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At the most recent FedEx earnings call, CEO Raj Subramaniam made an important announcement: The global logistics provider is reviewing a potential divestiture of its LTL freight business.

This is notable because FedEx operates the largest LTL network in the country. However, the decision is also not a complete surprise because there is a trend in the industry for large logistics companies to spin off holdings to become more “pure play” operations to increase appeal with investors. That said, the sale is far from a done deal, according to Subramaniam: “We’re committed to completing this review thoroughly and deliberately by the end of the calendar year.”

While this sale would have a huge impact on many FedEx customers, it would also likely create a large opportunity for one specific group — parcel shippers. And this is a good thing.

What’s the opportunity?

Although LTL and parcel are separate operations at FedEx, the two services can be linked in one critical way: through their contract. This is because many FedEx agreements bundle services, meaning many agreements are written so that companies that ship more LTL volume can improve their discount on parcel rates. FedEx has been able to offer this competitive advantage since UPS spun off its own LTL unit in 2021.

The question and opportunity lie in what happens to all the bundled LTL and parcel agreements.

Once the sale is made, as happened with UPS, the transition and incentive unbundling could take two or more years. FedEx is unlikely to rush the process, but for all FedEx customers a contract renegotiation is inevitable at some point. The greatest challenge for shippers during this process will be separating the volumes and establishing equal pricing in a new contract. Any company attempting to do so alone, lacking the market rate data and technology to model costs accurately, is at a severe disadvantage when negotiating with the carrier.

There is another opportunity at play that companies should be aware of. Whenever the transition begins, shippers need to understand and leverage the full value of their parcels to FedEx. We’re in a very strong buyer’s market for parcel services. This means almost any contract negotiated even just a year or two ago, bundled or not, is likely already at above-market rates.

Failing to take advantage of either opportunity is a costly mistake and a hit to the bottom line no company can afford to take.

Learn and save

UPS was the first to sell its freight business, a step ahead of FedEx. The good news is that this experience has given parcel shippers a blueprint for how to maximize this exceptional opportunity.

Once a sale happens, FedEx loses a distinct competitive advantage.

When the time comes to renegotiate your small parcel contracts, you’ll get the best new agreement possible with the help of an expert partner. TransImpact has successfully guided over 100 companies through similar negotiations with UPS since 2021.

Our team can accurately separate costs to recreate your rate agreement to, at worst, maintain pricing levels. But it’s also likely we can get your new rates in line with the current market. This means that when the dust settles, you’ll be better off overall. Our process yields an average savings of 23.6%.

Contact TransImpact to learn more about how we can help. Email info@transimpact.com for our suggestions on what you can do right now to prepare for the change.

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