FedEx has embarked on a daunting $1.5 billion company-wide reorganization. Announced last year, the Tennessee-based transportation and logistics giant combined its Express and Ground delivery units into one business model. The move rattled insiders, as the separate operating structure had long been upheld as founder Fred Smith’s legacy. Yet, market forces suggest a change is needed.
As e-commerce grows, companies like FedEx are adapting to new, non-business-to-business business models. The merging of Ground and Express now more closely resembles the structure of FedEx’s chief rival, United Parcel Service Inc. A key difference between the two, however, is UPS has a unionized workforce while FedEx relies on contractors to execute ground deliveries.
New members to the FedEx board nudged the reorganization, but technology and productivity challenges have muddied the efforts. Ground and Express had operated as single units for decades. It was common in some neighborhoods to see a Ground and an Express truck delivering packages to the same house within short periods of each other. Ground generated five times as much operating profit last year as Express, occupying contractors to deliver along local routes. Express used jets, trucks, and full-time employees to deliver its parcels.
The reorganization has resulted in job cuts, parked planes, and cumbersome parcel pickup and dispatch snafus. FedEx warns that “OpCo pride,” otherwise known as operating company pride, has, in some instances, impeded progress. In a company as large as FedEx, people become accustomed to doing things the way they’ve always been done, and a shift this big is an uncomfortable push to something unknown. Changes in how the two entities work are first being implemented in smaller distribution centers such as Starkville, Mississippi, and Bozeman, Montana, and will later be rolled out to larger hubs.
Ground contractors are taking over the Express volume in nearly every state except Alaska and Hawaii. To date, the company has reduced its headcount by roughly 22,000, retired 32 jets, and closed more than a dozen buildings. CEO Raj Subramaniam is convinced that the growth of e-commerce will result in more trucks and less need for surplus equipment and facilities.
Thankfully for FedEx, the restructuring has not disrupted the customer experience. Express parcels have registered on-time delivery performance rates of 94.5% to 98.2% since mid-2022. The most significant change from a personnel perspective is the Ground contractors, many of whom hire drivers and operate trucks in certain areas. These are approximately 6,000 people using very different scanners and route-planning tools than FedEx employees. Technological modifications are still required, but change isn’t easy.
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