Earlier this month, FedEx Freight made waves when it announced that it would be closing more than two dozen of its freight locations.
Shared via an e-mailed statement, the announcement has generated headlines across the country, not to mention considerable noise within the LTL community.
But how big really is this news? Is it honestly just a move to bring the carrier’s network in line with the LTL market’s obviously declining volumes? Or are there other motivating factors? Is it possible that other LTL carriers will follow suit? Most importantly, how could it affect shippers like you?
We recently sat down with AFS’ President of LTL, Kevin Day, to take a closer look.
So, walk us through the basics of the FedEx Freight announcement.
On May 1, FedEx Freight said that it had identified several “opportunities to consolidate operations…to improve customer service levels while lowering [its] cost to serve.”
As a result, 29 of its operations will be closed and consolidated into other locations by mid-August. This is in addition to the many rounds of temporary furloughs the company has already enacted since December.
Is this a significant development?
It’s definitely noteworthy. Like other LTLs, the company has closed the occasional location in the past. However, it’s never closed so many facilities at once.
At the same time, it’s important to remind people that they have close to 400 locations, so the reality is you’re only talking about 7.5% of its service centers – and even less than that if you factor in the many other FedEx locations (like those in its Ground network) that it also intermingles with.
Which locations will they be closing?
There haven’t been any specifics provided yet, except to say that many of the locations slated for closure aren’t as technologically current or state-of-the-art as others.
What prompted this decision?
It all comes down to profitability – and keeping shareholders happy.
FedEx Freight said that it is always reviewing its network to ensure it has the right design for changing market dynamics. And lately those dynamics have reflected a precipitously declining demand.
Considering that LTL shipping volumes have declined by as much as 12% on a Year-Over-Year (YOY) comparison, it shouldn’t come as a surprise that the industry’s biggest LTL player suddenly has excess capacity – or that it’s decided to make swift adjustments to its networks in order to protect its bottom line. It also remains as one of its parent company’s most impressive success stories during quarterly earning calls.
So, to an extent, this move is just a telltale sign of what the LTL market is like right now.
Absolutely – and not just the LTL market.
Are other LTLs also reducing capacity?
Well, we do know that Yellow Freight, the industry’s third largest LTL, announced plans to sell 28 of its 318 terminals last November.
We also know that Saia, the industry’s ninth largest LTL, was considering putting its expansion plans – which included opening 10 to 15 new facilities – on hold.
Many other LTL carriers could be reducing their network size as well – or pursuing other effective cost-cutting techniques like furloughs, selling equipment or attrition. They’re just being a lot quieter about it, or they’re still considering their options.
How does this news seem to fit in with other developments at FedEx?
It’s extremely consistent because it’s yet another cost-cutting measure in a company that has recently begun pursuing several of them.
Since December 2022, FedEx Freight has enacted (or announced plans to enact) four separate temporary furloughs for certain employee groups.
And since early April, FedEx has begun working on consolidating all of its operating companies into a single operating organization (Federal Express Corporation), with an eye toward saving $4 billion in permanent operating costs. (Interestingly, FedEx has made it clear that FedEx Freight will continue to operate as a standalone operation within the company and it also has stated that it is using their successful cost management efforts as a model for its other divisions.)
What’s the potential takeaway for current customers?
We can’t say for sure until we know exactly which facilities will be closing. However, it’s possible that these 29 facilities’ closures could result in longer pedal runs in certain geographies. And that in turn could it make it tougher for drivers in those markets to deliver loads especially early or make especially late pickups in the day.
On the positive side, it’s also possible that by closing some redundant operations, they may be able to reduce some of the hand-offs that have the potential to result in a greater percentage of lost or damaged freight.
Last, but certainly not least, it hopefully means that the company can continue to turn a healthy profit (and keep shareholders happy) without having to resort to its tried-and-true tactic of significantly raising rates.
Any parting thoughts?
Despite the dire-sounding nature of this news, FedEx Freight remains healthy – and so does the supply of LTL shipping locations and options you and your company will need to get your LTL freight shipped quickly and cost-effectively (especially when you factor in current demand).
It appears that unlike UPS, which famously sold off its LTL division a couple of years ago, FedEx remains as committed as ever to being a significant presence in the LTL market.
We’ll continue to keep you posted on how this story unfolds as we get more information, so watch this space. Or drop us a line if you’d like to discuss how this and other recent LTL developments could impact your LTL efficiency and spend.