FedEx Freight has increased its operating profit by nearly 25% on average per year over the last five years, according to FedEx.
FedEx Corp. plans to spin off FedEx Freight and create a new publicly traded company within the next 18 months.
The move will allow each company to continue to pursue its own growth strategies, with “more customized operational execution along with more tailored investment and capital allocation strategies to serve the unique and evolving needs of both the global parcel and LTL markets,” according to a FedEx news release.
“This is the right time to pursue a separation as we respond to the unique dynamics of the LTL market,” said Raj Subramaniam, FedEx Corp. president and chief executive officer.
How Will FedEx Freight Spin-Off Affect The Less-Than-Truckload Market?
FedEx Freight is the largest less-than-truckload carrier in the industry, according to the company. It’s another shakeup in the LTL that is still reshuffling after the 2023 bankruptcy of LTL giant Yellow.
Other LTL companies are expanding with the purchase of former Yellow terminals. Estes Express Lines, for instance, just announced it is buying seven owned properties and four leased terminals.
Others have been expanding their LTL footprint through acquisitions, such as Knight-Swift’s purchase this year of Dependable Highway Express, and Pitt Ohio’s recent purchase of regional LTL Sutton Transport.
In an email about the FedEx announcement to investors, the Stifel investment firm said, “[FedEx] Freight already has a strong margin profile and disciplined margin mandate, so we expect little change to competitive rationality.
“FedEx plans to add 300 LTL salespeople and sees ‘an opportunity to play offense,’ but we don’t anticipate major pricing strategy changes. We view the largest player becoming a standalone, more margin-focused operator as a net positive for the LTL industry, if anything.”
Both FedEx and competitor UPS have been trying to boost results after the pandemic-era boom in packages has waned, notes the Wall Street Journal.
Changing Course
As the Wall Street Journal pointed out, the news means FedEx and UPS both have now reversed course after building up their freight trucking operations over the past two decades.
In 2021, UPS sold its UPS Freight less-than-truckload division to TFI International Inc. UPS Freight was formed after UPS bought Overnite Transportation in 2005 to expand its ground freight services.
Last year, FedEx announced it would consolidate all its operating companies other than FedEx Freight into one organization to bring down costs, increase efficiencies, and simplify things for customers. FedEx Express, FedEx Ground, FedEx Services, and other FedEx operating companies were rolled into Federal Express Corp., while FedEx Freight continued to operate as a stand-alone company under Federal Express Corp.
FedEx said there are strategic opportunities that arise from separating FedEx Freight into an independent company but also substantial benefits from continued collaboration, such as:
- Focus and Growth: The split aims to give each company more flexibility to focus on operations, meet customer needs, and pursue profitable growth.
- Independent Stock Listings: Both companies will have separate public stock listings, offering distinct opportunities for investors.
- Financial Strength: Each company will have strong finances, allowing them to invest in growth and return capital to shareholders.
- Ongoing Collaboration: FedEx and FedEx Freight will maintain partnerships to ensure smooth operations, improve efficiency, and keep costs low.
- Shared Branding: The new company will continue to use the FedEx Freight name, representing speed, reliability, and trust.
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