FedEx CEO Raj Subramaniam said Houthi rebel attacks on container ships in the Red Sea are on his radar but have not yet caused a large swath of companies to look to air as a backup.
“We haven't seen much [impact] yet,” Subramaniam said. But, as the ocean represents about 90% of the total tons moved compared to air freight’s 10%, “even a small change in the ocean will ultimately have an impact,” he said Saturday at a conference in New York.
Ocean shipping rates are rising as attacks in the Red Sea drive up operating costs for carriers, Industry Dive sister publication Supply Chain Dive reported this week.
For the past two months Iran-backed Houthi rebels, expressing solidarity with Palestinians, have attacked what they say are Israel-linked commercial vessels. On Tuesday, Houthi rebels fired a missile that struck a U.S.-owned ship in the Gulf of Aden.
Safety concerns are mounting for carriers moving cargo through the Red Sea. On Wednesday, the U.S. government put Yemen-based Houthi rebels back on its list of designated terror groups. Subramaniam said the company is watching the situation closely.
“It’s a very challenging environment for the ocean operators in this situation,” he said.
Some manufacturers have already begun shifting to air freight as the Red Sea crisis continues, Reuters reported Wednesday. While air freight rates haven’t fluctuated recently, rates on a China-to-Europe route rose 91% week-on-week on Sunday, according to the wire service.
Speaking at the National Retail Federation annual conference Saturday, Subramaniam also outlined how the company is adapting to shifting consumer behavior.
FedEx is facing a difficult operating environment and competitive pressure, especially as e-commerce behemoth Amazon recently surpassed both FedEx and UPS to become the biggest delivery service in the U.S. Memphis-based FedEx delivers 15 million packages across more than 220 countries, according to Subramaniam.
Asked about its fiscal second-quarter ended Nov. 30 for which the company reported revenue dropped 3% year-over-year to $22.2 billion, Subramaniam said demand continues to be a challenge amid weak industrial production.
“If you look at supply chains overall, the industrial economy remains challenged and the demand environment is quite uncertain,” he said.
During FedEx’s December earnings call, Subramaniam said market demand was weak because of a slowdown in industrial production across the world. The company has, over the past year, made moves to cut costs: In April the company announced it was combining its air and ground operations as part of a strategy to save $4 billion.
Consumer shifts
Changing consumer behavior is also influencing the company’s strategy. Some 75% of FedEx stops are residential stops now, compared to 75% of stops being at businesses prior to the pandemic. (Typically, shipments to consumers are single packages compared to multiple packages that are shipped to businesses, he noted.)
Consumers are also returning to prepandemic shopping patterns, Subramaniam said. At the start of the pandemic, they stocked up on products. As the market moved out of the pandemic, consumers doubled down on services. Now, consumer spending is evenly balanced between goods and services, Subramaniam said.
FedEx is improving its technology toolset and leveraging its physical store network to improve the product return experience for clients and their customers.
“We're making this as automated and seamless as possible, so that you are able to go on the website and do all the things you need to do, get the QR code and make the process as seamless as possible,” said Subramaniam, referencing a network of 60,000 physical locations.
The company is also looking to beef up its data capabilities as it seeks to retain and grow market share.
FedEx on Saturday launched a new data service called fdx, which offers clients detailed metrics on delivery process logistics, sustainability metrics and other insights. The data-driven commerce platform, Subramaniam said, will improve the visibility and control of shipments, offer carbon emissions footprint information and help improve product return experience for clients’ customers.
“The data-driven recommendations, insights and predictions from our network is helping companies provide a seamless, personalized shopping experience which improves trust, loyalty and competitiveness in an ever evolving marketplace,” Subramaniam said.
