FedEx 2010 Shareowners Meeting Transcript – September 27, 2010 , Part One

Joe Nuno
FedEx Freight

Good morning, Mr. Chairman. My name is Joe Nuno,
and I'm from FedEx Freight. With recent
announcements of the restructuring of FedEx Freight
that has resulted in the combination of regional
businesses, former Viking and American Freightways,
with the national business the former Watkins — a
FedEx Freight employee such as myself is left
wondering how these cost-cutting measures and
consolidation is truly going to address the reality of
the economy.
8
Lower volumes, lower margins — in other words, how
can FedEx Freight succeed without increasing prices?
And what effect do you think a price increase will
have on our customers who also bearing the brunt of
the recession?

Frederick W. Smith
Chairman, President & CEO, FedEx Corp.

Well, let me say this much about the LTL business.
The LTL business, as you well know being one of the
team members there, is heavily tied into housing and
automotive production. And Bill Logue is here. I think
the total revenues of the LTL business declined from
$35 billion to about $26 billion. The business
contracted by almost $9 billion.
Housing went from producing I think it was 1.5 million,
2 million units per year down the level where we were
barely at the end of last year producing the
replacement numbers of about 400,000 dwellings,
much less accommodating any increased population.
And the automotive production peaked in 2007 at 16
million vehicles and went down to as low as 9.5
million. That's what created the tremendous pressure
on the LTL business with its tie-in to those two
industries, which went into a depression.
There were a number of competitors in the business,
specifically Yellow Motor Freight, which acquired
Roadway and put those companies together, and they
came under great financial distress. They laid off --
how many people? -- 10,000 people. The market
became extremely tough in terms of the pricing, just
as you mentioned.
But now, as we come into the summer of 2010 and
we look at our position, it's very clear that our
operation of regional and national networks can be
effectively put together in order to lower costs. And,
secondarily, just as you said the price for moving LTL
has to come up and that is happening. And the
reason that is happening is because capacity has
been taken out of the market. And the pricing
environment, because the economy has gotten better,
is more rational.
Now, the plan that our Board of Directors has
improved for FedEx Freight is designed to restore the
profitability of the enterprise. We're confident it can
and will become profitable again. We think that the
value proposition we are offering our customers,
which we verified with a tremendous amount of
independent research and our sales force is out now
selling, is going to be extremely popular.
We will reduce about 100 locations out of necessity to
reduce costs. We've worked very hard to try to take
care of the folks as best we can. We're going to have
many, many hundreds of people who today give us
the word on whether they want voluntary severance,
as you're probably aware, we’ll offer…

Joe Nuno
FedEx Freight

Mr. Chairman…

Frederick W. Smith
Chairman, President & CEO, FedEx Corp.

…many other people — you can talk when I turn the
floor back over to you. And then, we believe we — the
steps that we have taken will get FedEx Freight back
into profitability. Now, please.

Joe Nuno
FedEx Freight

Now, what — okay, we have 1,700 people that are
losing their jobs. What are we going to do to help
them out? And how are we going to help each other
out? In the Freight business we have purchase
transportation taking our work away from us. How are
we going to help our employees to build this
economy?

Frederick W. Smith
Chairman, President & CEO, FedEx Corp.

I think nothing could be more off-base. We —
knowing that we had to do something for FedEx
Freight to restore profitability because the one thing
that we cannot do — as a private company, we
cannot employ people when we don't have any work
to do.

Joe Nuno
FedEx Freight

Yes, but…

Frederick W. Smith
Chairman, President & CEO, FedEx Corp.

You would agree with that, would you not

Joe Nuno
FedEx Freight

But we've got line drivers that are sitting at home for
three days waiting for work, but they're taking the
work away from them.

Frederick W. Smith
Chairman, President & CEO, FedEx Corp.

Well, Bill, you want to comment on that?

William J. Logue
President & CEO, FedEx Freight

First of all, I want to thank all the Freight employees,
both at the regional and national organization; they do
a fabulous job every day. This new strategy basically
(inaudible) is designed to grow and make our
business more profitable. As Fred said, we go out
there, and we put a voluntary severance program
together -- because, again, this is about efficiency
gains and you put the two groups together. This is not
about taking work away. This is about putting the
groups together and being efficient.
Now, we've worked very hard to make sure we've
done the right thing for our employees on the front
side. Obviously, there's an enhanced severance
package, a voluntary severance package that makes
sure that those that really want to move on to a new
career can do it on the front end, minimizing the
stated 1,700 number pretty dramatically.
And that's our goal, is to reduce that because our
objective is to impact as few employees as possible
and we understand that, and we take that very
serious. We also understand that a strong, healthy
company is the right future for all of our employees
long term.

Joe Nuno
FedEx Freight

It's healthy for the Company, but it's not healthy for
the employees who are losing their houses and…

William J. Logue
President & CEO, FedEx Freight

Let me just say this. An unhealthy company losing
money is not good for any of our employees. Our
objective is to make sure we are strong, long-term
and profitable so that — we look down the road — all
of the employees, our 35,000 employees, have a
strong, healthy, secure future. And that is the number
one responsibility for both myself and also our
employees. Thank you.

Frederick W. Smith
Chairman, President & CEO, FedEx Corp.

I think I answered the question. And, unfortunately, try
as we might, we cannot pay people when we have no
work for them to do. And one of the things that we
tried to do in FedEx Freight during this period of time
was actually to use purchased transportation so that
when we put these networks together we would
maximize the long haul driving opportunities. So what
you said was exactly opposite with what's going on. I
don't know about the three people you're talking
about, but that's been the strategy.
Other questions?