Bill Logue will launch a new trucking company Jan. 31 — FedEx Freight. It will look much the same as the old FedEx Freight. Its rates won’t change. It will serve the same territory and customers it served last week.
But it won’t be the FedEx Freight designed by veteran less-than-truckload executive Douglas G. Duncan. On Jan. 31 the company emerges from a $140 million to $170 million reorganization that went beyond cosmetics to make structural changes in the LTL network. Gone is FedEx National LTL, the former Watkins Motor Lines, which since September 2006 operated as a separate long-haul carrier running in tandem with its regional “fast-cycle logistics” parent.
Also gone are some 100 terminals and 1,700 employees, leaving FedEx Freight with about 350 facilities and 33,000 full-time and part-time workers. The company shed older truck equipment in the transition as well.
“We have fewer terminals, but appropriate door and line-haul capacity,” said Logue. “We don’t look at it as taking ‘x’ amount of capacity out of the market, we see it as restructuring our capacity so it’s appropriate for the business that we have.”
Most of all, FedEx Freight is hoping to leave behind a string of losses and return to profitability. The carrier reported an operating loss in seven of the last eight quarters, losing $91 million in the fiscal period that ended Nov. 30 after losing $153 million in its previous fiscal year.
No one factor led to FedEx Freight’s steep losses, although deep rate discounts aimed at getting market share helped. Operating two LTL networks helped tip the business into the red in the recession and made it more difficult to climb out of its losses.
Side Bar: Simpler Pricing No Priority.
Analysts and industry experts have been generally upbeat about the company’s reinvention. Although FedEx Freight 2.0 may not amount to an LTL revolution, it will help reverse an earnings slide and put pressure on the LTL competition — which hasn’t been idle.
YRC, Con-way Freight, UPS Freight and ABF Freight System, Estes Express Lines and Old Dominion Freight Line and dozens of smaller carriers all are improving transit times and re-engineering networks for efficiency and better yield.
They are all fighting shippers who trying to cut every bit of slack they can from lean supply chains and now subscribe to fat-free inventory management. That means replenishment is continual. Shippers with bare-bone logistics budgets are adjusting transit times and modes on the fly to get the lowest total landed cost.
Through the reorganization, Logue has put his own stamp on FedEx Freight, and there’s more parcel in that stamp than pallet. “It’s like bringing the express world into the LTL space,” said Logue, who spent 20 years at FedEx Express before becoming president of the FedEx trucking unit in 2009. “We’re giving the customer a choice of two types of service, priority and economy, in every length of haul.”
Eventually, “We want to make it as simple to ship an LTL skid as it is to ship an overnight letter,” Logue said. That would help FedEx bundle services and potentially move up and down the pricing scale with its shippers, as the company has done with the trade-off between premium FedEx Express service and its parcel FedEx Ground unit.
FedEx Freight’s information technology has been redesigned, integrated and simplified by a team that works not for FedEx Freight, but FedEx Services, covering all FedEx subsidiaries. In the back office, separate billing and accounting systems for FedEx Freight and FedEx National LTL have been merged. “The customer can get a premium or a deferred option with one phone call, one pickup, one bill of lading, one interface,” said Logue.
Long-haul service will be bolstered by intermodal rail — which FedEx Freight has used only sparingly but is heavily used by UPS. But intermodal still will represent less than 10 percent of the carrier’s overall line-haul miles.
Nowhere is the shift in LTL model more apparent than the replacement of “regional” and “national” with “priority” and “economy.” They are not the same, Logue said.
The old FedEx Freight focused on short-haul lanes and targeted “fast-cycle logistics” customers who needed shipments delivered overnight or in two days. When Duncan engineered the buy of Watkins in 2006, he bolted a three- to five-day long-haul network alongside the short-haul one. The two operated separately for years on the grounds they offered incompatible value propositions. The reorganization up-ends that notion by shifting emphasis away from geography and length of haul to focus on speed and need.
A priority order could be a 200-mile shipment, but it also could be a 2,000-mile move. An economy shipment could be a long haul, but it could also be a 500-mile shipment that doesn’t have a pressing, definite delivery time. And “economy” is still faster in many cases than FedEx National LTL. “We tried to get as close as we could to a one-day differential between the two offerings,” Logue said. “We had to speed up some of the national lanes to get to that one-day match.”
Beyond dropping 100 terminals, helping reduce excess capacity that has depressed pricing across the LTL trucking industry, FedEx made significant changes in how freight flows through its remaining facilities.
“We used to have different hubs within the two networks operating at different times of the day and night,” said Logue. “To my (FedEx) Express mind, hubs have to work around the clock.” The new FedEx Freight network is anchored on 10 “dual hubs” that handle priority and economy shipments.
“With the dual-use hubs, we can get the use of the asset virtually around the clock. These hubs are strategically located to help us run a much more efficient line-haul network, in places such as Memphis, Chicago, Dallas and Orlando.” The remaining terminals handle priority or economy freight. “We slightly reduced the number of priority terminals and made two national terminals ‘economy’ hubs.”
Shippers will see a clear price difference in the two offerings, Logue said, depending on length of haul, region and other factors.
Logue claims the model is “more of an express model” than the standard hub-and-spoke network in the LTL industry. “With us, you can go to one carrier for nationwide coverage, with priority and economy service anywhere,” he said. “That’s the differentiation we bring to the market.”
Contact William B. Cassidy at firstname.lastname@example.org