Dive Brief:
- FedEx's Network 2.0 overhaul is 25% complete, and the carrier is expecting the transformation plan to reach 40% completion by May 31, according to a Nov. 13 note from TD Cowen analysts citing a meeting with company management.
- Network 2.0, now underway in FedEx's U.S. network after first rolling out in Canada, is centered around integrating the company's historically separate Ground and Express operations. FedEx expects the initiative will help improve its financial performance over the long haul, the analysts said.
- "[Management] noted that prioritization of service quality means that Network 2.0 modified terminals retain some cost redundancies for a few quarters before margin maturity is achieved," the analysts said. "In Canada's implementation, sites have only recently reached mature margins and this improvement path lies ahead for the rest of the network."
Dive Insight:
FedEx continues to make progress in its wide-ranging network overhaul, which the carrier anticipates will be fully implemented in the U.S. by the end of the 2027 calendar year.
Notable progress for Network 2.0 could come in the current fiscal year, which runs through May 31. FedEx expects to achieve $1 billion in expense reductions for FY 2026 due to "transformation-related savings from structural cost reductions and the advancement of Network 2.0," per an earnings release.
"We are very encouraged by the progress on Network 2.0," President and CEO Raj Subramaniam said on a Q1 earnings call in September. "The Canada transition is complete and the service levels there are very strong. We are obviously moving forward in the U.S. market underway as we planned."
FedEx had about 360 stations converted to handle combined Express and Ground volumes across the U.S. and Canada, Subramaniam said. The carrier exited Q1, which ended Aug. 31, with 18% of its average daily volume in the U.S. running through Network 2.0-integrated facilities.
The plan also involves FedEx closing dozens of stations to avoid instances of overlapping or duplicative operations. Subramaniam said the company has already shuttered about 140 facilities for Network 2.0.
However, the shift is not just about operational efficiency for FedEx, but improving the customer experience as well, per Subramaniam. One benefit FedEx has touted is enabling package pickups for both standard and expedited services in a single appointment, something rival UPS already offers.
