Sunday, September 7, 2003

FedEx Ground chasing 'Brown'

Trucks absolutely, positively making a difference

By James Pilcher
The Cincinnati Enquirer

FedEx may be known for its ability to fly packages across the country overnight, but trucks may be the company's future.

The shipping conglomerate increasingly is turning to its FedEx Ground subsidiary to continue the battle against United Parcel Service for the country's shipping market, and it is beginning to turn the tide, thanks in part to its aggressive expansion plans.

Those plans now include a local flavor. Pittsburgh-based FedEx Ground is adding one of its 10 new planned truck hubs in Boone County as part of a $1.8 billion investment by the company over the next six years.

The new $65 million hub, announced late last month, is expected to open in 2005 just off Interstates 71/75 on Mount Zion Road and will create 480 jobs.

"We hope to pretty much double our capacity of our network by 2009 ... and the Boone County location and deal was just best for us," said FedEx Ground president and chief executive officer Daniel J. Sullivan. The company received a 60 percent tax abatement from Boone County and another $1.1 million in tax breaks from the state to locate its facility in Northern Kentucky.

Butler County and suburban Indianapolis were also in the running for the hub, which could eventually employ as many as 2,400 workers.

And while the hub will deal strictly with trucks carrying ground shipments for the Midwest, Sullivan certainly doesn't mind that his company will be thought of in the same light as the Memphis-based air-freight shipper.

"We don't want people confused, between the two, but the brand is very important," Sullivan said. "We are looking to continue capitalizing on the growth we've experienced since we rebranded this company."

The core of FedEx Ground, which focuses on shipping small packages around the country in just a few days or even overnight by truck, was created in the mid-1980s under a different name - RPS.

That company, then a subsidiary of the Akron-based trucking company, Roadway Express Inc., used an fresh concept. It hired independent, contracted drivers and employed an innovative bar-code technology at its sorting hubs.

As a result, it was able to make a dent in a business dominated by Atlanta-based United Parcel Service and, to a lesser extent, the U.S. Postal Service.

FedEx bought the company in 1998, but it continued to operate as RPS until 2000, when the name was changed to FedEx Ground. Since then, the ground operation has really taken off, recording a 52 percent increase in revenue between 2001 and the company's recently completed fiscal year, when it saw revenues of $3.4 billion and profits of $495 million (a 93 percent jump from 2001).

"FedEx is successfully cross-selling former air overnight customers into its FedEx Ground product," said Rick Paterson, freight transportation analyst for UBS Investment Research. "When they rebranded, it gave them a viable ground product and another service offering across a broad palette.

"It was their weak spot, and now they've strengthened it. And while UPS has done the same thing with their air division, FedEx Ground is hurting UPS more in the ground business than UPS is hurting FedEx in the air business."

Paterson estimates that FedEx Ground now owns about 15 percent of the rapid ground parcel business in the country, compared with about 70 percent for UPS. That also puts FedEx Ground ahead of the postal service's 9.8 percent.

And Paterson predicts that FedEx Ground will have 7 percent market share every year for the next six years, mostly at the expense of UPS.

"We think ground business should drive FedEx growth for the foreseeable future," Paterson said.

UPS spokeswoman Susan Rosenberg disputed that, saying the marketplace overall was growing, thanks to the increase in online shopping, and said her company should keep its dominant position.

"And we're still able to offer one integrated network with one driver that picks up and delivers," Rosenberg said.

But Sullivan said FedEx Ground has made a concerted effort to go after regular consumers as well as businesses, saying its drivers started later in the day to make deliveries later in the evenings when people were home and stressed that the company begins its work week on Saturday, when UPS does not deliver.

The company would continue to leverage its brand name as its expansion continues, he said.

"We're trying to compete collectively by trying to appear to customers as one company," said Sullivan, also pointing out that customers can track ground or air packages at one Web site.

"It's important to my company and to the corporation overall to keep the growth we've seen to continue."


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