FDX » Topics » Strategy

This excerpt taken from the FDX 10-K filed Jul 14, 2006.

Strategy

FedEx was incorporated in Delaware on October 2, 1997 to serve as the parent holding company of FedEx Express and each of our other operating companies. Through our holding company and FedEx Corporate Services, Inc. (“FedEx Services”), we provide strategic direction to, and coordination of, the FedEx portfolio of companies. We intend to continue to leverage and extend the FedEx brand and to provide our customers with convenient, seamless access to our entire portfolio of integrated business solutions.

We are pursuing a number of initiatives to continue to enhance the FedEx customer experience. For instance, in May 2006, we launched FedEx Expedited Freight Services, a new, one-call solution that enables customers to quickly and easily evaluate surface and air freight shipping options available from FedEx Express, FedEx Freight and FedEx Custom Critical in order to select the best service meeting their needs. Through one point of contact, customers can select from a broad range of freight services, based on their pickup and delivery requirements, time sensitivity and the characteristics of the products being shipped. This new freight shipping solution further demonstrates our commitment to enhancing the customer experience through state-of-the-art technology.

We believe that sales and marketing activities, as well as the information systems that support the extensive automation of our package delivery services, are functions that are best coordinated across operating companies. Through the use of advanced information systems that connect the FedEx companies, we make it convenient for customers to use the full range of FedEx services. We believe that seamless information integration is critical to obtain business synergies from multiple operating units. For example, our Web site, fedex.com, provides a single point of contact for our customers to access FedEx Express, FedEx Ground and FedEx Freight shipment tracking, customer service and invoicing information and FedEx Kinko’s office and print services.

We manage our business as a portfolio—in the best interest of FedEx as a whole, not a particular operating company. As a result, we base decisions on capital investment, expansion of delivery, information technology and retail networks, and service additions or enhancements on achieving the highest overall long-term return on capital for our business as a whole. For each FedEx company, we focus on making appropriate investments in the technology and assets necessary to optimize our earnings performance and cash flow. As an example of our commitment to managing collaboratively, certain of our management incentive compensation programs are tied in part to the performance of FedEx as a whole.

While we have increased our emphasis on competing collectively and managing collaboratively, we continue to believe that operating independent networks, each focused on its own respective markets, results in optimal service quality, reliability and profitability from each business unit. Each FedEx company focuses exclusively on the market sectors in which it has the most expertise. Each company’s operations, cost structure, policies and culture are designed to serve the unique customer needs of a particular market segment.

Our “operate independently, compete collectively, manage collaboratively” strategy also provides flexibility in sizing our various operating companies to align with varying macro-economic conditions and customer demand for the market segments in which they operate. For example:

·       To accommodate international growth at FedEx Express, we have added flights, purchased aircraft, increased capacity and improved services to and from Europe and Asia based on the growth prospects of these regions.

·       We are expanding network capacity at our growing FedEx Ground and FedEx Freight companies. For instance, we expect to increase FedEx Ground’s daily package pick-up capacity to approximately five million by 2011.

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·       We are expanding the FedEx Kinko’s retail network, which will further increase customer access to FedEx shipping services and offer growth opportunities in commercial document solutions and other business services.

We believe the following four trends continue to drive world commerce and shape the global marketplace:

·       Globalization:   As the world’s economy becomes more fully integrated, and as barriers and borders to trade continue to decrease, companies are sourcing and selling globally. The increase in global sourcing and selling has led companies to streamline their supply chains and open new markets. With customers in more than 220 countries and territories, we facilitate this supply chain through our global reach, delivery services and information capabilities.

·       Supply Chain Acceleration:   As the economy has become increasingly global, it has also become more fast-paced. Businesses cannot wait weeks to source components and finished goods from around the world, especially in high-tech industries with high obsolescence rates. As a result, companies of all sizes depend on the delivery of just-in-time inventory to help them compete faster and more efficiently. We have taken advantage of the move toward faster, more efficient supply chains by helping customers substitute near real-time information to manage inventory in motion, thereby reducing overhead and obsolescence and speeding time-to-market.

·       Increase in High-Tech and High-Value-Added Businesses:   High-tech and high-value-added goods continue to increase as a percentage of total economic output. These goods can be roughly defined as any product with a relatively high value-to-weight ratio or a high value-added content—for example, computers, pharmaceuticals, automotive goods, electronics, high-fashion goods and aviation products. Our various operating companies offer a unique menu of services to fit virtually all shipping needs of high-tech and high-value-added industries.

·       Growth of the Internet and E-Commerce:   E-commerce acts as a catalyst for the other three trends and is a vital growth engine for businesses today. It makes low-cost information available to anyone with Internet access, regardless of time or space. It enables small and mid-sized companies to source and sell globally, just like large corporations. Through our global transportation and technology networks, we contribute to and benefit from the growth of the Internet and e-commerce.

These trends have produced an unprecedented expansion of customer access—to goods, services and information. We continue to position our companies to facilitate and capitalize on this access and move toward even stronger long-term growth, productivity and profitability by:

·       Optimizing and expanding our worldwide FedEx Express network, particularly in key markets such as China and India.

·       Increasing the capacity, speed and reliability of our FedEx Ground and FedEx Freight networks and expanding the FedEx Kinko’s retail network.

·       Emphasizing the “compete collectively” part of our core strategy through service improvements and focusing our employees and contractors on delivering the best customer experience in the industry, resulting in better alignment across the entire FedEx network.

In 2006, we also agreed to make two strategic acquisitions, each of which is expected to provide important contributions to our long-term growth, productivity and profitability.

·       On January 24, 2006, FedEx Express signed an agreement with Tianjin Datian W. Group Co., Ltd. (“DTW Group”) to acquire DTW Group’s fifty percent share of the FedEx-DTW International Priority express joint venture and DTW Group’s domestic express network in China for approximately $400 million in cash. The acquisition will convert our joint venture with DTW Group, formed in 1999, into a wholly owned subsidiary and increase our presence in China in the international and domestic express

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businesses. The acquisition is expected to close in the first half of 2007 and is subject to customary conditions, including government approvals and licensing.

·       On May 26, 2006, FedEx signed an agreement to acquire the U.S. and Canadian LTL freight operations of Watkins Motor Lines and certain affiliates for approximately $780 million in cash. Watkins Motor Lines, a privately held company headquartered in Lakeland, Florida, is a leading provider of long-haul LTL freight services. Watkins’ U.S. long-haul LTL freight business will be rebranded FedEx National LTL and will operate as a separate network within the FedEx Freight segment. Watkins’ Canadian business, known as Watkins Canada Express, will be rebranded FedEx Freight Canada and will extend FedEx Freight’s reach and create opportunities for growth in the Canadian market. The addition of Watkins’ three-day or more long-haul service to FedEx Freight’s industry-leading next-day and second-day regional LTL freight service will extend our leadership position in the heavyweight freight market. The acquisition is expected to close in the first half of 2007 and is subject to customary conditions.

This excerpt taken from the FDX 10-K filed Jul 14, 2005.
Strategy

FedEx was incorporated in Delaware on October 2, 1997 to serve as the parent holding company of FedEx Express and each of our other operating companies. Through our holding company and FedEx Corporate Services, Inc. (“FedEx Services”), we provide strategic direction to, and coordination of, the FedEx portfolio of companies. We intend to continue to leverage and extend one of our greatest assets, the FedEx brand, and to provide our customers with convenient, seamless access to our entire portfolio of integrated business solutions. We are pursuing a number of initiatives to continue to enhance the FedEx customer experience, including improving the capabilities of our sales professionals. For instance, through our FedEx OneCall program, we assign a single customer service agent to handle virtually all issues of a customer’s account.

We believe that sales and marketing activities, as well as the information systems that support the extensive automation of our package delivery services, are functions that are best coordinated across operating companies. Through the use of advanced information systems that connect the FedEx companies, we make it convenient for customers to use the full range of FedEx services. We believe that seamless information integration is critical to obtain business synergies from multiple operating units. For example, our Web site, fedex.com, provides a single point of contact for our customers to access FedEx Express, FedEx Ground and FedEx Freight shipment tracking, customer service and invoicing information and FedEx Kinko’s office and print services.

We manage our business as a portfolio—in the best interest of FedEx as a whole, not a particular operating company. As a result, we base decisions on capital investment, expansion of delivery and information technology networks, and service additions or enhancements on achieving the highest overall long-term return on capital for our business as a whole. For each FedEx company, we focus on making appropriate investments in the technology and assets necessary to optimize our earnings performance and cash flow. As an example of our commitment to managing collaboratively, certain of our management incentive compensation programs are tied in part to the performance of FedEx as a whole.

While we have increased our emphasis on competing collectively and managing collaboratively, we continue to believe that operating independent networks, each focused on its own respective markets, results in optimal service quality, reliability and profitability from each business unit. Each FedEx company is free to focus exclusively on the market sectors in which it has the most expertise. Everything about each company—operations, cost structure, policies and culture—is designed to serve the unique customer needs of a particular market segment.

Our “operate independently, compete collectively, manage collaboratively” strategy also provides flexibility in sizing our various operating companies to align with varying macro-economic conditions and customer demand for the market segments in which they operate. For example,

·  To accommodate international growth at FedEx Express, we have added flights, purchased aircraft, increased capacity and improved services to and from Europe and Asia based on the growth prospects of these regions.

·  We are expanding network capacity at our growing FedEx Ground and FedEx Freight companies. For instance, we expect to increase FedEx Ground’s daily package pick-up capacity to approximately five million by 2010.

On the other hand, we have streamlined resources within the U.S. domestic FedEx Express network, based on its slower growth rates. We continue to implement focused strategies to improve our

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productivity and operational efficiency and to increase usage of FedEx Express’s U.S. domestic services.

We believe the following four trends continue to drive world commerce and shape the global marketplace:

·  Increase in High-Tech and High-Value-Added Businesses:   High-tech and high-value-added goods continue to increase as a percentage of total economic output. These goods can be roughly defined as any product with a relatively high value-to-weight ratio or a high value-added content—for example, computers, pharmaceuticals, automotive goods, electronics, high-fashion goods and aviation products. Our various operating companies offer a unique menu of services to fit virtually all shipping needs of high-tech and high-value-added industries.

·  Globalization:   As the world’s economy becomes more fully integrated, and as barriers and borders to trade continue to decrease, companies are sourcing and selling globally. The increase in global sourcing and selling has led companies to streamline their supply chains and open new markets. With customers in more than 220 countries and territories, we facilitate this supply chain through our global reach, delivery services and information capabilities. According to the Boeing Company’s World Air Cargo Forecast Team, air cargo traffic will expand at an average annual rate of 6.2% for the next two decades, and express air cargo has grown at more than twice the rate of total worldwide air cargo traffic, averaging more than 16% annually over the last decade. According to Air Cargo World magazine, FedEx Express has the largest share of the global air cargo market and thus received a number one ranking in the magazine’s “World’s Top 50 Cargo Airlines” list during 2005.

·  Supply Chain Acceleration:   As the economy has become increasingly global, it has also become more fast-paced. Businesses cannot wait weeks to source components and finished goods from around the world, especially in high-tech industries with high obsolescence rates. As a result, companies of all sizes depend on the delivery of just-in-time inventory to help them compete faster and more efficiently. We have taken advantage of the move toward faster, more efficient supply chains by helping customers substitute near real-time information to manage inventory in motion, thereby reducing overhead and obsolescence and speeding time-to-market.

·  Growth of the Internet and E-Commerce:   According to Forrester Research, U.S. online retail sales are forecasted to more than double in the next six years—from $144 billion in calendar 2004 to $316 billion in calendar 2010. E-commerce acts as a catalyst for the other three trends and is a vital growth engine for businesses today. It makes low-cost information available to anyone with Internet access, regardless of time or space. It enables small and mid-sized companies to source and sell globally, just like large corporations.

We continue to position our companies to capitalize on these trends and move toward even stronger long-term growth, productivity and profitability by:

·  Optimizing and expanding our worldwide FedEx Express network, particularly in key markets such as China, India and Eastern Europe.

·  Aggressively growing the capacity of our FedEx Ground and FedEx Freight networks.

·  Restricting further growth in our cost structure, especially at FedEx Express within the U.S.

·  Emphasizing the “compete collectively” part of our core strategy through service improvements and focusing our employees and contractors on delivering the best customer experience in the industry, resulting in better alignment across the entire FedEx network.

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·  Integrating and expanding FedEx Kinko’s, which will further increase our retail presence for FedEx shipping services and offer growth opportunities in commercial document solutions and other business services.

We acquired FedEx Kinko’s in February 2004 and have moved quickly to implement our retail vision. We have completed the rebranding of Kinko’s locations as FedEx Kinko’s Office and Print Centers and converted 176 FedEx World Service Centers into full-service FedEx Kinko’s Ship Centers. We also opened 48 new FedEx Kinko’s locations, including 30 internationally, during 2005. In addition, FedEx Kinko’s has expanded its service offerings. For example, we have:

·  Launched the full range of FedEx Express and FedEx Ground services at virtually all U.S. locations and added packing supplies and boxes to the retail product assortment (we are also adding FedEx shipping services at FedEx Kinko’s international locations);

·  Launched packing services—creating a complete “pack-and-ship” solution—at virtually all U.S. FedEx Kinko’s Office and Print Centers;

·  Completed the roll-out of T-Mobile HotSpot Wi-Fi wireless broadband Internet access at nearly all U.S. locations; and

·  Launched File, Print FedEx Kinko’s, an innovative software tool developed with Microsoft that allows customers to access the full range of FedEx Kinko’s copying and printing services from their desktop.

FedEx Kinko’s redefines the future of the business services marketplace by serving as a complete office on the road for business customers. FedEx Kinko’s creates a one-stop resource, offering the industry’s broadest range of business services, including document services, retail products and services, large format signs and graphics and other services. FedEx Kinko’s retail network of approximately 1,440 staffed locations also substantially increases customer access to FedEx Express and FedEx Ground services.

EXCERPTS ON THIS PAGE:

10-K
Jul 14, 2006
10-K
Jul 14, 2005
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