FedEx to merge delivery units in a $4 billion cost-cutting initiative

FedEx on Wednesday said it would merge its separate delivery divisions into a single unit as the delivery giant looks to better compete with UPS and Amazon. 

The move to integrate FedEx Ground, its outsourced package delivery arm, with the FedEx Express overnight delivery business comes almost a year after activist investor D.E. Shaw, who won two additional board seats, called out for change, Reuters reported. 

“We are excited to announce that we are moving forward as one FedEx team. Our new operating structure will provide greater flexibility, efficiency, and intelligence,” the company tweeted Wednesday. 

The Tennessee-based logistics titan is expected to handle all deliveries from June 2024 as part of its wider plan to cut $4 billion in permanent costs by the end of its 2025 financial year. 

The cost-saving measures will be achieved through three key areas, including $1.2 billion in Surface Network, $1.3 billion in Air Network and International, and $1.5 billion in General and Administrative expenses, according to the company. 

The new organizational structure marks the end of roughly two decades of separate delivery operations, creating a more streamlined delivery entity that closely resembles its rival UPS, which has outperformed FedEx in recent years despite its more expensive union labor force.

The shrinking e-commerce delivery bubble and concerns over potential recession in the past year has been pressing CEO Raj Subramaniam to streamline operations. 

The new structure will utilize a “hybrid” employee and contractor model for deliveries, and the company will remain non-union in compliance with applicable laws, according to Subramaniam. 

The Cost per package at FedEx Ground increased 8% in the third quarter of fiscal 2023, with the entire company showing an adjusted net income of $865 million, a 29.1% drop from the previous year, according to the financial reports. 

Last month, FedEx announced plans to slash 10% of its officer and director positions as part of a broad downsizing effort that has resulted in a reduction of 12,000 workers since June. It also said the company was on track to hit $1 billion in permanent cost cuts in the financial year to May 31.

Effective April 16, John Smith will become president and CEO of U.S. and Canada ground operations at FedEx Express and assume the role of supervising surface operations across the FedEx Express, FedEx Ground and FedEx Freight businesses. 

Shares of FedEx climbed 2.8% to reach $232.89 in early trade following the company’s announcement of a 10% increase in dividends. However, around noon, the shares dropped slightly to $228.49.

With Post wires