FedEx throws weight behind freight to fire up Apac growth engine

THE idea that American transportation and logistics giant FedEx wants to boost its earnings from freight forwarding appears puzzling at first. After all, its chief business is that of handling freighting.

But this represents a side of the business that FedEx has not focused its attention on until now.

Eric Tan, managing director of FedEx Express Singapore, sees a “huge opportunity” in the freight forwarding segment.

Founded in 1971, New York-listed FedEx has a market capitalisation of US$74.6 billion as at Nov 29, making it one of the largest in its industry alongside rivals UPS and DHL Group.

Originally known as Federal Express, it has made its name as an express carrier – a company that delivers parcels using its own network and fleet of vehicles.

As Tan explains, a carrier’s remit is simply to deliver shipments entrusted to it from point A to point B within a committed time frame.

“Traditionally, we compete in the small parcel space… we serve the walk-in customers to small and medium enterprises to the big boys, our corporate customers,” he said.

Moving cargo and clients

Freight forwarding is far more than just being a carrier, though.

A freight forwarder is a service provider that handles everything required for larger quantities of goods or cargo to reach their destination.

To do this, a forwarder may employ various carriers and modes of transport as well as other third-party service providers where necessary. They also take care of related services such as customs clearance, consolidating shipments, providing insurance, warehousing and distribution.

Tan likens the role of a freight forwarder to that of a travel agent for cargo, given the multi-party, service-centric nature of the job.

“A lot of freight forwarders are small, boutique outfits. They’re great at customer service, flexible enough to handle anything and everything required by their customers. They do everything except parcels,” he adds.

With well-established capabilities, assets and know-how, FedEx does not need a lot of new capital expenditure to be competitive and that makes it a perfect shift for the company, Tan said.

It already uses plenty of technology to keep things on track, for instance. This includes Dataworks, its real-time supply chain data platform. It also introduced a new supply chain management tool for customers – Surround – in August this year, which is being rolled out to the Asia-Pacific region.

Another major strength is its logistics network, which includes its transport assets and hubs.

FedEx’s founder, Frederick Smith, pioneered the hub-and-spoke approach for more efficient deliveries, so it has a presence at most major airhubs. Singapore, for example, is the company’s hub for the South Pacific region, alongside two other hubs in Asia.

With almost 700 aeroplanes, FedEx counts as one of the largest commercial aircraft fleets in the world, and it serves more than 220 countries and territories. While its main strength is air freight, it also has sea freight capabilities.

“With our own network, we have full custodial control for the whole journey of the shipment – and that gives clients an added sense of security,” said Tan.

Apac apparent

But detailed service and support from a big player is not going to cost a big amount, said Tan.

In its current position, FedEx’s transportation network, IT support systems, economies of scale and various freight solutions customised to the customer’s needs means that it probably has the ability to give a better price point than existing players, said Tan.

Swooping in on the opportunities in freight seems obvious now, but Tan points out that both the company’s recent investments and its own investigations supported the shift.

Freight requires more attention to detail than parcels, for one. The company’s studies showed that providing a range of high quality ancillary services is key in competing effectively.

In freight, there is the demand to be able to do “special handling”, Tan explains.

“It could be something as simple as a fumigation of wooden pallets to cold chain trucking capabilities, special arrangements, destination clearance and everything in-between. And we have those capabilities.”

Tan points out another edge the company has: its three major hubs in the Asia-Pacific region – Incheon, Tokyo and Singapore – are not just full-sized warehouses but also capable of life science logistics to serve the biomedical and pharmaceutical industries.

This includes special chambers that can hold human specimens or goods at temperatures as low as -35 degrees Celsius and were used to distribute Covid vaccines throughout the region during the pandemic.

Express yourself

The company does not release figures on a regional level, but its package revenue for the quarter ended Aug 31, 2024, was US$16.8 billion, compared to US$1.6 billion for freight.

FedEx is not new to the freight business. However, since 2023, it has adopted a strategy to clearly develop its freight segment.

“We have been doing freight all along, we’ve always had the capability, except there wasn’t such a targeted strategy to go out and grab market share from competitors... Now it’s a lot more structured, more organised and more deliberate,” adds Tan.

The reason is simply that the potential for freight, especially in Asia-Pacific, is huge.

“South-east Asia is poised to be the leading growth engine for Asia-Pacific. And Asia-Pacific itself is seen as a growth engine for the entire FedEx Corporation globally,” said Tan.

The key markets with the most potential are Vietnam, Indonesia, Thailand and the Philippines; and FedEx’s long-time presence in Singapore is a keystone to this future growth.

In February, FedEx moved its regional headquarters from Hong Kong to Singapore as it is a key connectivity hub to serve the entire South-east Asia region.

The parcel segment makes up around 95 per cent of FedEx’s current business with freight the remainder. It aims to increase freight shipping by one percentage point each year for the next five years, which would double its existing freight volumes.

According to Mordor Intelligence, the Singapore freight and logistics market size is expected to reach US$67.22 billion in 2024, and grow at a compound annual growth rate of 4 per cent to reach US$92.2 billion by 2029. Meanwhile, the Asia-Pacific market is forecast to grow to US$3.7 trillion from US$2.5 trillion by the end of 2024.

Since FedEx has an established transport network, assets and support systems, it would be “a waste if we don’t seize that opportunity and penetrate into the freight forwarding market”, said Tan.