Wednesday, October 10, 2012

FedEx outlines its $1.7bn profit goal

FedEx’s Investor Day was one filled with much optimism. Much was said about the US “transformation”, the growth of and expansion of FedEx Trade Network and continued International expansion. The focal point of much this anticipated profitable growth remains its Express division - be it a standalone solution or bundled with other FedEx offerings.

The much anticipated unveiling of FedEx’s restructuring plan was finally revealed. A combination of voluntary employee buyouts, reduction in SG&A costs, streamlining back office operations, more strategic sourcing and the replacement of old aircraft with more fuel efficient aircraft were all included in FedEx’s plan towards reaching its overall $1.7bn profit goal in five years. Facilities are also being consolidated but instead of providing a particular number of closures, instead, the company is reviewing each facility as its lease comes up for renewal. Depending on the region/market, FedEx determines whether to keep it open, consolidate or simply close it. An example given was that of Houston – the company closed five locations and replaced them with two.

The company also noted that while US domestic market is a mature market, FedEx Express continues to achieve growth in imports and exports and cited its FedEx First Overnight has having one of the highest yields in its US Express services.

FedEx has also appeared quite successful with its FedEx Trade Network group. For the current year, revenue year-over-year growth for this group increased 27%. While still comprising less than 8% of total Express revenue, it is achieving success within ocean and air freight forwarding. Last year, it launched three ocean freight forwarding services. As for air freight forwarding, it is utilizing passenger airlines particularly to move those packages utilizing economy solutions.

International expansion remains a priority for FedEx, particularly intra-Europe and China. The company plans to continue to take advantage of its FedEx Trade Network, acquisitions recently made in Europe as well as in India, Brazil and Mexico and to focus on those industries in which it can target its International Priority Express service towards such as high tech, life sciences (particularly medical devices) and aerospace. It also is promoting its critical inventory logistics capabilities as well.

All in all the presentations were upbeat, optimistic and not surprising. The plan FedEx has set out is a logical, practical one.  While mistakes were made in the past, in particular within Europe, it seems that FedEx is putting lessons learned to practice and becoming more flexible and agile in its approach in international markets which appear key to its success.