As the ecommerce boom and other impacts disrupt logistics, supply chain and transportation, esteemed forerunner FedEx could use some new direction.
FedEx founder Fred Smith was a disrupter himself, introducing overnight package delivery via air freight in 1971. The first 14 FedEx planes took off in 1973. Today FedEx is one of the biggest parcel carriers in America and the biggest cargo airline in the world. Smith continues to serve as CEO. In January the board exempted him from the company’s compulsory retirement at age 75, allowing him to remain at the helm as long as he chooses.
With its industry in transition, the status quo in leadership may not be the best course for FedEx. Despite America’s decade-long economic expansion, FedEx has significantly underperformed the S&P 500 in recent years. The trade war with China, growing competition from Amazon, and difficulties integrating TNT Express, the European firm it acquired in 2016, have made 2019 especially challenging. Shareholders are concerned, yet FedEx continues to focus on expansion, investing more than $5 billion a year since 2017 to keep up with its rivals.
FedEx started out as a business-to-business firm, offering guaranteed delivery times along the supply chain. This is where its focus has largely remained. But the inexorable forces of ecommerce are making home deliveries a top priority. FedEx is expanding its trucking to meet this demand, but Amazon keeps winning the race on the ground, and is now building its air freight capabilities.
As it continues to bring more of its logistics in-house, Amazon is straining relations with logistics service providers like FedEx and rival UPS. FedEx will soon cease working with Amazon altogether. It ended its contract for air deliveries in June, and is allowing its contract for ground deliveries to expire. Instead, FedEx is building its relationships with retailers such as Walmart and Target.
At the global level, FedEx is getting caught in the crossfire of the trade war between U.S. and China, and also facing stiffer competition. Alibaba-backed Chinese rival Cainiao is one of the biggest. In 2017 it committed to investing $15 billion in cross-border logistics. FedEx claims to be undaunted, as its own network spans 220 countries. Nevertheless the economic power of Amazon and Alibaba, plus the advantages they gain from oceans of consumer data, make them formidable foes.
FedEx could reinvigorate itself by bringing in new leadership. Smith has been in charge for nearly half a century, and he is surrounded by senior executives of comparable tenure. The 10 top executives at FedEx, including Smith, average over three decades with the firm. According to The Economist, “FedEx’s failures – to respond more quickly to the changing ecommerce landscape, to read the runes of geopolitics and to end its stubborn refusal to join its two businesses – reflect a company whose management is long in the tooth.”