William J. Logue knew the whole world wouldn't be watching when FedEx Freight, the less-than-truckload (LTL) unit of FedEx Corp. that he heads, rolled out its revamped service on Monday. But he knew one person would be watching intently: Fred Smith, FedEx's founder, chairman, and CEO, and Logue's direct boss. As far as Logue and his team were concerned, it might as well have been the whole world.
A year in the planning, the reconstituted FedEx Freight took the field one week before Super Bowl XLV with the goal of forever changing the LTL game. To do so, the unit seeks to take a page from the playbook used so successfully by the parent's air express business: leverage a dual-use network design and robust information technology to give LTL shippers choices and service levels they've never had before.
The new services "reflect a unique approach to the LTL arena," Logue said in a late December e-mail interview with DC Velocity. "In general, the LTL industry [has] focused on the number of miles a shipment traveled instead of the type of service needed."
The rollout also represents FedEx's most ambitious effort yet to wring profitability from a unit that has struggled with an economic downturn, a severe freight recession, and destructive price wars that took their toll on the entire LTL field. However, the launch comes amid encouraging signs for truckers that the years of margin-denting rate discounts may finally be abating. In its fiscal second-quarter results released in mid-December, FedEx reported mid-single-digit gains in base rates for both its regional and national freight units, citing an improving overall pricing environment.
FedEx Freight's two new services—"priority" for expedited shipments that require delivery within two days, and "economy" for less-urgent deliveries (typically three days or more)—are the byproducts of extensive research into what LTL shippers want in 2011 and beyond, according to Logue.
But even as the operation gets its sea legs, the question being asked is how unique it really is. One trucking industry veteran, speaking on condition of anonymity, said shippers already have their pick of carriers offering a menu of transit times regardless of the shipment's characteristics or the length of haul.
For example, LTL carrier ABF Freight System Inc. says it has operated a dual-system network for regional and long-haul deliveries for five years. ABF launched its network in 2006 along the Eastern Seaboard, expanded it to the eastern two-thirds of the United States several years later, and will soon take it coast to coast, according to Roy Slagle, the trucker's senior vice president of sales and marketing. "It's a proven model that meets the customer's requirements, no matter the distance," he says.
How it works
The new FedEx unit fuses the former regional and national LTL units into a single operation with one point of contact, one driver, and one truck. For the first time in its history, FedEx Freight will tap into the railroads' intermodal network to support its "economy" service, though Logue stressed it would just be for a small fraction of its moves.
Here's how it works for a hypothetical load moving from Boston to Jacksonville, Fla.: A shipment booked as "priority" is routed through a dedicated sorting facility in Newburgh, N.Y., about 50 miles north of New York City. The next morning, the cargo is loaded on the company's relay network for delivery to a dedicated hub in Valdosta, Ga. From Valdosta, the shipment is delivered to a service center in Jacksonville for two-day delivery to the consignee. The same shipment moving via "economy" service is routed through a sorting facility in Harrisburg, Pa., and then shipped to a hub in Orlando, Fla., where it is prepped for delivery on the third day to Jacksonville.
At each shipment's origin point, the cargo will be sorted and segregated based on the delivery level requested by the customer. Once the shipment arrives at the origin facility, the cargo will be scanned by on-dock computers to determine how the shipment should be loaded and the appropriate departure times.
A key distinction between the two service levels is that shipments booked for the slower deliveries will be handled in daytime sort shifts, while the expedited cargoes will move through nighttime sorts. That parallels the network design that the company's air express unit has used for decades.
The operation has hubs dedicated to each service level in addition to dual-use hubs like the one in Orlando. Logue says the dual-use hubs are located to "maximize efficiency and density as well as [to provide] access to rail facilities." The dual-use model is a "critical component" of the program's success, he adds.
As part of the restructuring, FedEx Freight shuttered 100 freight terminals, nearly 20 percent of the unit's 470 terminals. In the process, about 1,700 of the unit's 34,000 jobs were eliminated. FedEx estimates the restructuring will cost between $140 million and $170 million by the time it's completed.
No room for fumbles
As for how the new service will fare in the marketplace, a lot will depend on the execution. Charles W. Clowdis Jr., managing director, transportation and supply chain advisory services for consultancy IHS Global Insight, says the new FedEx service could make market inroads as long as it focuses on careful and near-flawless segregation of each shipment.
In fact, Clowdis foresees a day when the network's reliability allows FedEx to offer services that "segment [shipments] by specific delivery dates and times, accompanied by appropriate pricing." From this could evolve a spate of products that guarantee deliveries before 10 a.m., by 12 noon, and the next afternoon, service levels long available to air express users but virtually unheard of in the LTL category, he says.
From an operations standpoint, it would be hard to find someone inside FedEx more qualified to quarterback the new game than Bill Logue. A 22-year FedEx veteran, Logue has held top operational positions throughout the company; before being named FedEx Freight's president in late 2009 (he added the CEO title in the spring of 2010), Logue was executive vice president and COO of FedEx Express's U.S. operations, responsible for all of the unit's air, ground, and domestic support services.
According to sources, Logue sold top management on the combination not just as a way to cut costs and improve efficiency, but to reshape the way LTL is sold in the United States and how shippers perceive its value.
Management agreed. Now, for Logue, it's game time. Mr. Smith is watching from the luxury box.