Smith says FedEx must be “lean and flexible” to continue growth

Just two days after FedEx announced moves to downsize its workforce in the United States, its chairman Frederick W Smith insisted today the company’s long-term strategy was working. But in a letter to investors, the boss of the Memphis-based integrator stressed the need for his company to “run a lean and flexible organisation” to cope with the current challenges in the global economy.

Over the past 12 months, FedEx Corp has continued to grow its revenues, thanks particularly to a “stellar year” for its FedEx Ground division in the light of booming Internet shopping, particularly in the US.

The company has pulled its FedEx Freight division back to profitability after merging it with its National LTL unit last year, but has found the going tough in its FedEx Express division.

Although efforts to improve package yields have maintained profitability in FedEx Express, the division has been hit by a slow-down in domestic US express package volumes and a shift by international clients from using premium priority products towards more economy services.

The company is now predicting only modest growth in the global economy in the next year, with US domestic and global economies hit by the European debt crisis and slowing growth in Asia.

In response, the world’s largest all-cargo airline has been accelerating its retirement plans for older aircraft in the US to respond to the changes, as well as making moves to cut down on unnecessary administrative staff.

Smith said within the letter published in the company’s annual report to shareholders today that “our long-term strategies are working”, and would improve the company’s competitive position in the next several years.

Meanwhile, he said the company needed to be nimble and responsive to changes in customer demand, taking advantage of its scale to improve efficiency.

“Our customers’ expectations and needs evolve constantly, and so must we,” he said.

Smith noted the importance of ecommerce, which he described as the “perfect fuel for growth” both internationally and in the US, and stated the need for carriers to provide retailers with a range of shipping options.

International growth

Worldwide, he said despite the more “moderate” growth being seen in the US and Europe, FedEx is seeing positive signs in the world’s emerging economies, particularly in countries like China, India, Mexico and Brazil, who he said were quickly becoming consumers as well as producers, driving demand.

“The long term future for global trade remains solid,” said Smith. “We are committed to providing solutions for businesses – large and small – to effectively compete in this important market.”

With the FedEx chairman underlining his company’s continuing growth in Europe despite the slowdown, he said acquisitions made in key international markets was supporting customer needs in those countries.

“To better serve customers, FedEx Express is opening stations across Europe. We’ve also recently completed acquisitions of transport companies in Poland, France, and Brazil to provide customers in those markets with better domestic service and improved access to global markets,” he said.

Smith said air freight was becoming more “episodic” with the express market being dominated by the high-value technology sector that more and more prefers large new product launches.

For flexibility in the global air fleet was therefore a necessity, he suggested.