FedEx drives efficiency improvement with the spin-off of the freight division

The logistics giant FedEx has announced its decision to spin off its freight division as a standalone publicly traded company, in response to investor demands for the simplification of its complex logistics network. This strategic decision led to an increase in FedEx's stock by up to 10 percent in after-hours trading, raising the company's market capitalization to over 70 billion US dollars. Analysts estimate the value of the freight division to be up to 33 billion US dollars. Recently, several major corporations have taken similar paths to enhance efficiency and attract investors interested in companies with leaner structures. For example, the US industrial giant Honeywell recently announced its plan to spin off its aerospace division after the activist hedge fund Elliott Management acquired a 5 billion US-dollar stake and called for a breakup. Investors are pushing FedEx towards restructuring, as the company and competitors like UPS are suffering from a decline in parcel shipping demand after the pandemic. After the hedge fund DE Shaw was able to place two directors at FedEx through an activist campaign, the company's stock price rose by 9.1 percent last year, though this lags behind a 23 percent rise in the S&P 500. FedEx CEO Raj Subramaniam, who took over from company founder Fred Smith two years ago, is working on realigning the company. Earlier this year, FedEx's service areas were consolidated into two main segments: FedEx Freight and the division focused on letter and package shipping. FedEx Freight is the largest provider in the "Less-Than-Truckload" (LTL) freight sector, handling larger packages for various commercial shippers. This segment generated 9.4 billion US dollars of the total revenue of 88 billion and about a third of the operating profit of 5.6 billion US dollars in the last fiscal year. "It is the right time to pursue a separation as we respond to the unique dynamics of the LTL market," explained Subramaniam. This move will further unlock the value of the freight business. Despite the planned separation, FedEx and FedEx Freight will continue to collaborate on commercial, operational, and technological initiatives. The company expects to complete the spinoff within 18 months.