FedEx has announced plans to split its freight division, FedEx Freight, from the parent company, a strategic move the company believes will “unlock significant value.” The separation, confirmed during FedEx’s fiscal second-quarter earnings call on December 19, is aimed at strengthening FedEx Freight’s position in the competitive Less-than-Truckload (LTL) market.
FedEx President and CEO, Rajesh Subramaniam, stated that the company expects the separation to be completed within approximately 18 months. He emphasized that both FedEx and FedEx Freight would benefit from greater focus and competitiveness post-separation, while maintaining “commercial, operational, and technological cooperation” between the two entities.
The decision comes at a time of mixed performance for FedEx. The company reported flat revenue for its FedEx Express segment in Q2, with revenue remaining unchanged at $18.8 billion compared to the same period last year. Despite challenges in the U.S. domestic parcel and freight volumes, FedEx cited improved base yields and stronger international export parcel demand as key drivers of performance.
Operating income for FedEx Express was up 13% year-over-year, supported by cost-saving initiatives under the DRIVE program, base yield improvements, and increased demand for international exports. However, the company acknowledged the ongoing challenges in the U.S. manufacturing sector, with the U.S. manufacturing Purchasing Managers’ Index (PMI) indicating contraction in 24 of the past 25 months, signaling a softer business-to-business (B2B) demand environment.
While FedEx Express showed resilience, FedEx Freight faced difficulties. The freight division reported an 11% revenue decline, falling to $2.2 billion in Q2. This drop was attributed to lower average daily shipments, decreased fuel surcharges, and reduced shipment weight per unit, compounded by a challenging year-over-year comparison with last year’s Yellow volume acquisition. Operating income for FedEx Freight was down 36% due to these factors, although cost management efforts and continued base yield growth provided some offset.
Overall, FedEx posted second-quarter revenue of $22 billion, slightly down from $22.2 billion in Q2 of FY2024. Operating income decreased to $1.05 billion, down from $1.28 billion, and operating margins slipped from 5.8% to 4.8%.
Despite the flat revenue performance, FedEx saw positive results from international operations. International export package volumes increased by 9%, largely driven by the international economy segment, which continued its growth trajectory consistent with recent quarters.
In response to market conditions, FedEx has revised its fiscal year 2025 revenue and earnings forecast, now predicting flat revenue growth compared to earlier expectations of a low single-digit increase.
FedEx is also focusing on long-term growth strategies, including a redesign of its Tricolor global air network. The company aims to enhance asset utilization and improve operational efficiency across its international freight operations. FedEx’s executives indicated that increasing market share in the $80 billion global airfreight market is a key goal, as the company currently holds a low single-digit market share. FedEx has implemented a range of commercial initiatives, including the creation of a dedicated sales organization and a new customer service model, as well as investment in digital capabilities.
Looking ahead, FedEx plans to deliver $4 billion in structural cost savings by the end of FY2025, through its DRIVE program. Additionally, the company is targeting $2 billion in cost savings by the end of FY2027, under its multi-year Network 2.0 initiative aimed at optimizing package pickup, transportation, and delivery processes.
FedEx’s management also discussed the company’s ongoing efforts to reduce operating costs, including a significant reduction in U.S. domestic flight hours. In Q2, U.S. domestic flight hours were reduced by 24%, including a nearly 60% cut in daytime flight hours, primarily due to the expiration of its contract with the United States Postal Service.
Despite the headwinds, FedEx’s executives expressed confidence in the company’s ability to adapt to market challenges and drive future growth through strategic initiatives and cost efficiencies.
