The FedEx Business Model

Discussion in 'FedEx Discussions' started by MrFedEx, Mar 11, 2012.

  1. MrFedEx

    MrFedEx Engorged Member

    Someone mentioned the FedEx Business Model in another thread and it got me thinking about how the "model" has changed and evolved over the years. Federal Express (not FedEx) was highly progressive and placed a high value on frontline employees. The emphasis on providing great service was almost a religion at the company because it was widely accepted and permeated the entire organization. The payoff was huge because customers were willing to pay a hefty premium for an outstanding experience and a virtual guarantee that it absolutely, positively would be there overnight and on time. If Federal Express screwed-up, we took responsibility and made it right, even if it took expediting the package at a net loss. Mr. Smith went to Washington, but he focused on changing regulations that allowed the company to grow, like removing the size restriction on aircraft used for the air express business. Even though we were non-union, the company was actually pro-employee, and though we never equaled UPS on pay and benefits, we were always close. The company maintained high standards of integrity and ethics, sometimes to the point of excess.

    The new FedEx business model is the total opposite. Frontline employees are a necessary evil these days, and not much else. We used to be assets, but now we are simply units of production. Like widgets in a machine, we can be replaced at will. Great service? Gone. Now we provide "acceptable" service, and customers have to live with it. If the vital part that can fix a broken-down assembly line got mis-sorted, it's just too bad for the customer. The package is going to sit until the next day. We will do nothing for the customer but offer lame excuses or outright lies.

    Now, Mr. Smith lives in Washington most of the time, and his main focus is on preserving the anti-union, anti-employee culture that has arisen at Express. He's also there to "invest" in the Ground franchise, buying all the politicians he can so the ISP model is protected right along with the almighty RLA. FedEx does everything it can to ensure that it operates on the fringes of the law, breaking it when they can, and paying-off token lawsuits when they cannot. Fred wants the lowest cost structure he can possibly have, and he wants it by taking away as much as he can legally from the hourly workforce. Besides all of the benefits we have lost, the RLA also gives Smith the opportunity to contract-out whatver he can. Over the years, Fred has outsourced whatever he could.

    It's really mostly smoke and mirrors today. FedEx is a parasite that lives-off the dead "host" that was Federal Express. For some reason, the public still thinks that FedEx is out there striving for 100% service and 100% customer satisfaction and that it's a "great" place to work. None of this is true. If someone doesn't get their vital package, nobody really cares any more. There is no reason for employees to go the extra they don't. Over time, this attitude has permeated throughout the company to the point that few want to take responsibility and even fewer want to make the effort to straighten it out. There's simply no payoff, so why do it?

    The new model works, but only on an subsistence level. Express is flat mostly from changing domestic and global economies, but has lost market share substantially from not delivering on it's false promise of superior service. We still charge premium prices, but we don't give premium service. I know so many customers that have been burned over and over by FedEx, so they only use us when they have to and seek-out the lowest cost alternative. In an industry dominated by "acceptable" service levels, FedEx Express no longer stands out. For the customer, it's whoever is cheapest, not the best. For a lot of companies it is absolutely worth it to pay a premium for superb service. It makes their product look better and allows them to sell more of it to their satisfied customer. It doesn't do a shipper much good when the vital medical item or machine part that was supposed to be there at 0730 via FO doesn't get there until 1030 or later. The same for the package that missed the plane at the origin station. Nobody at FedEx cares if the customer is :censored2:. They'll just offer excuses instead of a solution.

    FedEx, where low costs equal mediocre service and a crap customer experience. You get what you pay for, Fred.
  2. Cactus

    Cactus Just telling it like it is

    Yes indeed.

    I can't help but feel that this had to have been Fred's plan since 1972.

    FedEx has gone from great to ghastly, but when will the public at large stand up and take notice?
  3. TUT

    TUT Well-Known Member

    Overall I look to what you think as a global problem.

    "The payoff was huge because customers were willing to pay a hefty premium for an outstanding experience"

    The world has changed (you should be seeing this and adjusting), people now want to pay less for reasonable service. And not only has Fedex adapted, many many companies have. Probably because we can't afford top of the line service anymore, amongst other things.

    I really feel everything you say is basically what the corporate status quo is today and that overall is sad.

    The real sadness I see is oil companies making >50 billion in profit a 1/4 treat their employees like the rest of them. I look to companies that treat their employees well and hate to see it when a company is in their Golden Years and they still don't. The small package carriers are not in their Golden Years anymore. That's fact.
  4. MrFedEx

    MrFedEx Engorged Member

    I don't really agree. There are a lot of shippers out there who will pay for premium service, but only if they truly receive it. The new low-cost Express model doesn't bend over backwards for customers the way the former version did. That's the way you get market share from the competition when lowest cost isn't the whole story. Exemplary service for high-end customers with equally high-end demands is very profitable. Certain medical companies and tech firms immediately come to mind here.

    We have some colossal eff-ups these days, and they used to be the exception. More and more, they are becoming the rule. Like CTV's missing the plane, bumped HAZ and International, and lots of bad service problems that use to be largely averted. It's still a big deal when a semi misses the plane, and this is where the way frontline employees are treated comes into play. When you have competent, highly motivated people, they take pride in avoiding costly mistakes. Now, nobody really cares, and that is very costly, both in terms of reputation and market share. The extra 5 minutes gained back through people who actually give a crap could be the margin between a missed aircraft or freight that makes the plane. In general,the planes don't wait, especially on the West Coast where linehaul times are longer.

    That's called being penny-wise and pound foolish, and Fred is still learning that lesson.
  5. LTFedExer

    LTFedExer New Member

    If this is true, then FedEx should have lowered shipping prices.....not raised them.
  6. vantexan

    vantexan Well-Known Member

    They have, it's called Ground. Want it fast? Pay for the premium Express service. Just need to get it there in a reasonable time but don't want to pay high prices? Ground is what you want.

    When the economy was doing well people counted on us because time was money. So much so that we changed our name to reflect the verb everyone was using: "FedEx" it. The brand was part of the yuppie lifestyle, spending alot for coffee, for apartments, for cars, just because they could and because it marked them as successful movers and shakers. Now it's in style to be frugal because we're a world away from those high flying days. You send something overnight because a machine needs a part, a doctor needs a X-ray, you need a paycheck, that sort of thing. That leaves alot of freight that just needs to get there but isn't critical to have it tomorrow. This is what we're up against, not becoming obsolete. UPS was always the king of get it there cheaply, and FedEx Ground is our answer to that market. Unfortunately to beat UPS it requires the exploitive actions they are taking, and this economy is the perfect situation to allow them to do that. And we at Express have to settle for what we get because we're no longer the high flying highly profitable side of the business. It stinks, but there are forces working that are beyond our control, and the scary thing is if we didn't have Ground then we might be in danger of going under. Seriously, if there were no Ground, shippers choices to save money would be our 2 and 3 day services or UPS. So it's really not fair to call Ground drivers scabs. Their willingness to work for less is giving us raises and allowing us to keep the benefits we still have. OK, putting my asbestos suit on, fire away!
  7. TUT

    TUT Well-Known Member

    Smart Post and Sure Post prove otherwise. The huge shift from Express to Ground, even when Express had better service, again the dollar proved otherwise. IMO it isn't debatable that the 2008 crash accelerated lower cost service needs.

    Both companies have higher end services, like time definite delivery for ground, sounds great on paper but critical mass doesn't care and it shows in volumes in those specialized services. Ground vs Overnight, it's not even close to the same price and face it Zone 2 customers get ground overnight.
  8. TUT

    TUT Well-Known Member

    That is more correct then someone at Fedex hating their own across the board (UPS for that matter, however there is always some friction between management and union no matter what). Fedex Ground saved Fedex. Fedex Smart Post seems to be a resounding success. All because people want "free shipping" as part of their sales and they can only eat so much. John Q decided I rather save $25 and get it in 5 days vs 2 days, he's realized "I can wait", like he realized "perhaps I should stop buying all the DVD releases on Tuesday, A. I don't have as much to spend. B. Look at all those DVD's I have on the wall I never even opened yet.
  9. vantexan

    vantexan Well-Known Member

    Yes, look at Netflix vs. Blockbuster. You can go into a Blockbuster and see the same titles over and over, and how many times are you going to rent them anyways? Or you can for a small fee have access to a huge amount of titles, get them sent to you by mail or stream them immediately, and not worry about late fees. If you build a better mousetrap people will buy it.
  10. MrFedEx

    MrFedEx Engorged Member

    Ground can only cover a limited area overnight, so it will never be a subsitute for overnight service beyond that zone. Sure, the crash of 2008 made lower-cost alternatives more desirable for many shippers. However, there remains a large overnight market that FedEx is choosing to ignore in the rush to Ground. I've heard that FedEx Sales reps spend the vast majority of their time now selling the Ground product, which doesn't surprise me.

    I still think FedEx Express has lost market share because they no longer emphasize outstanding service.
  11. vantexan

    vantexan Well-Known Member

    Is FedEx really ignoring a highly profitable segment or is it that the demand for next day has at best stagnated? I don't think we've seen the worst of it as many shippers aren't aware yet of Ground's overnight service. Much of what we do overnight is regional, not national. If Ground can do regional for a fraction of Express rates we'll see more and more go that way. We're not the only company beholden to stockholders and they're all trying to wring out extra profit. If the Post Office can lose volume to email we can certainly lose volume to cheaper services.
  12. MrFedEx

    MrFedEx Engorged Member

    Ground's overnight range is limited by the distance a truck can move overnight.
  13. TUT

    TUT Well-Known Member

    Has Fedex even lost market share? I'm not saying they haven't lost a little somethin overall, but companies are looking at the dollar far more then ever. No one wants to hire. Every dept is on "Hold the Line" etc. They all read the same management books. And it's not "Management - How to keep the employees happy."
  14. vantexan

    vantexan Well-Known Member

    Which is quite a distance. We probably have more business done between here and Dallas/Ft.Worth, Houston, and Austin(state gov't) than we do with New York, Atlanta, Chicago, and L.A.. Someone in Pocatello, Idaho probably does more business with Boise or Salt Lake City than they do with Denver. If they can get a letter there for $5 overnight they'll probably take that over $27.
  15. MrFedEx

    MrFedEx Engorged Member

    Just stating a fact, not disagreeing with you.
  16. dvalleyjim

    dvalleyjim Member

    I know on the ground side the model has always been a scam. Although I'm not allowed to mention that. It's always been about not having employees, especially ones that could unionize. In the old days I liked the scam, they 1099'd me I'd 1099 my drivers, drivers had work accident insurance, and we all made money. Even the drivers liked it better because I would give them 1/4 bonuses to help with quarterly tax payments, just like FedEx did to me. Now it has morphed into FedEx has no responsibility and the contractor has all the liability, plus continual harassment and micro management of everything my corporation does down to show us your books. Also since I incorporated I have a big target on my back for every government tax agency out there. I use to never hear from any tax agency when I was supposedly running my business illegally, now I get tax bills once a week from some government entity wanting money.
  17. MrFedEx

    MrFedEx Engorged Member

    Explain this to bbsam.
  18. bbsam

    bbsam Moderator Staff Member

    LOL. You have it backwards. You should tell Mom and me to explain proper business practices to dvalley. I'm not concerned about tax entities anymore (I used to lay awake terrified of them) because I use a very good accounting service. I once had a tax bill that grew from about $2,000 to $7500 with penalties and interest in 18 months. There are some things that I am not good at and never want to be. Accounting is one of them.
  19. MrFedEx

    MrFedEx Engorged Member

    The corporation runs the business, not you, or so it would seem. dvalley "gets" the arrangement.
  20. bbsam

    bbsam Moderator Staff Member

    All I can say is I don't get letters that say "We intend to levy" anymore. Just because there is an "arrangement" doesn't mean that dvalley gets to ignore part of his business responsibilities. I'm sure he did like 1099s for his employees. Didn't mean he was doing it right. His way of doing things is exactly what was getting Fedex in trouble. Now contractors are being held accountable for running their businesses...something you insist they don't do and in dvalley's case, you may have a point.