Here are obstacles that I see in those plans...
Diverting freight - Branding issues, for one, but who the hell knows how much of an expense that would be. The main concern is the cost of diverting and how it would be implemented. Without a major corporate reorganization (merging Ground and Express, which ain't gonna happen), it will not be as simple as Express tossing Ground some freight to deliver. Express would most likely be paying Ground a percentage of the billed shipping charges to take possession and deliver the freight. That's great if everyone is paying the published shipping rates, but we all know that most Express customers get a very respectable discount. For Ground and the contractors to make any money off of it, they'll have to get a good price on the freight. For it to benefit Express, they'll have be able to give it to Ground for next to nothing. The seemingly impossible part is to be able to do it in a way that increases the profit margins of both opcos.
There are the other issues, like which side would be responsible for service issues. If Ground loses the package, who is responsible? The customer sent it via Express. That kind of thing.
Implementing the contractor model at Express - It was tried with Airborne and DHL with no success. There's too little room for error in the overnight segment and there would be too many contractors --too many different personalities-- for the company to manage. FedEx needs the ability to make big operational changes at the drop of a hat if possible, something that isn't so easy with lots of contractors who have a financial stake in the thing and who want to have a say. With things that tight I think it's essential that everyone be under the same tent with the same incentives.
Of course anything's possible in the future, but those are probably just the tip of the iceberg of considerations.
For a FedEx management type, you sure as heck don't know how to do a costing analysis.
First, the "brands" are being deliberately blurred. The "brand" is FedEx, NOT FedEx Express. As long as a truck with FedEx on the side of it POD's the piece, the brand is intact.
Second, the "cut" (revenue) that would be shifted over to Ground to affect a POD would be a fraction of the cost Express incurrs in delivering volume currently. Compare the labor rates of Ground to Express and even you can reach the conclusion that there are savings to be had by shifting the delivery of non-overnight volume over to Ground.
It has been calculated that approximately $100 million a year can be saved each year by doing this simple shifting of volume. It will take a few years after implementing this this business model for this savings to materialize (the gradual reduction in full time Couriers within Express). For a company that takes in over $20 Billion a year, $100 million isn't a lot, but Fred isn't going to turn his nose up at that kind of pure profit. The discount that various shippers get in moving volume through Express is irrelevant - the savings are on the labor cost side of the equation (shipping charges would remain unaffected).
An Express employee (Courier) with wages and benefits currently costs Express about $26-28/hr (averaging all Couriers, in all markets, all wage progression, overtime consideration, with health and "retirement" benefits included). What do you think is the incremental cost of a Ground "contract" driver? Sure as heck isn't anywhere near $26/hr.
Third, service issues... Who do customers call when they have an issue? 1-800-GoFedEx.
They handle information for all opco's. If there is a service issue with Express volume POD-ed by a Ground "cartage agent", then the issue would be resolved internally by FedEx. The whole thrust of the blurring of the lines between the opco's from the customers standpoint is to make customers believe that everything is integrated - including their billing and pricing.
If the Ground "cartage agent" screws up the delivery, who is responsible? FedEx is responsible. Not Express, FedEx. The opco's are being blurred deliberately to the customers.FedEx will have access to all the scan information, and will be able to determine in-house if there was an issue with either the hand-off of volume to Ground, or if the Ground contractor screwed up. In either case, the money back guarantee would remain.
Fourth, contractor issues... 2nd and 3rd day volume aren't complicated once they reach the inbound station. Screwups occur either at the outbound station or in AGFS. With afternoon commit times, any "cartage agent" can pull off a 4:30 commit time. Have Express throw in a clause in the contract that penalizes the contractors for late POD (to motivate the heck out of them to get the volume off by 4:30), there will be no late POD's of shifted volume - even if it means that the contract drivers are out till 6:00 PM getting off their non Express volume.
The rates offered for delivery for "Express" volume (to the Ground cartage agents) will most assuredly be higher that the standard rates the contractors currently receive for Ground volume. The handling of 2nd and 3rd day volume to Ground will be treated as FO is treated within Express.
By the way, Ground delivery is done exclusively with "contractors" ... FedEx is quite happy with the cost advantages they've experienced with this arrangement. If the contractors were screwing up, the whole arrangement would've been tossed. Five years ago, it was up in the air. With FedEx putting down its iron fist on the contractors, FedEx has acheived what they were after - low cost labor operations with acceptable service failures. FedEx no longer wants the best (that costs too much) they want good enough. Ground is currently good enough.
