FedEx Express aims to improve its results by $1.6 billion by 2015-16 through a combination ofsubstantial cost savings in the USA but also through international growth and expansion in Europe,
according to senior executives.The financial target represents the overwhelming proportion of the $1.7 billion profitsimprovement programme announced at the company’s Investor Meeting which took place on October 9 and10 in Memphis.
Chairman Fred Smith told analysts that the US domestic express market was no longer growing andFedEx had been forced to change its express strategy in response to the financial crisis and slowerinternational economic growth. However, there were no plans to merge the US air express and groundpackage networks, he stressed.
Smith said FedEx Express would focus on the international express business in future while thefreight forwarding business FedEx Trade Networks would be further expanded. He emphasised that theinternational air express market was growing as a proportion of the overall air and ocean freightmarket, reaching $32 billion, or 11% of the overall market, by 2011. In comparison, air freight wasworth $46.3 billion, or 15% of the market, down from 20% in 2004, while ocean freight has grown to$225 billion, or 74% of the market.
Asked about the company’s strategy in Europe in view of the planned UPS-TNT merger, heresponded: “In Europe we made the decision several years ago to grow organically and to expandTrade Networks. We plan to be a formidable force in Europe…. we are doing very well in Europe andI’m very confident we will continue to do well.” However, he pointed out that in Europe there weremore domestic and cross-border competitors than in the USA.
Mike Glenn, executive vice president market development, said FedEx had improved yields inrecent years in US domestic express and claimed these had improved faster than UPS but admittedthere had been swings in US international export yields. Presenting market shares, Glenn claimedFedEx had closed the overall gap on UPS in US domestic parcels in volume and revenue terms.
FedEx Express CEO Dave Bronczek stressed FedEx’s strong competitive positioning as number one inUS domestic express and US international express, number two in Asia and number three in Europe.But he also highlighted the “very tepid” recovery in overall air cargo traffic, and noted thatcustomers in key markets were shipping less and there was lower demand for priority services.
He told analysts that the business aimed to achieve about 75% of the $1.6 billion profitimprovement target by the 2015 financial year. The new savings would be on top of the $350 millioncost reductions planned for the current financial year.
FedEx Express aims to achieve $400 million in profit improvements through the voluntary buyoutprogramme that will start in the second half of the current fiscal year and which managementexpects to result in several thousand voluntary redundancies, as well as through operationalefficiencies.
A further $300 million improvement would be targeted through the ongoing air fleetmodernisation, with more fuel-efficient B767 and B757s replacing older planes and thus reducingoperating costs. In addition, FedEx Express wants to achieve a $350 million cost saving fromimproving the US domestic performance, with fewer flying hours and more modern vehicles, and afurther $150 million from growth and yield management measures.
In the international business, FedEx Express wants to achieve a $350 million improvement througha mix of cost reductions and revenue growth. Bronczek stressed that the international business “will remain our growth engine for years to come”, yet “creative changes” such as combiningAsia-Europe routes had saved $50 million in operating costs while maintaining service levels.
COO Michael Ducker said the $350 million improvement in international results would come from acombination of International Priority growth, better asset utilisation, expansion of freightforwarding services, expansion in Europe and leveraging the five major recent acquisitions inFrance, Poland, India, Mexico and Brazil.
In Europe, FedEx would expand its infrastructure and capabilities, and had made its air andground network denser with new flights and feeder services, he pointed out.
