By Paul Ziobro
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (March 13, 2020).
FedEx Corp. Chief Executive Fred Smith has cut ties with
Amazon.com Inc., is phasing out the U.S. Postal Service and is
fully embracing online shopping, part of the most sweeping changes
ever at the shipping giant he launched nearly 50 years ago.
The reason: his faith in Raj Subramaniam, a marketing executive
from India tapped as Mr. Smith's likely successor.
The latest moves were inspired by strategic reports that Mr.
Subramaniam, who turned 54 years old Wednesday, produced for Mr.
Smith and the company's board. Hundreds of pages long, the reviews
outlined a new playbook for FedEx, including going all-in on
shipping online orders, and discussed how far the company had to go
to be a real player in the e-commerce economy.
"We had to adapt, change and be ready for the market that's
evolving," said Mr. Subramaniam, who was appointed chief operating
officer last year and joined the FedEx board in January. "And so we
made some very, very bold steps."
FedEx began reducing its reliance on the U.S. Postal Service,
which for years had delivered millions of the carrier's packages to
homes each week. The company also started making deliveries seven
days a week, up from six, to satiate the never-ending schedule of
online shopping. It launched new services to quickly ship packages
from stores to homes. It forged ties with retailers to add
thousands of new stores, including in rural areas, to a network of
locations to pick up and drop off packages.
"He did all of the research and foundational planning for the
strategy that we are executing today," Mr. Smith said in a recent
interview. "For all intents and purposes, Raj is the architect of
that."
Last month Mr. Subramaniam, a three-decade veteran of FedEx,
unveiled the company's latest break from longstanding practice with
his plan to mix some packages between the company's two main
divisions: Express, which ships critical parcels using aircraft and
often guarantees deliveries by a certain time, and Ground, a slower
service that uses a network of trucks and targets deliveries to
arrive by a certain date. FedEx will hand off some of its Express
packages to Ground if it can meet promised delivery times. Mr.
Smith for years has resisted investor calls to integrate the two
units to save money, saying keeping them separate was vital to
maintaining the promise of speedy delivery by Express.
Analysts and investors cheered the move, saying it could save
FedEx hundreds of millions of dollars a year at a time when profits
have shrunk and its share price has tumbled -- nearly 30% over the
past year.
Mr. Subramaniam didn't dream of working at a global shipping
company during his typical middle-class childhood in India. His
father was a police chief and his mother a doctor, and they
instilled in him a focus on education. His forte was math.
"Either you're good at math or good at biology," Mr. Subramaniam
said. "You're either going to become an engineer or a doctor."
After graduating with a chemical engineering degree, he left the
country for the first time on a scholarship to Syracuse University,
where he earned a master's degree, and later finished an M.B.A. at
the University of Texas during the early 1990s recession. He went
months without a job offer. He got the phone number of a FedEx
interviewer from a roommate who had decided to return home instead
of applying for a job at the delivery company.
Mr. Subramaniam started with FedEx as an associate marketing
analyst. Six months in, Mr. Smith spoke at a quarterly staff
meeting about the international opportunities at FedEx, saying the
company needed marketing minds to help develop the network and
service to sell to customers. "I said, 'Hey, I get this. Put me
in,' " Mr. Subramaniam recalled.
He rose through the marketing ranks and later held high-profile
international posts.
FedEx's approach to e-commerce is new. Until recently the
company stuck to its core businesses of charging companies premium
rates to move priority shipments long distances by plane or truck.
It took most e-commerce orders only as far as the local post
office, where mail carriers would deliver them to homes for a fee.
FedEx was happy to cede the less-profitable residential business to
rival United Parcel Service Inc.
The explosion of e-commerce, financial woes of the Postal
Service and lower demand in the Express air business led FedEx to
rethink its strategy.
FedEx's reinvention also includes the divorce with Amazon, the
largest player in e-commerce. FedEx believes there is a universe of
online retailers outside of Amazon that is growing fast enough to
fill up its delivery network. FedEx also was wary of tying too much
of its business to a company increasingly delivering more of its
own packages.
"We like to have a much more diversified customer base," Mr.
Subramaniam said. Not having Amazon as a customer opens up
conversations with retailers that increasingly compete with the
online giant. "It's the right long-term strategy for FedEx."
UPS, which last year received nearly 12% of its overall revenue
from Amazon, said the relationship is "mutually beneficial" and
that the company is building up its delivery services to serve a
broad base of merchants.
Mr. Subramaniam's profile rose quickly starting in late 2018
with two abrupt retirements. First, the CEO of FedEx's legacy
Express business stepped down, and Mr. Subramaniam was promoted to
that role. A few months later, Chief Operating Officer David
Bronczek retired shortly after being named to the board, leading to
another promotion.
His election to FedEx's board in January cemented Mr.
Subramaniam as next in line to succeed the 75-year-old Mr. Smith,
who said he has no plans to step down soon. "To the best of my
knowledge, I'm in good health," Mr. Smith said, adding he won three
sets of tennis playing with a regular group. "I don't have any
ailments that would prevent me from doing my job."
Mr. Subramaniam and FedEx still have other challenges to manage,
including ongoing trade disruption, slack industrial production and
expected fallout from the coronavirus, which analysts expect to
dent international air shipments. He also is overseeing the
drawn-out integration of the acquisition of the European
parcel-delivery company TNT.
The tasks are far weightier than the ones that Mr. Subramaniam
envisioned he would be leading at FedEx when he first started. "I
thought I'd have a better chance to play Center Court in July at
Wimbledon," he said.
Write to Paul Ziobro at Paul.Ziobro@wsj.com
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March 13, 2020 02:47 ET (06:47 GMT)
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