FedEx Prepares to Roll Out Changes

By Bill Dries

FedEx executives head into a two-day investors and lenders meeting Tuesday, Oct. 9, with two key constituencies watching for details of changes to FedEx Express, the oldest division of the Memphis-based corporation.

FedEx founder and CEO Fred Smith told analysts in June that there would be a “cost reduction program” in Express. It would, he said, realign services across the FedEx portfolio to reflect a shift in the services the company’s third key constituency – customers – are using.

Smith is expected to talk in general terms during his remarks Tuesday evening to investors and analysts.

More details of the changes to FedEx Express and their impact on other parts of the FedEx portfolio are expected during the Wednesday presentation over several hours.

Smith has been adamant that the changes to Express are not a restructuring and some analysts have been just as adamant that regardless of the term Smith chooses, it will amount to a restructuring.

“We intend to take a significant amount of cost out of the FedEx Express system,” Smith said in September. “We’re not going to lay off people and we’re not going to take Draconian steps. All of the steps are well thought out.”

The steps so far have included an increase in Express shipping rates by an average of 3.9 percent for U.S. domestic, export and import services effective Jan. 7. The corporation also parked 24 Express aircraft and is phasing in replacements that are new and more efficient over several years. The company announced in August voluntary employee buyouts in the Express and Service units predominantly among “non-operational staff.”

Even when the company’s view of the national and world economy and prospects for a sustained recovery were more optimistic, Smith and FedEx executives continued to describe the company’s approach as a portfolio of services that customers choose among depending on their needs. Their argument with analysts has been that the company has the flexibility across its divisions.

The changes to FedEx Express reflect a shift years in the making away from air to ocean even for the high-tech, low-weight electronics launches that can affect quarterly earnings results for FedEx and other companies.

The shift is more than a preference by customers that has been a trend for several years. It also reflects advances in ocean-going containers and container technology as well.

Smith, whose comments about macroeconomic issues and the global economy are often the most anticipated part of earnings calls and investor presentations, has acknowledged in recent months that the world economy is slowing.

At the start of the year, Smith was more optimistic, citing the force of emerging economies joining the world market – a force Smith has said he still believes is unprecedented. But it is being tempered by “policy choices” in Europe, China and the U.S.

“I think it’s reflective of the slow growth in the United States,” he said last month. “You’ve got contraction going on in Europe. Because of North America and Europe, China’s export economy – which has been driven by the consumer economies – is reflected in lower trade numbers. Until some of these macro issues get resolved, you’ll see relatively low trade numbers.”