Dive Brief:
- FedEx is charging ahead with its plan to combine the delivery operations of its separate Express and Ground units, as "Network 2.0" is now implemented in more than 50 locations across its network, President and CEO Raj Subramaniam said Thursday.
- FedEx has wrapped up its Network 2.0 integration in Alaska and Hawaii, and the company aims to complete the integration in Canada in October. Overall, dozens of more locations will transition to Network 2.0 this year, Subramaniam said in a quarterly earnings call.
- The delivery giant aims to save $2 billion through Network 2.0 by fiscal year 2027, in part by trimming overlapping routes and facilities. FedEx will help facilitate the undertaking by combining Express and Ground into one organization this June.
Dive Insight:
EVP and Chief Customer Officer Brie Carere described the company's rollout of Network 2.0 as methodical, adding that FedEx is providing customers advanced notice ahead of implementation in a particular market.
"That was one piece of feedback for customers," Carere said on the call. "Even though we anticipate being able to deliver the same level of service with the combined organization as we are as the individual, they do want that notification. And so we, of course, are giving customers that advanced notification."
A unified FedEx network means shippers using both the company's Ground and Express units no longer have to fret about juggling separate pickup times, an edge UPS and its singular network has long held over its rival. Carere said a single pickup is especially important for FedEx's small customer segment.
"This has been the only feature gap we had to UPS in that segment and we are about to close it," Carere said.
Both UPS and FedEx are competing for market share in a weak demand environment that has challenged their financial results. FedEx's total revenue fell by 2% for the quarter that ended Feb. 29, and average daily volume declined at Express and Ground. Despite those pressures, the company's operating income increased 19% as it realized cost savings from its ongoing DRIVE program. Benefits included increased linehaul efficiency, improved dock productivity at Ground and route optimization at Express.
FedEx's overall aim with its long-term revamp is to create a more flexible, efficient and intelligent network, Subramaniam said. One example he gave of the progress already made is how the company mitigated the impact of a January winter storm in Memphis, Tennessee, home of its critical Express World Hub. FedEx responded by proactively diverting Memphis-bound Express volume to its Ground or Freight units at the origin location.
"Despite this year's event having a longer impact to Memphis operations when compared to the weather event in February 2023, our network recovery was twice as fast," Subramaniam said.
