Why FedEx Bought Watkins

June 8, 2006
The FedEx segment Duncan heads is comprised of FedEx Freight, FedEx Custom Critical, Caribbean Transportation Services and now, Watkins, which will now

The FedEx segment Duncan heads is comprised of FedEx Freight, FedEx Custom Critical, Caribbean Transportation Services and now, Watkins, which will now be branded as FedEx National LTL. Duncan points out that the new entity’s colors will be those of all other FedEx Freight equipment, purple and red, and that it will operate as a separate company with a separate network.

“There is a two-fold opportunity here,” says Duncan. "In our FedEx Freight business, customers have been asking for long haul for some time, so this acquisition enables us to grow our business with existing customers. But this really gets us a solution in the long haul business we didn’t have before, so there are targeted businesses that we never participated in that we can now go after.

“In a broader sense,” he continues, “we’ve been having great success in bundling the freight and package business together and even there customers have told us that we weren’t giving them a complete enough solution on the LTL side and we need the long haul portion. This will help us grow the freight business, existing customers, new customers and will help us to sell the package business.”

Duncan claims that FedEx Freight has enjoyed a great deal of success, moving from being the third largest regional carrier to the first by delivering next and second day for those companies executing fast cycle logistics. He says that not having long haul was a hole in their service offerings, since customers wanted an economical solution with FedEx Freight rather than having to go to another carrier for those deliveries.

With that realization, “Two years ago we started trying to figure out how to provide long haul service,” notes Duncan. “Clearly it had to be a separate network because to make next day deliveries up to 600 miles and second day delivery to 1600 miles, we force an awful lot of freight through our hub and spoke network every night, which makes it a high cost network, but for customers taking inventory out of the supply chain, it’s a very good bargain. On the longer haul side customers are interested in a more economical solution and that requires a separate focused network to be able to achieve that cost effectiveness.”

To FedEx, Watkins was the perfect fit and was identified as that early on. The carrier’s primary business was already long haul, so nothing would have to be broken, the company would only have to be acquired to begin to expand its business. Duncan feels that Watkins has an entrepreneurial culture very similar to what was captured at Viking and American Freightways when they were merged to form FedEx Freight. Too, he notes that Watkins is family-driven and people-friendly.

After working for 18 months or more to convince John Watkins to sell the company to FedEx, the deal finally came together. Looking at what was acquired, Duncan notes that Watkins has a very lean terminal network – about 167 facilities – and with that they are able to direct load a lot, which gives them a cost advantage on the long haul business by not forcing a lot of business through a hub and spoke network. “It’s a very different model than ours and it works well,” says Duncan. “The one piece they’re probably lacking is that with their lean terminal network, they don’t serve every point in the country. That’s one of the great parts of being part of the FedEx organization. Now they have a sister company that delivers to every zip code in the country, one that can help with that and make their model that much more efficient and attractive to the customer.”

Watkins has a Canadian presence and FedEx Freight has had a good relationship with Canada’s Day & Ross for a long period of time. The FedEx Freight relationship with Day & Ross will not change. The company is looking at growth in Canada and work teams will be put together comprised of Watkins and FedEx Freight leadership to develop the path forward, which may take some time. The relationship with Day & Ross remains as it is, and it is business as usual right now for FedEx Freight customers shipping into Canada.

As for present Watkins employees, says Duncan, “The management team stays in place and we’re going to hire all of the present employees. This is very much a growth strategy, so we need all of their people and then some. This is not a merger where we’re looking at cutting costs. This is an acquisition that we think will help both companies grow. So it’s a pretty rapid expansion plan here.”

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