Eric Kulisch
3 min read
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FedEx Corp. plans to close 30% of its U.S. package distribution facilities within two years under its Network 2.0 consolidation program, which is gaining momentum and expected to contribute toward $200 million in savings this quarter, executives said during an earnings briefing.
In April, the integrated parcel and logistics giant completed the optimization of its parcel operation in Canada. The company is now turning its attention to the U.S. market, where it synthesized 45 U.S. stations in the fiscal year fourth quarter that ended May 31, CEO Raj Subramaniam told analysts Tuesday evening.
Since its founding in the early 1970s, FedEx (NYSE: FDX) has operated in a siloed manner, with each business unit running on its own. Management aims to improve the efficiency with which FedEx picks up, transports and delivers packages by integrating the legacy Express and Ground networks, with the ultimate goal of removing surplus capacity and $2 billion in annual costs. The plan is to have a single van deliver parcels to a neighborhood rather than different vans crisscrossing the same area multiple times per day.
In June, Memphis, Tennessee-based FedEx blended the operation of 30 stations across 11 local markets and will optimize another 33 stations across nine markets by the end of the month, Subramaniam said. By then, about 2.5 million packages, or 12% of total volume, will flow through consolidated facilities on an average daily basis.
Executives said the company expects to reduce structural costs by $1 billion this year, much of it through Network 2.0. About $200 million of the total benefit will be achieved in the current quarter through the network transformation and the final stages of the Drive campaign, which has taken out $4 billion in costs since mid-2023.
In addition to closing 100 U.S. stations, FedEx optimized 290 stations by the end of the fiscal year.
The program was unveiled two years ago, but the company says it is on track. Management stressed that it is methodically implementing the network transformation to ensure it meets and exceeds current levels of service.
“We’re seeing good progress on both the reliability side, as well as the financial side, for those locations we have transitioned,” Chief Financial Officer John Dietrich said. “We’re seeing a 10% improvement on our pick up and delivery costs. And we’re learning and adapting along the way.”
By the end of the current fiscal year, FedEx expects about 40% of total volume to flow through redesigned facilities, Subramaniam said during the third quarter earnings briefing in March.
