FedEx is taking steps to streamline its operations by prioritizing its DRIVE program and separating FedEx Freight into a standalone, publicly traded company.
These decisions were announced by FedEx President and CEO Raj Subramaniam Thursday (Dec. 19) during the company’s second-quarter earnings call, which saw the company’s total sales of $22 billion slip 1%.
Amid these challenges, Subramaniam highlighted the ongoing success of FedEx’s DRIVE program, which he said is critical to the company’s operational improvements. Originally conceived as a structural cost optimization initiative, DRIVE has grown into a broader strategy that fosters efficiency and enhances decision-making across the business.
“I’ve talked about DRIVE as our structural cost optimization program,” Subramaniam said to analysts. “The reality is that within FedEx, DRIVE has evolved to be so much more. It’s a new data and technology driven business architecture that has changed how we work across our entire enterprise, introducing more rigor and accountability to every decision we make, leading to a continuous cycle of efficiency and optimization. ”
DRIVE, he added, “has clearly evolved to be how we work in this company. We have established an overarching market-leading approach to overall governance that leads to disciplined execution. This is going to stand us in good stead as a foundation for FedEx to execute as we go forward. The second thing is we also adopted a data-first digital mindset in solving problems while creating differentiation in our service offerings. The underlying technological innovation and transformation that we have created is quite profound.”
The challenges faced during the quarter, including a soft global industrial economy and competitive pricing pressures, were closely linked to the need for continuous improvements, particularly through DRIVE’s data-driven approach to cost management, according to Chief Financial Officer John Dietrich.
“We remain confident in our ability to offset these headwinds with the $2.2 billion from incremental DRIVE savings,” Dietrich said. “This expectation further highlights how DRIVE is fundamentally changing the way we do business. We’re improving our cost structure to enable us to profitably grow with eCommerce and are well-positioned to see significant incremental margins on our priority services once global industrial production improves.”
During the earnings call, FedEx also announced its decision to fully separate FedEx Freight, creating two publicly traded companies. This move aims to unlock value for shareholders while allowing the two businesses to remain strategically aligned, Subramaniam said. Each company will be able to sharpen its focus and competitiveness, better executing its priorities while continuing to invest in growth and return capital to shareholders.
Each company will benefit from enhanced focus and competitiveness, he added, allowing them to execute their strategic priorities and continue investing in profitable growth while returning capital to shareholders.
“We’re excited to create a leading LTL [less than truckload] pure-play, the largest carrier by revenue with the broadest network and the fastest transit times,” Subramaniam said. “FedEx Freight has deep relationships with customers who turn to us for our reliability, simplicity and choice of services. Freight has maintained its leading market share position for a long time and increased operating profit nearly 25% on average per year over the last five years.”
As a separate company, Freight will be better positioned to unlock its full value potential, Subramaniam added.
“Areas where we see the greatest opportunity include: first, an expanded dedicated LTL sales force led by Tom Connolly, our new VP of LTL Sales, who has nearly 30 years of experience,” he said. “We’ve already begun to build out this team and we expect to add more than 300 LTL specialists by the time of separation.
“Second, an enhanced LTL-specific pricing and invoicing system that drives faster speed to market, more intuitive contracts and is more tailored to this market,” he added. “Third, improved Freight and FedEx network efficiencies focused on accelerating speed, improving coverage, optimizing touches and lowering our cost to serve.
“And four, an LTL-focused automation, which will drive efficiency and reduce outside vendor spend. FedEx Freight’s portfolio of solutions, which includes both priority and economy services, is also well-positioned to benefit from the long-term market dynamics shaping the LTL industry,” Subramaniam said.
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