Embracing e-commerce challenges
Most of the air cargo and express industry’s attention at the moment is focused on the TNT acquisition, and rightly so. But two acquisitions FedEx made about a year ago – Genco for $1.4 billion and Bongo for $42 million – may end up having an even greater influence on FedEx’s success in the e-commerce arena.
Unlike rivals UPS and DHL, FedEx had not been heavily involved in the supply chain or contract logistics business, Smith said. Through its FedEx Trade Networks (FTN) subsidiary, launched in 2000, the integrator had focused on just the upper ends of the logistics world – “the critical inventory, the parts and pieces needed for factory shutdowns,” he said. The remainder, he explained, was mostly low-value-added work that many smaller companies could do less expensively than FedEx.
“Now, when e-commerce came along, it completely shifted everything,” Smith said. The focus moved from the front end, the supply side, to the back end, where consumers needed value-added services that online merchants weren’t prepared to provide. Last year, for example, an estimated 25 to 50 percent of all ecommerce purchases were returned, and Genco is the leader in this “reverse logistics” sector, providing services for seven of the top 10 North American retailers. “So we bought them, and it gave us an enormous portfolio of back-end things for the e-commerce world. All of our beliefs in the synergies and the market prospects of Genco have been reconfirmed in the period of time since we’ve owned it.”
The other half of the equation is Bongo, which began as a small Tampa-based software company that managed the vast patchwork of duties, taxes and other international regulations involved in the cross-border e-commerce business. In seconds, Bongo can figure out the costs and the terminology needed to ship an iPhone from, say, Singapore to Bulgaria, or Vietnam to Argentina.
Since purchasing the Bongo technology, FedEx has modified the software to be FedEx-compliant and scaled it up to be an integral part of the company’s value offering, Smith said. “It was a very small company but something we considered to have best-of-breed capabilities, which would take many months or years for us to develop ourselves,” he said.
FedEx expects to go to market with the expanded Bongo technologies sometime in 2016, which will help the company manage next year’s peak season. “We already have met with big e-commerce companies for next year’s Christmas peak and we haven’t even had this one yet,” Bronczek told Air Cargo World in October. “That’s how amazing that business is.”