FedEx gears up for Network 2.0 transition

Following an April 2023 announcement, in which Memphis-based global freight transportation and logistics services provider FedEx said that, effective June 2024, it will consolidate all of its operating companies into a single organization, CEO Raj Subramanian offered up some insight into the initiative at investment firm Bernstein’s 40th Annual Strategic Decisions Conference this week.

As previously reported by LM, FedEx described this consolidation as a phased transition that will subsequently bring nearly all of its operating companies—FedEx Express, FedEx Ground, FedEx Services, as well as other FedEx operating companies—into Federal Express Corporation, and transition into what it called a single company operating a unified, fully integrated air-ground network. And it also noted that its less-than-truckload subsidiary, FedEx Freight, will remain as a standalone operation within Federal Express Corporation.  

Subramanian previously said that this combination will allow FedEx to provide customers with even greater value, offering the most advanced data-driven insights to help them make smarter decisions for their business.

What’s more, FedEx said that this consolidation will play a key role in facilitating the company’s DRIVE initiative, which includes Network 2.0, a years-long effort focusing on the operational efficiency, in which the company picks up, transports, and delivers packages in the U.S. and Canada. Another benefit of the consolidation, it cited, is to “bring distinct focus on the air network and international volume, as well as a more holistic approach to operations on the ground utilizing both FedEx employees and contracted service providers.”

In his comments at the Bernstein conference, Subramanian explained that as the company has grown its respective businesses over time, the company’s customers “have embraced the bundled offering,” with almost 80% of its U.S. revenue generated from its Express, Ground, and Freight offerings.

“We run our business to better align with market demand and operate more efficiently,” explained Subramanian. “And this is the reason why in April 2023, just over a year ago, we announced a multiyear strategy to unify our businesses and create the world's most flexible and efficient and intelligent network. And one important pillar of that transformation is what we call Network 2.0. It is the network of the future, where we are combining our Express and Ground networks in U.S. and Canada. And the best way to think of Network 2.0 is one truck, one label. We’ve spent the past several years updating our technology and facilities to prepare, and we are now in the execution phase. We have already implemented Network 2.0 in over 50 locations with dozens more to follow this calendar year. And as we have stated previously, we're targeting a $2 billion in cost savings in FY '27.”

Explaining how things have changed in leading to this undertaking, Subramanian noted how, in a typical scenario delivering to a business, a FedEx Express truck and a FedEx Ground truck pulling up to a business could be delivering six time-definite packages and 10 day-definite packages at the same stop, adding that this approach made business sense because the rest of the network was fully optimized for time-definite and day definite services, respectively.

But with the ongoing shifts in parcel market growth—and how it is now largely paced by e-commerce, as slightly less than 10 years ago, around 75% of the companies’ packages were for businesses, whereas now 75% of its package stops are residential.  

“You might see a FedEx Express truck drop off a package at your house, followed by a FedEx Ground truck sometimes delivering another package later in the day,” he said. “So, now you can imagine the room for improved density and efficiency.”

To that end, he explained that through the Network 2.0 restructuring, FedEx will deliver “one package, one truck, one neighborhood,” adding that is where the efficiency is derived from.

“It requires a lot of work, and we have prepared for it,” he said. “As of June 1st, we're going to an organization construct that's just one organization. So, instead of having two or three of everything, we only have one of everything. That work has already been done. And we'll go into a new structure starting on Saturday. Then, over the next two or three years, FY ‘27 is when we get through the network integration. But the work is well underway. And we are making progress. We're making very steady progress, keeping in mind that customer experience should get better. That's our mantra here, making sure our customer experience gets better.”

John Haber, president of the parcel business unit for transportation and logistics services provider Transportation Insight, told LM in a previous interview that this development is not unexpected, with things heading in this direction, based on various operational-related steps the company has been taking leading up to it.

“I think this is a good move for FedEx,” said Haber. “It is something it had to do, and it is very positive overall. My one concern is what happens on the union side now when you are combining these entities, as these individual groups are in different [union] pacts. They are not classified in the same way as UPS. Outside of that, it is very good for them and something they needed to do.”