FedEx Corp. has coined many slogans in its 50-plus years of business. But the most enduring, and perhaps most meaningful, is what is known as the Purple Promise.
It is only seven words: “I will make every FedEx experience outstanding.” It is more than just a slogan. It is a beacon that has guided employees and management as they built a remarkable enterprise through service quality, dedication and commitment. It also defined the familylike culture that has existed for decades and that has made the company an exemplary place to work.
The slogan, and the meaning behind it, was brought to life by Hollywood in the 2000 film “Cast Away.” Chuck Noland, the character played by Tom Hanks, was a company “troubleshooter” who always went the extra mile to get the job done. Noland was marooned on a deserted South Pacific island following the crash of a FedEx freighter. After his rescue, he returned to Memphis, Tennessee, FedEx’s (NYSE: FDX) headquarters, to rejoin what founder Frederick W. Smith called “the FedEx family.”
That deep bond, however, has now been shaken to the core. The largest one-time reduction in positions in the company’s history, an expected 12,000 at least for now, has left affected employees, as well as those still there, stunned and confused. FedEx had not experienced any mass reductions until the 2008 financial crisis, according to a person familiar with the company’s history. Those cuts pale in comparison to what has gone on since June and continued through last week with the layoffs of at least 10% of what is estimated to be 4,000 officers and directors worldwide.
FedEx employs between 500,000 and 550,000 people across the globe. Though 12,000 is a fraction of the total workforce, for a company with the reputation of FedEx it is an emotional blow for all concerned.
The cuts, which were announced last Wednesday, came without warning, were seemingly at random and were not based on performance, according to people interviewed for this story. No explanations were given, and employees as of this past weekend remained in the dark about the status of projects they had been working on, the people said. The prevailing mood among those laid off and those who were not was a “state of shock,” said one.
The cuts touched almost every corner of FedEx. It even hit FedEx Freight, the company’s less-than-truckload unit, which has been the parent’s best-performing unit over the past couple of years.
In a separate move, FedEx Freight on Friday announced a second round of temporary driver furloughs to offset the decline in industrial production that is at the heart of an LTL carrier’s business. According to a person familiar with the matter, there are only so many rounds of furloughs that the unit can implement before it must begin laying off drivers, unless business picks up. That may not happen until the second half of 2023.
Bad news was good news
Those who know FedEx, but who are not inside it, applauded the mass layoff announcement. It was a long time in coming, they said. The company has a bloated hierarchy and has spent too much time chasing revenue and not enough time, like rival UPS Inc. (NYSE: UPS), focusing on cost, they argued. UPS CEO Carol B. Tomé began cost reductions almost from the day she stepped into the job in June 2020. FedEx, meanwhile, fell behind the curve in the hope that adding revenue would offset its lack of organizational efficiency, they contended.
The mess hit the fan in mid-September when FedEx preannounced terrible fiscal 2023 first-quarter results as trans-Pacific volume fell off a cliff and the company couldn’t cut costs fast enough to neutralize it. At that point, top executives realized that something had to be done. The cuts began at FedEx Express, the air and international unit that bore the brunt of the volume drop, but have since cascaded across the company.
Some may argue that if Smith, who stepped down as CEO last year in favor of Raj Subramaniam, had still been in the role, this type of workforce reduction would have never happened. Smith, who is now executive chairman, is still the most powerful force at FedEx. If he wanted to intervene, he probably could have.
Much animosity has been directed toward Subramaniam, widely perceived as the architect of the layoffs. But as a more than 30-year FedEx veteran as wedded to FedEx as anyone else, it is easy to imagine how difficult this was for him.
FedEx is a public company, and shareholders could not be happy watching its share price drop and languish following the mid-September announcement. (The share price has since bounced back in the wake of the layoff announcement). There are also new sheriffs in town. In a historic move, FedEx last June awarded an investor activist, D.E. Shaw Group, two seats on its board and the choice of a third seat at some point in time.
An outsider with no deep personal connection to the company, Shaw seeks one thing: to maximize shareholder value. Though with only 1% of FedEx shares, it is questionable as to how much clout the activist actually has.
The most important question is to what extent FedEx, in its effort to trim fat, has cut into bone. Roles and teams are being changed. Groups are being consolidated. Will the push for efficiency disrupt service quality and reliability? Will remaining employees be too worried and distracted to do their jobs optimally? Will rivals seek to capitalize on any internal turmoil in the wake of the cutbacks? The answers will reveal themselves in due course.
Final thought
This reporter has covered FedEx since 1984. He has watched the company grow, thrive, make mistakes and recover ever stronger from them. He has the utmost regard for Smith, whom he has long considered the finest American chief executive of the past 50 years.
This reporter is aware of the powerful link between the company and its employees, many of whom, including those who were laid off, are and were lifers and had hoped to retire there. He has talked to several who have nothing but good things to say about FedEx: how they were treated, were given the opportunity to flourish and advance, and were, without sounding too cloying, taken care of in return for putting in the work. They said that the Purple Promise, though rocked to its foundation by last week’s events, is still an appropriate mantra for the company.
This reporter has chronicled the good and bad at FedEx and has reported objectively on its trials and triumphs. Even as an outsider, but one who is a little closer than most, it was a painful week to live through.
W. Sanders
This reduction isn’t just layoffs.
Some employees deliver excellence daily and expect that from management as well. Any dedicated employee that challenges management will be put on the street.
B. Scott Richards
Solomon, how do internal layoffs damage the Purple Promise?? The Promise is to Customers, not employees. Also, if you have covering FedEx for since ’84, you should know that the situation at Ground at least bears mention in when discussing the Big Picture (and real damage to the Promise). Yet, you either ignore it or erroneously don’t see it as worthy enough to include. At best, your article is flawed, with a sensationalized headline meant to draw eyeballs. At worst, it is silly, making sentimentality a part of Big Business, which doesn’t matter to Board members or shareholders.
Disclosure: Current FXG Contractor, FedEx Customer since 1988.
Diane Jenquine
I agree with Robert’s post on February 8th. I retired last year after 25 years with FedEx Express. The Company has been going down hill for many years now. I loved my job and my customers, but the engineerrs were making it impossible to do things for the better of the customers. E Star was the most recent failure with the company. That was preceded by another disaster, the response freight. FedEx’s PSP (people, service, profit) philosophy was no longer valid. Pay raises were skipped over the years. Shareholders were their focus. Customers and the employees who cared, suffered!
Andy
I would encourage you to dive into the contractor model, contract and the monetary side of the relationship. Prior contractor myself who left in 2018 – I saw the writing on the wall and exited because the lack of long-term strategy, my profitability, and the overall relationship with the contractor base. I am still very active in the FXG community in providing financing -it is evident by what you see in social media that contractors are treading waters and lenders are shying away from financing acquisitions do to the number loans not performing well. I loved my team and was proud of the service we provided, but I could not see continuing and fortunately moved on early enough not to go through the current challenges.
Fred Smith Jr.
Wait until you really dig in what these leaders have done to their contractors. You really should be investigating the chaos unfolding, the bankruptcies hitting, contractors walking away, and more.
Charles
The question, “Will the push for efficiency disrupt service quality and reliability?” is laughable. The frequency of delivery delays is only surpassed (in impact to us) by the number of shipments that simply disappear in the network. In the past few months we’ve had to repurpose employee’s time just to identify, track, and submit claims for shipments that are scanned into Memphis and then vanish. And yes, it has been a growing problem as percentage of total shipment volume over the past 9 months added to the growth in (relatively understandable) hike in losses during covid.
Richard Curtis
I work for FEDEX GROUND 805 Nail Rd and I was helping another employee out and I was treated like a criminal for Turning in another employees badge and the mangers there are so unprofessional and so untrained and only care about get a check I loved my job but I glad that I am gone for a place that doesn’t want trustworthy employees but employees that come to work late or high on drugs everyday !!!!
Robert
I retired a few years ago after 33 years in Ground Operations. This predicament that FDX has made for it’s self was a long time coming. The Purple Promise was a nice slogan, but for thousands of us on road everyday, the ridiculous procedures and programs the corporate engineers dreamt up were completely anti-customer service. The Purple Promise was more your face color after screaming in frustration while in performance of your duties. Ground Ops became monumentally inefficient and non-productive. Obviously some engineering department’s computer model made these on-road programs look efficient, then corporate would run with it. The result was completely removed from reality and real world on road situations. Like putting the drivers in school zones from 2:45pm to 3:15pm to deliver packages. Or putting the driver going with the rush hour flow instead of going the opposite way. This was very common. Or mandatory customer [within the hour] re-attempt delivery when you were on the opposite side of town. I can’t tell you how many times I would be on the freeway driving to work, and see the UPS trucks going out to their routes. Only to arrive at the station and the managers saying our freight was and hour and a half late. Management was in their own reality. With little concerned with the plight of the route drivers. The numbers were their major priority. FDX lost the fundamentals of package delivery years ago. And now with the no-brainer stop-by-stop computer technology…anyone can do this job. And that is not a good thing, as we’re seen lately on the news. The customer is suffering. FDX reputation is suffering. Layoffs and restructuring has been a long time coming. If you are one of the world’s largest freight/package transportation companies and you can’t move the freight from A to B? Then something has gone terribly wrong. My heart goes out to the dedicated employees that were laid off “The Big Short” style. On the other hand, a severe course correction was self inflicted and in the making for years. I’m glad steps are being taken to fix it.