DC Velocity - November 2012

newsworthy

After four decades, FedEx turns the page with $1.65

billion operational revamp

XPO Logistics
acquires OHL’s truck
brokerage unit

PHOTO COURTESY OF FEDEX CORP.

FOR MORE THAN 40 YEARS, THE DOMESTIC AIR EXPRESS BUSINESS has been the tail that’s wagged the dog at FedEx Corp.

Its founder, Frederick W. Smith, was more comfortable in the cockpit than in a rig, once remarking, “To us, ‘truck’ is a four-letter word.” FedEx earned its legendary reputation by flying letters and packages, not by trucking them. Corporate strategy was influenced—and decisions made—mostly by those with backgrounds in the air industry. Even as demand for air services in the United States entered a secular decline, the company’s air unit continued to grow, not retrench.

Those days appear to be gone.

On Oct. 10, Memphis, Tenn.-based FedEx announced a three-year $1.65 billion revamp that marks a fundamental shift in emphasis from its domestic air business to its surface transportation, international forwarding, postal, and international express operations.

About $1.55 billion in savings and efficiency improvements will

▪ $400 million will come from internal expense reductions that will involve, among other things, voluntary buyouts and attrition,

▪ $300 million from replacing older, less-efficient freighters with more modern aircraft,

▪ $350 million from adjusting its network infrastructure to optimize freight flows and volumes,

▪ $350 million largely from growing its international business, and

▪ $150 million from expanding into high-demand vertical industries such as health care.

Company executives said that while they don’t expect large volume declines in the U.S. air express market, they understand that it is no longer a growth segment.

By contrast, the company’s fast-growing ground parcel unit, FedEx Ground, will expand network capacity by 45 percent over the next five years to handle expected gains in demand and market share. However, most of the work will be done without the unit’s current CEO, David F. Rebholz, who will retire in May after running the operation since 2007. A successor has yet to be named.

In addition, FedEx said its less-than-truckload (LTL) unit, FedEx Freight, is experimenting with alternate forms of pricing in an effort to move away from “classification” prices determined by the handling characteris- p. 20

XPO Logistics, the company formed by entrepreneur Bradley S. Jacobs to establish a multibil-lion dollar presence in the truck brokerage industry, has acquired broker Turbo Logistics from third-party logistics service provider OHL Inc. for $50 million in cash, XPO’s largest purchase yet.

Brentwood, Tenn.-based OHL said it used the proceeds from the sale to pay down debt.

Phillip Corwin, OHL’s vice president of marketing, said the stand-alone, transactional nature of the brokerage business no longer fits with the company’s strategic mission of providing end-to-end supply chain solutions, of which transportation procurement is just one piece.

Based in Gainesville, Ga., Turbo has annual revenue of approximately $125 million. About 45

percent of its revenue comes from dry van services, 31 percent from refrigerated transport, and about 15 percent from expedited, or time-definite, services.

In an interview, Jacobs said Greenwich, Conn.-based XPO will keep all of Turbo’s employees as well as its stand-alone operations in Gainesville and Reno, Nev.