect on the company’s ability to transport hazardous
materials and may result in potential customer losses.
FedEx faces strong headwinds as it adjusts its domestic Express
network, however, it proved successful when adjustments were made to its LTL
division last year and its ground network before that. Still, It will be bumpy
ride for the company, but one in which it will likely come out leaner and
nimbler – perhaps a recipe for success.
