FedEx’s cost-cutting efforts didn’t end with the high-level layoffs the company announced to kick off February.
Tthe company’s freight division announced that employees in some U.S. markets will be temporarily furloughed from March 5-May 27, FedEx confirmed to Sourcing Journal Monday.
This would mark the second time in three months that furloughs would hit FedEx Freight. In November, FedEx Freight announced 90-day furloughs of an undetermined number of drivers. Those furloughs started in December.
The shipping conglomerate made the decision just days after announcing its plan to eliminate more than 10 percent of its officer and director team positions.
“In response to business conditions continuing to impact volumes, FedEx Freight is enacting another temporary furlough in some U.S. markets to align our workforce with operational requirements,” FedEx said in a statement. “Some eligible employees will be offered permanent transfer opportunities to other markets that have hiring needs. FedEx Freight will maintain health benefits and provide other financial incentives for furloughed employees. The company will continue to evaluate the environment and bring back furloughed employees as business circumstances allow.”
The company did not say how many employees will be furloughed, and which markets the furloughs would be affected. FedEx Freight employed approximately 47,000 people as of May 31 last year.
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Ahead of the announcements of the layoffs and furloughs, FedEx said in December that it’s prioritizing actions to quickly reduce costs in order to align fiscal 2023 costs with weaker-than-expected volume.
The company identified an incremental $1 billion in cost savings beyond its September forecast of $2.7 billion, and now expects to generate total annual cost savings of approximately $3.7 billion relative to its initial fiscal 2023 business plan. The extra $1 billion in savings will come from a 6 percent cut of domestic flights and 7 percent reduction of international ones.
In the second quarter ended Nov. 30, FedEx achieved over $900 million of savings, initial cost targets and bringing the company’s total year-to-date progress to $1.2 billion.
These cost cuts are part of a wider program called Drive, which was designed to improve the company’s long-term profitability and achieve its financial targets. Through Drive, FedEx expects to achieve more than $4 billion in annualized structural cost reductions by fiscal 2025.
Drive is also supporting initiatives to recognize approximately $2 billion in annual benefits from the company’s network optimization strategy unveiled last June called Network 2.0. As part of Network 2.0, by fiscal year 2027, FedEx expects to operate 100 fewer stations, eliminate more than 10 percent of pickup and delivery routes overall and reduce millions of linehaul miles driven.
FedEx plans to host a Drive update call during the first half of calendar 2023 to provide additional details on the company’s ongoing transformation.
Waning demand contributed to a sales dip at FedEx in its second quarter, with the firm seeing revenue decline 2.8 percent to $22.8 billion from $23.5 billion in the year-ago period. Net income took a hit as well, coming in at $788 million, down from $1.04 billion in the prior-year quarter. As of Nov. 30, 2022, FedEx said its cash on-hand was $4.6 billion.
Volume declined across all three FedEx transportation segments, which include FedEx Express, Ground and Freight. Express, which delivers time-definite packages globally using its own employees, was down “double digits” in volume, according to Raj Subramaniam, president and CEO of FedEx, in the earnings call.
FedEx Ground delivers day-definite packages in the U.S. and Canada via independent contractors and Freight is FedEx’s less than truckload (LTL) arm that transports goods, commodities or cargo that weigh more than 150 pounds. While FedEx Express saw revenues decline at a 6 percent pace, FedEx Ground and FedEx Freight had revenue jumps of 2 percent and 8 percent, respectively.
“Volume declines continue to accelerate across major product categories, both in the U.S. and internationally, throughout the second quarter,” said Mike Lenz, executive vice president and chief financial officer, FedEx. “As we look to the second half of the year, we expect volume declines to begin moderating at Express and Ground by the end of the third quarter, with comparisons easing further in the fourth quarter as we lap the onset of softer volumes.”
Even with the aggressive cost reduction in place, Lenz said in the December call that FedEx expects business conditions to remain challenging in the second half of 2023.
“As we move through the second half, we project year-over-year expenses to increasingly decline as our cost initiatives accelerate in conjunction with lapping certain inflationary increases,” Lenz said. “In closing, I’d like to reiterate that the entire team continues to aggressively identify and implement both immediate cost reductions, as well as structural cost efficiencies, to drive improved performance.”
FedEx is just one company in the overall logistics landscape that is seeing job cuts and organizational changes, with Amazon laying off 18,000 employees primarily across its stores and device businesses, as well as its human resources teams. The e-commerce giant’s CEO Andy Jassy stressed during a fourth-quarter earnings call that cost cutting is Amazon’s top priority in building an efficient business going forward.
“There’s a lot to figure out how to optimize and how to make more efficient and more productive,” Jassy said, referring to the company’s expanded fulfillment center footprint and transportation networks. “To figure out how to be really efficient across all those links, and have them be highly utilized, and to get the flows in those facilities work in the right way takes time.”
And on the tech side of logistics, businesses like digital freight forwarder Flexport also cited the slowing volume as a reason for undergoing a reorganization of its own in laying off approximately 20 percent of employees. While FedEx’s chief competitor UPS hasn’t appeared to conduct any layoffs yet, logistics companies like Project44 and GXO Logistics are among those in the field that have slashed staffing numbers. Logistics giant C.H. Robinson is planning additional job cuts this year, following an earlier round of 650 layoffs in November.