FedEx’s Fred Smith Says M&A Drive Will Continue
Slowing industrial shipping demand is leading companies to seek growth through acquisition, package company chief says
The rapid pace of mergers and acquisitions in transportation and logistics should continue in the near term as companies try to make up for slow growth by buying new business, FedEx Corp. Chairman and Chief Executive Fred Smith said Wednesday.
“I think you will see a significant amount of M&A driven by low growth,” Mr. Smith said at the Journal of Commerce Inland Distribution Conference. “The reality is that a lot of people get put under a lot of pressure when growth slows down. Growth hides a lot of sins and covers up a lot of inefficiencies.”
FedEx is in the process of acquiring Dutch parcel firm TNT Express NV after buying third-party logistics firm GENCO earlier this year. United Parcel Service Inc. this summer acquired freight broker Coyote Logistics, while XPO Logistics Inc. has undertaken a string of recent acquisitions, most recently Con-way Inc.
Much of the transportation industry has experienced lower or flat growth in freight demand this year as industrial production has slipped. Mr. Smith attributed the pullback to reduced spending on both oil and natural gas production, as well as an “echo” of the slowdown at West Coast ports and harsh winter weather earlier this year. He said many shippers ordered too much to prevent disruption, and that inventory levels remain high. He thinks some of this should “bleed off” in the near term.
One sector not slowing down is FedEx’s bread-and-butter package business.
Mr. Smith said e-commerce is booming, driving growth in parcel shipments and leading to the expectation of another record peak holiday season. But he said carriers face new logistical challenges from online sales because they push larger packages into delivery systems and bring more residential deliveries that are more costly to handle than business-to-business deliveries.
Same-day delivery will remain a niche business area because of the costs involved, he said.
While same-day delivery has worked in areas like New York City in the past, that is due to a very low labor cost. “If you can get filet mignon for $5 versus $30, you’re going to eat a lot more filet,” Mr. Smith said.
Mr. Smith said he expects more technological advances to come to the transportation industry, including autopilot for trucks and other safety features that should make operations safer.
Drones will also be used at some point, but he said there are significant safety concerns that must be addressed first.
“I think it’s a great idea to use drones, and I think they will be used,” Mr. Smith said. But he cautioned that the devices are potentially lethal. “The worst thing about things that fly…is that they hit the ground in an uncontrolled manner.”