FedEx Restructures to Combine Ground and Express Delivery Networks

“There’s opportunity to continuously improve the efficiency of our operations,” said Mr. Subramaniam. “Our customers are going to see a difference.”

Shares of FedEx rose 2.2% in premarket trading Wednesday.

FedEx is grappling with a monthslong downturn in shipping demand and elevated operating expenses. The Memphis, Tenn.-based company is working to cut billions of dollars in expenses in the coming years. As of last May, the company had 412,770 U.S. employees, or about 75% of its total full- and part-time staff. It expects its U.S. head count to be down by roughly 25,000 by the end of May. 

An activist investor, D.E. Shaw, last year pushed FedEx to make changes to its business and got two people added to the company’s board.  

Mr. Subramaniam said the reorganization has the support of Mr. Smith and the company’s board. 

Mr. Smith, who founded Federal Express Corp. in 1971 and long served as its CEO, has said that the company’s strength was in its business model, with each unit operating independently and having its own leadership team. That meant operating FedEx’s premium Express business, which often uses planes, and its less costly Ground business as separate networks to ensure that the time-sensitive overnight packages arrived on-time. 

A surge in e-commerce shipments in recent years and higher costs associated with delivering packages to homes pushed the company to bring the operations closer together to avoid duplication. Previously, FedEx has dispatched Express and Ground trucks to move packages in the same neighborhoods, sometimes creating confusion for customers and extra costs for itself.

Customers, for now, have to compare Express’s and Ground’s pricing and dispatch windows separately for their business decisions. With one set of business rules to consult, customer support would improve, said FedEx Chief Customer Officer

Brie Carere.

The new structure more closely resembles that of FedEx’s chief rival,

United Parcel Service Inc.,

which has long run a single network to handle air and ground shipments. Unlike UPS, which has a unionized workforce of employees who make deliveries, FedEx will continue to rely on contractors to move goods to customers in addition to its employees. 

FedEx expects the reorganization to be completed by June 2024 and added that its full transition to an integrated air-ground network will take several years. FedEx Freight, which consolidates small shipments into trailer loads, will continue to operate as a stand-alone company under FedEx. Later this month, FedEx Express CEO

Richard Smith

—Mr. Smith’s son—and FedEx Ground CEO John Smith will gain additional responsibilities in the new structure.

Mr. Subramaniam, Ms. Carere and other FedEx executives are in New York City for an investor event to give updates to the company’s program to revamp operations to make the company more efficient and improve its long-term profitability. FedEx also said it is boosting its annual dividend rate by about 10%, or 44 cents, to $5.04 a share.

A number of companies have made changes in their operations in recent months to be more efficient or cut costs, often by reducing employee head count.

Since September, FedEx has sped up changes to its cost structure to adjust to weaker levels of demand. It has parked planes and equipment, suspended Sunday deliveries in more markets, furloughed drivers and laid off managers, consolidating teams and functions.

Shares of FedEx have risen 7.3% in the past 12 months through Tuesday’s close. The S&P 500 fell by 9.4% over the same period.

Write to Esther Fung at [email protected]

“There’s opportunity to continuously improve the efficiency of our operations,” said Mr. Subramaniam. “Our customers are going to see a difference.”

Shares of FedEx rose 2.2% in premarket trading Wednesday.

FedEx is grappling with a monthslong downturn in shipping demand and elevated operating expenses. The Memphis, Tenn.-based company is working to cut billions of dollars in expenses in the coming years. As of last May, the company had 412,770 U.S. employees, or about 75% of its total full- and part-time staff. It expects its U.S. head count to be down by roughly 25,000 by the end of May. 

An activist investor, D.E. Shaw, last year pushed FedEx to make changes to its business and got two people added to the company’s board.  

Mr. Subramaniam said the reorganization has the support of Mr. Smith and the company’s board. 

Mr. Smith, who founded Federal Express Corp. in 1971 and long served as its CEO, has said that the company’s strength was in its business model, with each unit operating independently and having its own leadership team. That meant operating FedEx’s premium Express business, which often uses planes, and its less costly Ground business as separate networks to ensure that the time-sensitive overnight packages arrived on-time. 

A surge in e-commerce shipments in recent years and higher costs associated with delivering packages to homes pushed the company to bring the operations closer together to avoid duplication. Previously, FedEx has dispatched Express and Ground trucks to move packages in the same neighborhoods, sometimes creating confusion for customers and extra costs for itself.

Customers, for now, have to compare Express’s and Ground’s pricing and dispatch windows separately for their business decisions. With one set of business rules to consult, customer support would improve, said FedEx Chief Customer Officer

Brie Carere.

The new structure more closely resembles that of FedEx’s chief rival,

United Parcel Service Inc.,

which has long run a single network to handle air and ground shipments. Unlike UPS, which has a unionized workforce of employees who make deliveries, FedEx will continue to rely on contractors to move goods to customers in addition to its employees. 

FedEx expects the reorganization to be completed by June 2024 and added that its full transition to an integrated air-ground network will take several years. FedEx Freight, which consolidates small shipments into trailer loads, will continue to operate as a stand-alone company under FedEx. Later this month, FedEx Express CEO

Richard Smith

—Mr. Smith’s son—and FedEx Ground CEO John Smith will gain additional responsibilities in the new structure.

Mr. Subramaniam, Ms. Carere and other FedEx executives are in New York City for an investor event to give updates to the company’s program to revamp operations to make the company more efficient and improve its long-term profitability. FedEx also said it is boosting its annual dividend rate by about 10%, or 44 cents, to $5.04 a share.

A number of companies have made changes in their operations in recent months to be more efficient or cut costs, often by reducing employee head count.

Since September, FedEx has sped up changes to its cost structure to adjust to weaker levels of demand. It has parked planes and equipment, suspended Sunday deliveries in more markets, furloughed drivers and laid off managers, consolidating teams and functions.

Shares of FedEx have risen 7.3% in the past 12 months through Tuesday’s close. The S&P 500 fell by 9.4% over the same period.

Write to Esther Fung at [email protected]