FedEx at a Crossroads: Can Hiving Off FedEx Freight Save Shareholder Value?

FedEx, one of the largest players in the Courier Express and Parcel (CEP) industry has just announced plans to pursue a full separation of FedEx Freight through the capital markets, creating a new publicly traded company in the hope of increasing shareholder value.

The company, which was once a synonym for parcel delivery, now faces challenges that demand urgent action to enhance shareholder value. Shifts in market dynamics, growing competition, and internal operational issues require the company to adapt to modern realities to regain its leadership position.

So what are the key issues facing FedEx?

Heavy Reliance on the U.S. Market Some 70% of FedEx’s revenue comes from the U.S. market, making the company particularly vulnerable to economic fluctuations and market saturation. In the face of globalisation and expanding competition, FedEx must diversify its revenue streams, especially in international markets.

Lagging in the B2C Market As a traditional legacy carrier, FedEx struggles to keep pace with the rapid growth of e-commerce. The company’s structure, designed primarily for express B2B services, lacks the flexibility to meet X2C demands, such as out-of-home deliveries and parcel locker solutions. A notable example of this was the termination of its partnership with Amazon in 2019, which weakened FedEx’s position in the fast-growing e-commerce sector.

The Rise of Parcel Lockers Competitors such as Amazon and, in Europe, InPost, DPD, and DHL, are aggressively expanding their parcel locker networks, which are both customer-friendly and cost-efficient. FedEx has not invested sufficiently in this infrastructure, falling behind in a critical area.

Challenges from the TNT Express Merger The 2016 acquisition of TNT Express has exacerbated operational issues rather than resolving them. System integration proved costly and inefficient, and the 2017 cyberattack exposed vulnerabilities in the infrastructure. As a result, FedEx has not improved its position in Europe, where DHL dominates the express segment, while DPD, GLS, and latterly InPost, lead in the deferred segment.

Increasing Competition In the U.S., Amazon Logistics has developed its own delivery infrastructure, further reducing FedEx’s market share. Coupled with aggressive strategies from other competitors, FedEx struggles to stand out in a crowded marketplace.

High Operational Costs Cost pressures, especially those related to fuel and labour have negatively impacted FedEx’s margins. Additionally, growing environmental requirements, especially in Europe, necessitate investments in green technologies, further straining the budget.

Conclusion

FedEx must take strategic actions to enhance shareholder value. While separating its business units, such as FedEx Freight and FedEx Express, to increase operational flexibility may be a step in the right direction, it does not absolve the management from addressing other critical issues:

• Investing in E-commerce Infrastructure Adapting to the demands of the X2C (shipments from individuals and businesses to consumers) market is crucial. This includes enhancing out-of-home delivery capabilities and competing more effectively against next gen rivals such as Amazon and other market leaders.
• Diversifying Revenue Streams Expanding operations in international markets and exploring new market segments will reduce dependence on the U.S. market and mitigate economic risks.

These changes, regarded by industry experts, including myself, as essential, are not just about survival—they are about shaping FedEx's future in an increasingly dynamic business landscape. The real test lies ahead: will the separation empower the core parcel business to embrace a modern X2C model, adapting swiftly to new consumer demands? Or will FedEx falter, much like Kodak did in the face of digital disruption or, more recently, the German auto industry amidst the rise of Chinese EV technology? The stakes have never been higher, and the next few years will define whether FedEx regains leadership or becomes a cautionary tale.