FEDEX BEGINS TO DOWNSIZE
FedEx’s trucking unit, FedEx Freight is slashing its workforce by 900 positions. This is on top of cutting back salaries, bonuses and suspending its 401(K) match. LTL trucking has hit the skids and Yellow transportation, the nation’s largest trucker, is teetering on bankruptcy. Some are faring better, but all are agreed this recession is long-term and when life returns to normal, freight volumes will never return to halcyon days. Why? Because consumers will be buying what they need and not what they want. The Internet over the last few years has impacted upon overnight envelope volumes, once FedEx’s most profitable part of its business. Shipping managers once gave little thought to “overnighting” freight, when a three service would have sufficed. Today, the freight component receives the same vigilance from management as any other cost. UPS and FedEx domestically may have had their fortunes temporally boosted by the demise of DHL, but they are in a shrinking business that is rapidly becoming less profitable.
Third party logistics, that magical name that replaced warehousing and distribution is a “science” created by universities and practiced by large forwarders and integrators. Two issues that have never been addressed until now is; one, does it save the customer any real money and two; no integrator/forwarder has ever made any money themselves expanding into this arena. I believe 3pl, 4pl and any other version of warehousing and distribution is on the way out. FedEx and UPS have huge investments in this sector of the transport industry. My prediction is many corporations will take back the warehousing and distribution functions and many forwarders/integrators will exit the business or considerably downsize their operations.
For many years to come, UPS and FedEx will rely upon the support of the forwarding industry as the base load for their international service. It’s odd that four years ago FedEx proclaimed they no longer needed the forwarder because direct customers filled every flight. Today they need the support of the forwarder as they never have before. The only problem is rates need to be at levels that can sustain the costs of flying cargo aircraft. If that point is not reached FedEx and UPS will do the same as the passenger/combination carriers and reduce capacity to meet demand.
Both FedEx and UPS are huge employers and because their business used to be a license to print money, they are bloated with people from executives down to drivers. This recession will see FedEx trimmed down and very quickly they will become lean, mean and hungry. I can’t say the same for UPS. Like GM and the Auto Workers’ Union, UPS and the Teamsters will head for another confrontation, exactly what happened eight or nine years ago. UPS could come out of this recession, wounded, never to regain where it was in 2008. Quite frankly with the arrogance they have displayed over the years, this recession will bring them back down to earth.
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