Life in my house for the past couple of weeks has been a stream of parcel delivery services turning up with (usually inappropriately large) cardboard boxes. This may be the most wonderful time of the year, but it’s one of the busiest for mail and delivery service providers.
At FedEx, CEO Frederick Smith is confident that he’s looking at a record holiday season in 2017. Assuming he’s correct, it will be an upbeat end to a year that will be best remembered for a high-profile cyber-attack during the summer at the firm’s TNT Express arm in Europe.
Things are now back to normal there, Chief Operating Officer David Bronczek insists, although that’s come at a high price. The cost of integrating TNT into the wider FedEx operation over the next four years has shot up from $800 million to an estimated $1.4 billion - and a lot of that increase is down to the need to beef up the IT infrastructure. Bronczek says:
The IT recovery process is complete. We have improved our reliability, we have improved our security, and we are also increasing our investments to expedite portions of the integration process. While we have been successful in our efforts so far, restoring the full confidence of our customers is our key goal…Our focus remains on service to our customers, course our customers' priority and hardening our IT environment.
On the front line of the IT upgrade is CIO Robert Carter, who adds:
On the heels of the cyber-attack, we've become much more aggressive about improving the security posture, reliability and speeding up the integration of the technology platforms. We've been successful on all three fronts. We're going very aggressively at moving the TNT enterprise to the more stable and reliable FedEx systems.
But that’s only part of Carter’s ‘to do’ list. Elsewhere the firm continues to maintain and execute on an innovation strategym including around emerging tech such as autonomous vehicles and Blockchain:
The general innovation footprint that we have always has us looking at modern and innovation-oriented developments in the marketplace. Certainly, autonomous vehicles are among them as well as electrification. The reality is that autonomous vehicles are already among us. We believe that the most important things that will happen in the near term is using technologies like adaptive cruise control, lane departure, automatic braking, all of which compositely make for autonomy, offer much improved safety for our drivers and a much improved quality of life for the men and women that are on the road for FedEx out there. Clearly, these technologies won't stop there. There are many opportunities in the future. But right now, we're using a lot of autonomy to make our team safer and to give them a better quality of life on the road.
As for Blockchain, Carter adds:
We definitely believe that blockchain represents a significant opportunity in the custodial control and chain of control for supply chain shipments. We were, and are, charter members in the Blockchain in Transportation Alliance as well as the Blockchain Research Institute. We believe that going forward, the overall prominence of goods as they move around the world and the enhancement Blockchain offers to global settlement systems and payment systems, offer a significant opportunity for us.
That’s all to come. For now, there have been some pragmatic tech investments that are delivering returns. Carter points to address-matching software as a case in point:
That software is already deployed, and it's paying big dividends at FedEx Ground where we are taking address-matching capabilities and even proximate capabilities and moving SmartPost deliveries into the FedEx Ground network. So that was deployed this summer at scale, and we are experiencing the benefits. We are also planning on making available to our customers in the coming time frame, probably next year, a SmartPost Hold at Location capability. So you'd also be able to redirect those shipments to any of our convenient, more than 10,000 locations in the Onsite network.
Reference to a network of pick-up points opens up the subject of e-commerce. FedEx has added 8,200 locations to the FedEx Onsite network this year, where customers can drop off pre-labeled FedEx Express or FedEx Ground shipments or returns. There’s a ‘convenience network’ of over 10,000 outlets, inclusing Walgreens, Kroger and Albertsons stores. The firm even intends to have pickup available in 7,500 Walgreens stores on Christmas Day itself for those who left it late to do their online shopping.
In the past, CEO Smith has made some rather dismissive comments about the potential threat from e-commerce and online retailers, with the possibility of Amazon upping its own delivery game frequently raised by commentators. Smith remains positive that FedEx is capable of countering any threat:
We are quite confident that we can handle vastly larger amounts of e-commerce packages in the future at profitable rates because of the investments we've made [in] automated facilities. We have two major hubs coming online next year and a couple more after that. These are substantial improvements to our ability to handle this type of traffic on a profitable, long-term basis.
The other thing that I would mention that is often missed in these evaluations or comments about the e-commerce business [is that] it requires a close collaboration between FedEx and our customers to choreograph these massive industrial systems during these peak seasons.
We will begin literally the day after New Year's planning for next peak season. And we have very close relationships with our major customers. And I think the proof of the pudding is in the eating. We're having an outstanding peak. Well, that's because of the investments and the close planning we do with our customers. And that's a prerequisite in this business or you will not be successful.
An upbeat end to a year blighted by the cyber-attack - and also a timely reminder that post-acquisition integration of all corporate systems (a) needs to be a priority and (b) can come at a high cost.