FedEx to set up Philippine backroom office after 2008

US logistics giant Federal Express Corp. (FedEx) will consolidate its Asia-Pacific business process operations in the Philippines after it closes its regional air transshipment hub at the Subic Freeport zone in December 2008.

The backroom office, to be located in a still unnamed site in Metro Manila, will handle most of FedEx's human resource and accounting functions in Asia Pacific, from payroll to billing and invoicing.

"We are still working out the number of headcounts needed. But this will probably need close to 100 people," Clifton Chua, managing director for Thailand, Indochina and the Philippines, said.

At present, core accounting and human resource functions of FedEx in Asia Pacific are done individually per country, although it maintains a regional financial center in Singapore because its data center is there.

"We will integrate whatever is possible. At the end of the day, there is some functions that you need to leave at the local country like the day- to-day servicing of your employees," he said.

For the customer service function, FedEx already operates a 40-man call center in its cargo house in Paranaque City, but only caters to domestic calls.

"There is no immediate plan to tap the Philippines yet, as part of our regional call center. But we think the Philippines is one of the sites we highly recommend because of the talent and infrastructure," Mr. Chua said.

FedEx's call center for English-speaking countries in Asia Pacific is in Malaysia.

Mr. Chua said the backroom office will be set up three years from now – after the regional transshipment hub functions at the Subic Freeport are relocated to a new hub at the Guangzhou Baiyun International Airport in southern China.

FedEx's relocation to China is driven by infrastructure constraints at Subic and the changing nature of the world's manufacturing supply chain, with China now becoming the global manufacturer of semi- and finished goods.

"For 10 years, we have been very pleased with the performance of our Subic hub. But the challenge is that looking at our strategic plans in the next 30 years, we will outgrow the size of this hub. There is just no way the hub can expand beyond our current size because of the runway," he said.

FedEx already wanted to leave Subic in 2002 because the runway is not long enough to accommodate its A380 superjumbo jets.

Mr. Chua said FedEx's relocation to China is a result of what he described as a "very detailed and rigorous sorting analysis" to see the best location for a regional transshipment hub.

In the past, he said, all Asian countries, including the Philippines, ship out manufacturing goods directly to importing countries in Europe, US and Japan.

Now, China has already become the world's manufacturing base, but does not have enough raw materials to meet growing demand.

"All these Asian countries are shipping [semi-finished goods] into China, then China provides the value-added and then ship them out. The whole supply chain movement has changed. And this makes a lot of sense for us to put a hub in China," he said.

Prior to finally choosing China, Mr. Chua said the company also thought of operating two hubs in the region, where it could maintain its Subic hub that started operation in September 1995.

"But if we have that two hubs, certain countries will have a degradation [in cutoff schedule ] because you need to fly earlier and you need to connect the two hubs as well," he said.

By maintaining two hubs, the latest cutoff time in some countries will be pushed earlier to synchronize with the latest cutoff time in some countries in the region.

The move to China will directly effect some 60 employees in Subic. Majority of the workers in Subic, estimated to reach a thousand, are employed through FedEx sole Philippine franchisee, Airfreight 2100, Inc.

"For the next three years, we will be proactive in helping our employees. Our people in Subic who are willing to relocate will be given the first priority in any available job in Asia Pacific. And in the event we are unable to place our people when December 2008 arrives, our exit package is two times than what is required by the Philippine law," Mr. Chua said.

He said only the Asia-Pacific air transshipment functions in the Philippines will cease operation by 2008, while the day-to-day pickup and delivery of the company in its Manila and Cebu centers will stay.