FedEx Sets Sights on Lucrative Air Cargo Market
As the company prepares to bid farewell to a large U.S. Postal Service contract, FedEx is gearing up to tap into the lucrative air cargo market. With the expiration of the contract, the logistics giant will have more flexibility to rationalize air capacity and target profitable growth.
A Fragmented Market Ripe for Disruption
According to Chief Customer Officer Brie Carere, the airfreight market is fragmented and in need of modernization. With a low-single-digit market share in the $80 billion airfreight market, FedEx is poised to make a significant impact. Carere believes the company’s tricolor strategy, which involves segregating the fleet by product categories and demand, will be a key driver of growth in this market.
Streamlining Operations for Efficiency
FedEx has been working to streamline its air network, implementing a color-coded system to improve density and asset utilization. The company has also created a dedicated sales organization, a new customer service model, and is investing in the digital experience to attract high-yield freight.
Targeting Premium International Air Cargo
The company is targeting premium international air cargo, traditionally palletized and booked by logistics companies on commercial airlines. This market segment offers significant growth potential for FedEx, with management confident that the company’s sophisticated tracking capabilities and ability to use its LTL network to connect shippers with regional hubs will attract businesses.
A Shift in Focus
The loss of the Postal Service contract has negatively impacted FedEx’s operating profit, but the company is optimistic that cost savings from the bloated, unprofitable program will turn into a tailwind in the fourth quarter. As the company shifts its focus towards more profitable markets, it is well-positioned to capitalize on the growing demand for air cargo.
Global Air Cargo Demand on the Rise
Global air cargo demand has grown by double digits for 11 consecutive months, with yields 50% higher than in 2019 and 12% year over year. Freighter capacity on key trade lanes out of Asia is currently very tight, making it an opportune time for FedEx to enter the market.
A Threat to Traditional Freight Operators
FedEx’s move into the third-party air cargo market poses a threat to traditional freight operators, who may struggle to compete with the company’s sophisticated tracking capabilities and extensive network. As the company continues to execute its tricolor strategy, it is likely to shake up the air cargo market and attract new business.
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