News / FedEx claims victory in shift to higher-margin traffic

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FedEx management has signalled its intention to throttle-down its involvement in low-margin e-commerce to focus on the premium segment of that market and on B2B business.

Investors have heard this before and may be wondering about increasing competition from Amazon and Walmart, as those behemoths keep ramping up their rapid delivery capabilities.

According to FedEx EVP and chief customer officer Brie Carrere, speaking at an investors’ event last week, management is aiming for low single-digit growth in B2C traffic through 2029 as it concentrates primarily on more sustainable and profitable business.

This translates into a focus on segments of the B2C market and industries that demand higher service levels, like automotive, aerospace, healthcare, and data centre verticals.

“We will concentrate our commercial energy where customers value speed, precision, visibility and reliability over the lowest price,” said FedEx president and CEO Raj Subramaniam.

The course is not new. The integrated express carriers have been chasing more-lucrative express business all along, a quest that has become more urgent as they cannot compete in the high-volume, low-margin arena with final-mile providers that have hugely lower cost structures. However, faced with stagnant demand in the B2B sector, they need volumes from the lower end of the market for network utilisation.

Both UPS and FedEx have tried to walk away from less-attractive volumes from the likes of Amazon of the US Postal Service, but kept re-engaging with these customers.

Ms Carere declared the end of this era, claiming restructuring under the Network 2.0 banner – which aims to produce costs savings of $2bn by the end of next year – has reached a level where the low-margin filler traffic is no longer critical.

She told investors the company’s US network was already at high volume levels, relative to capacity, with more improvement on the horizon as network consolidation continues. She added: “We have not seen this utilisation since the pandemic.”

And Mr Subramaniam commented: “FedEx is entering a new era as we build the most flexible, efficient, and intelligent network in history.”

Investors may be wondering how to square this picture with the recent announcement of the investment in InPost. Parcel lockers are usually not associated with premium traffic that requires elevated service levels.

FedEx may be pursuing a more defensive strategy in Europe, after its costly failed expansion there during the 1980s and the takeover of TNT, which did not produce the anticipated growth either, said Cathy Morrow Roberson, founder and head analyst of Logistics Trends & Insights.

On the high road to high margins, FedEx and UPS may encounter rising competition from two players more associated with the low-coast end of B2C traffic. Amazon and Walmart have both taken massive strides in accelerating their delivery speed.

This month, Amazon trumpeted the fact that last year over eight billion items were delivered to Prime members the same or the next day, which marked a 30% improvement over the 2024 tally. On a global level, the company delivered over 13bn items on the same or next day.

It also touted its reach beyond urban conurbations in the US, having expanded same-day and next-day delivery to more than 4,000 smaller cities and towns. According to the company, a key factor in this has been the transformation of rural delivery stations into hybrid hubs that serve multiple functions.

And in December, Amazon  began trials for 30-minute deliveries in Seattle and Philadelphia.

Meanwhile, Walmart could reach 93% of US households with same-day delivery a year ago, and was aiming for 95% by end of 2025.

Both Amazon and Walmart have also been pushing further into third-party logistics, leveraging their networks. Cargo owners in the industrial sectors tFedEx and UPS have in their sights are bound to be aware of these developments.

“I’m sure they’re keeping an eye on Amazon and Walmart, if they’re not using them already,” said Ms Roberson. “Their delivery speeds, plus multiple daily calls by Amazon, make them an attractive option to reduce inventory costs,” she added.