FedEx’s freight division is positioned for growth ahead of its planned spin-off in June, but faces a significant execution challenge to close a margin gap with competitors, according to research from TD Cowen - part of Canadian financial group TD Securities.
In a note following a FedEx Freight investor day, TD Cowen said new technology initiatives, operational changes and an expanded sales force should support growth from the business’s current base. However, it cautioned that the unit is likely to continue trailing less-than-truckload (LTL) peers on operating ratio in the near term.
The broker highlighted pricing and contract restructuring as key hurdles as the business transitions to a standalone model. Historically, FedEx Freight has relied on bundled contracts across parcel and freight services, meaning repricing efforts and new investment requirements could weigh on performance.
At the same time, TD Cowen pointed to several positive drivers, including a potential industrial recovery, increasing automation and a strengthened commercial strategy.
FedEx has already hired more than 500 sales staff with LTL experience and is now focusing on refining its go-to-market approach. New customer relationship management tools, revised incentives and dynamic pricing capabilities are being introduced to improve margin performance and reduce manual processes.
Operationally, the company is rolling out technology to improve shipment visibility, now covering around 90% of its business, while optimising routing, dock operations and fleet utilisation to boost efficiency.
Despite these improvements, TD Cowen said FedEx Freight still has “materially more wood to chop” to close the profitability gap with peers, with execution over the coming years seen as critical.
The research also noted that the shift to a standalone freight business model will require system changes and a move to industry-standard LTL pricing, with the success of these efforts likely to be tested in upcoming contract cycles.