FedEx AGM – love the bean counters more than the climate
Connecting the dots
XOM: MOMENTUMFWRD: EVENT-DRIVEN UPSIDEPEP: TRADING UPDATE OUTMAERSK: BOTTOM FISHING NO MOREDHL: IN THE DOCKHLAG: GREEN DEALXOM: GEOPOLITICAL RISK AND OIL REBOUND IMPACTZIM: END OF STRIKE HANGOVERCHRW: GAUGING UPSIDEBA: STRIKE RISKDSV: STAR OF THE WEEKDSV: FLAWLESS EXECUTIONKNIN: ANOTHER LOWWTC: TAKING PROFITMAERSK: HAMMERED
XOM: MOMENTUMFWRD: EVENT-DRIVEN UPSIDEPEP: TRADING UPDATE OUTMAERSK: BOTTOM FISHING NO MOREDHL: IN THE DOCKHLAG: GREEN DEALXOM: GEOPOLITICAL RISK AND OIL REBOUND IMPACTZIM: END OF STRIKE HANGOVERCHRW: GAUGING UPSIDEBA: STRIKE RISKDSV: STAR OF THE WEEKDSV: FLAWLESS EXECUTIONKNIN: ANOTHER LOWWTC: TAKING PROFITMAERSK: HAMMERED
UPS’s expansion in the healthcare logistics sector is about more than a push to boost income from a profitable sector: the integrators are facing some difficult strategic choices.
Last week, UPS strengthened its position in the healthcare field in Europe with the acquisition of Frigo-Trans and its sister company BPL, which specialise in time-critical cold chain logistics and warehousing with temperature zones as low as -196ºC.
In light of the integrator’s previous moves in this arena, it was hardly surprising, but it came at a time when the integrated express carriers are facing challenges in their core business and are backing out of some segments.
In June, UPS sold its Coyote Logistics unit for a little over $1bn, a move described by management as ‘concentrating on its core business’. Nine years earlier it had acquired Coyote for nearly $1.8bn.
Meanwhile, FedEx is considering its options for its LTL arm amid widespread expectations of a spin-off. UPS sold its LTL arm for $800m back in 2021, under its “better not bigger” mantra.
Cathy Morrow Roberson, founder and head analyst of Logistics Trends & Insights, notes that the integrators are ‘under siege’ in the residential parcel delivery business, as ecommerce firms use final-mile providers with significantly lower costs.
“FedEx and UPS have to move away from delivery to my front door because they can’t afford it,” she commented. “They’re getting priced-out of the B2C market.”
Industry veteran Ram Menen, former head of Emirates SkyCargo, sees a parallel to the 1990s, when the integrators disrupted the express market, taking high-yield business away from airlines and forwarders.
“Now the boot is on the other foot,” he said. “Their traditional traffic is severely challenged by the ecommerce operators.”
This forces the integrators to withdraw from some sectors and focus on more profitable segments, such as healthcare logistics, he added.
Ms Roberson sees both FedEx and UPS in a “kind of messy situation” as they reconsider their strategies. And she added: “FedEx and US are still struggling to define themselves. We’re seeing a re-defining of what an integrator is.
“The basis of an integrator is a hub-and-spoke model. That will be tossed out of the window eventually,” she predicted, pointing to buyer expectations to get their purchases immediately, which is forcing sellers to move ever closer to markets.
The integrators’ retreat from some sectors to focus on more profitable fields raises the question of if the one-stop shop logistics model is on the wane. Maersk, which embarked on a strategic metamorphosis into an integrated logistics provider a few years ago, appears to have made little headway on this quest over the past year or so.
The investment community has never been hot on the one-stop concept, said Satish Jindel, president and founder of SJ Consulting and ShipMatrix. “When they’re faced with multiple businesses, they struggle with what benchmark to use,” he remarked, adding that XPO was undervalued prior to the spin-off of RXO.
Ms Roberson pointed out that many cargo owners, especially retailers, were in cost-cutting mode these days, which is difficult to execute if they are welded to a single service provider. Moreover, the possibility of a cataclysmic event like a strike at, or a bankruptcy of, the single provider makes this a risky strategy, she added.
According to Mr Jindel, the one-stop shop remains an appealing option. He attributed failed attempts, such as DHL’s takeover of Airborne Express, to mistakes in the execution rather than the concept.
“If the one-stop shop doesn’t succeed, don’t throw out the baby with the bathwater,” he cautioned.
The increased emphasis by cargo owners on supply chain resilience, and the related efforts at closer alignment with service providers and their systems, also favours the one-stop approach, he added.
Mr Menen agreed. He said: “Ecomm folks have changed the customer expectation. Now an average customer, be it an individual or a corporation, is used to ease of doing business, especially through the various platforms that are available.”
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