FedEx will combine delivery units as part of a $4 billion cost reduction push ft

LOS ANGELES, April 5 (Reuters) – FedEx Corp (FDX.N) said on Wednesday it will consolidate its separate delivery businesses into a single entity, in a move to cut costs and better compete with United Parcel Service (UPS.N) and Amazon (AMZN.O).

The decision to integrate FedEx Ground, its outsourced package delivery arm, with FedEx Express’ overnight air delivery business was announced nearly a year after activist investor DE Shaw pushed for the change and won two additional board seats. .

The deflating e-commerce delivery bubble and the specter of a possible recession over the past year have intensified pressure on CEO Raj Subramaniam to streamline operations.

“We think now is the right time to reorganize the way we work together,” Subramaniam told a company meeting in New York City.

“We will be more efficient, more agile and better positioned to execute on our mission of helping customers compete and win with the world’s smartest logistics network.”

The combined business is expected to handle all deliveries from June 2024 as part of the Memphis-based group’s broader plan to cut $4 billion in ongoing costs by the end of its 2025 fiscal year.

John Smith will become President and CEO of US and Canadian Ground Operations at FedEx Express and will assume leadership of Surface Operations across the FedEx Express, FedEx Ground and FedEx Freight businesses effective April 16.

FedEx Freight will continue to provide freight forwarding services as an independent company under the Federal Express Corp banner, the company added.

Shares of FedEx, which also announced a 10% dividend increase on Wednesday, were trading down about 1% at $228.69.

‘HYBRID’ MODEL

The new structure would end roughly two decades of separate delivery operations and create an entity similar to cost-conscious rival UPS, which has outperformed FedEx despite having a more expensive union workforce.

The company is testing the new bundled service in Minneapolis, executives said. FedEx Express already handles FedEx Ground pickups and deliveries in Alaska and Hawaii, where air service dominates.

Recent changes at the company have fueled concern among ground contractors concerned about their continued role with the company. Subramaniam said FedEx will use a “hybrid” employee-contractor model for deliveries. The CEO added that the company will remain non-union.

Executives said FedEx has been “watching” this project for the past two years, but analysts noted the company’s “standstill” deal with activist DE Shaw was set to expire at the end of May. That agreement put on hold activities to influence the control or governance of the company.

Regardless of the reason at the moment, the company now has about a year to make a massive turnaround.

Satish Jindel, who helped found the company that eventually became FedEx Ground, attended Wednesday’s meeting and now runs consultancy ShipMatrix. He told Reuters it was an achievable target that should boost earnings and shares.

Critics pointed out that FedEx executives had a years-long struggle with their integration of TNT in Europe and let overhead costs swamp their labor cost advantage over UPS.

“There’s no way this isn’t fraught with risk,” said Dean Maciuba, managing partner at Crossroads Parcel Consulting and a former FedEx sales executive. But, he said, “if they get it right, they can evolve as a lower-cost service provider than UPS.”

Reporting by Lisa Baertlein in Los Angeles and Abhijith Ganapavaram and Kannaki Deka in Bengaluru; Edited by Krishna Chandra Eluri, David Goodman, Paul Simao, and Bill Berkrot

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