John Thornton, Citi’s Industrial Specialist. I get to play the substitute transportation analyst for the moment for a little fun. With me, I have the joys on stage of the management from FedEx, both CEO Raj, Chief Digital Information Officer Vishal, and Jenifer from IR, who I believe you had a few minutes or a few comments to kick us off with.
It'll be less than a few minutes.
Okay.
Thanks, John. We're delighted to be here. I promised the lawyers I would read a quick disclaimer. Certain statements may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act, and are subject to factors that could cause actual results to differ materially from those expressed or implied. For additional information, please refer to our press releases and filings with the SEC.
Okay. For the purpose of the conversation here, I think a lot of it's going to focus on the tech stack you guys are working through, but to get the near-term comment out of the way. You noted on your 4Q earnings call that you expect EPS growth to accelerate to 20% year-on-year for the remaining seven months of calendar year 2026. How is that tracking so far into year-end, and any comments you'd like to add to that?
Well, thank you very much, and thank you for having us here today. We are pleased with the underlying momentum in our business. As far as we're concerned, we think about our trajectory towards the CY 2029 targets that we have set aside. We have modest revenue growth, but double-digit earnings growth because of our transformation. Most importantly, generating $6 billion of free cash flow by CY 2029. So those are the targets that we are absolutely laser-focused on, and I'm pleased to say that we are well on our way towards that.
Being we're at the tech conference, we'll spend some time there. FedEx is most often thought of as an asset-heavy transportation company. I think people generally understand that there's a lot of complexity involved in global logistics. But give us context to how technology plays a role in your operations or, simply put, why is it appropriate for FedEx to be at a tech conference?
Yeah. Well, that's a terrific question. I think from a point of view of what FedEx, we have built over the last 53 years an unparalleled network that connects every part of the globe to every other part. That's a true definition of a network, and that's a large moat that FedEx has got. It's impossible, or not impossible. It's very, very difficult to replicate the network that we have built over the years. We move the high-value commerce of the day. We connect roughly 3 million active shippers to about 225 million consumers around the world, and we move $2 trillion worth of commerce every single year. This is the high-value supply chains that we are moving. What's important about that is also the fact that we generate 2 PB of data every single day in our system.
We realize that the value of this data is very important, and most importantly, the insights that we generate from that. So we started this process back in 2020. We have been on this journey for now more than six years. Of course, along comes the revolution in AI along the way, and the important thing to fuel AI is data. So we have now taken on a whole another level from marrying our physical capabilities that every single day generates these incredible insights about global supply chain. Then we evolved our vision to make supply chains smarter for everyone. Think about this. Prior to the pandemic, the word supply chain were not as exciting, but the pandemic really changed that. Today, it's a boardroom conversation, and there's a significant inefficiency in global supply chain. There's $1.9 trillion worth of inefficiency in global supply chains.
Because of the data, the insights, and technology now that we have, we think we can make a difference in orchestrating global supply chains, and the physical network that we have every single day powers this technology story.
Thank you. You mentioned the cash before, so let's maybe circle back to that. FedEx has taken a tremendous amount of cost out of the network in recent years with the $4 billion of savings from the DRIVE initiative and an additional $2 billion related to the Network 2.0. For those who are not familiar, could you discuss these initiatives and give some metrics on the efficiency gains that have been realized? What role did technology play in achieving these savings?
Yeah. Back in 2022, we embarked on a very significant structural cost reduction program, and ever since then, in the last four years, we have taken billions and billions of dollars off our cost structure. The team has done a really remarkable job of doing and executing against that. That's not the exciting part. The exciting part was the beginning of the transformation journey that we went on. I know a lot of you have not followed FedEx before, but before this time, we were operating two relatively independent networks in the United States, an Express network and a Ground-based network. We have decided back in 2022 to put these together as one. It's one of the biggest industrial transformations in recent history, not in our industry, just look in general, even though it's happening within one company.
We are extremely pleased with the way that it's going so far. As we have said in the last earnings call that we were about 42% of the way done then. By the end of this year, we'll be 62% done, and we are on track to get it complete by next year. The important thing is the question you asked is what's the role of technology? I think this is a very critical point because without the journey that we began on our technology and creating that digital twin of our network, we couldn't have done this. So whether it's our cost savings that we have structurally taken out of our network or the execution of our transformation program, of which Network 2.0 or the integration of our networks is a big part, we couldn't have done it without technology.
That is a very critical component of it. In fact, that is going to enable us to then provide new value-added services on top of what we have built so far.
To continue on this path, AI has rolled out at a tremendous pace. How do you think about the opportunities for FedEx to incorporate AI to drive efficiency gains, and what has been done so far? Should we think about it as distinct in the early innings with meaningful opportunities still to come? Would these opportunities be distinct initiatives from DRIVE and Network 2.0?
Let me begin to answer that question, and I will bring Vishal into this conversation. My point here is that the fuel for AI is really data. The fact that you need to have your data engineered and organized is really critical. We began that journey back in 2020. So we had a head start in this era. Then comes the AI revolution. We think about AI in terms of, one, obviously an opportunity to improve our efficiency and our productivity. That is a given. That is not all of it. That is in fact only one piece of the equation. We think that AI can help us differentiate our services and offerings to our customers. In fact, that is already happening, and that generates growth for FedEx. Thirdly, it allows us to create new value streams because of the information and insights that we have.
I am going to turn it over to Vishal because he is driving a lot of those as we move forward here.
Thank you, Raj. As Raj outlined, when we look at AI, we are absolutely in the early innings of what we think the potential exists, not just for us within FedEx, but broadly for logistics at large. There are a couple of great examples in where we are already deriving value from AI initiatives that are inside the organization. As an example, our most valuable asset within FedEx is our planes. We have cut down the research on aircraft maintenance from 30 minutes to three minutes. That is about a 90% efficiency by applying the right AI capabilities to that operation. Our ability to differentiate by reducing our predictable delivery time from four hours to two hours is another example of how we are leveraging AI to run a more precision network that puts any parcel in any location in the world within two hours of its estimated arrival time.
Again, 50% better than where we were a couple of months ago, which was four hours. Another example of that is we are using computer vision to look at non-standard packages inside our network and reclaim surcharge revenue, which we otherwise would have leaked. We are already seeing benefits of over tens of millions of dollars annually as a result of that. When we are looking at AI within FedEx, we are extremely clear. One, there are no shortcuts. We are playing the long game. We are playing the long game by establishing a foundation from where any technology capabilities that are advancing in the world at a rapid pace, we have the responsible foundation to introduce them responsibly and structurally inside our organization. Second, we are looking at this as an absolute opportunity to disrupt the industry because we do believe a disruption is coming.
Expectations from customers are going to evolve. What the customers are also seeking is much beyond the efficiency in just the transportation element of supply chains. We will get to that in a second as well.
Just add one point here. I think our infrastructure of 700 planes, 200,000 trucks, and 5,000 facilities. We are a system of inventory in motion, and every second actually matters. Because of technology, we are able to change these efficiencies in minutes and seconds, and each of them drive a significant change. For example, in the Memphis hub, if you come and see it, and I invite all of you to come and see it. We have improved our flight arrival time by eight minutes. You think, eight minutes, huh? Eight minutes is a lifetime for FedEx. There are a lot of things on an inventory at motion system that we have where technology plays a huge role.
Maybe circling back on the customer point that you brought up. In what ways are you embedding AI to provide more visibility into your customer supply chains and offering new value-added services? Can you unpack how you are creating new markets for supply chain orchestration?
Sure. Let's focus on the point on visibility. You can look at visibility from two elements. You can look at visibility in terms of when a parcel enters our network and when it leaves our network. There is visibility in that. That one we have mastered to a science. But then when you look at supply chains, you have got to look at visibility broader than that. Where we are finding increasingly our customers are interacting with us is visibility in the entire breadth of their supply chain, from source to plan to make to supplier visibility, inbound supply chains, outbound supply chains. Raj mentioned the $1.9 trillion of value that is leaking in supply chains. That $1.9 trillion of value is not leaking in the transport or the move part of supply chains. It is leaking across the entire segment.
One of the areas that is an increasing focus for us is high-value B2B verticals. Think automotive, think healthcare, aerospace, data centers, high tech. Our customers in this space are seeking visibility across all of this. One example of that is when you look at our healthcare vertical, we are taking our inventory visibility and supplier insights capabilities and helping a medical device manufacturer connect to the hospital system and connecting suppliers and inventory insights between both. So when a hospital system requires a certain product in a certain area, we can catch those demand signals earlier and automatically route those insights into the medical device manufacturer, which then does not have to react after the fact or has to move inventory when it does not need to move inventory or can rebalance its inventory stock.
We also then have a SenseAware capability, which is a physical proprietary technology capability that we implemented that sits on top of any high-value package. Think of any high-value package having its own digital concierge that travels along every part of that package's journey through our network. What is the weather of conditions surrounding that package? What is the temperature of that package? How often, how long has that package sit in a certain kind of temperature situation? By having that kind of visibility and predictability, we can actually intervene and get that package rerouted so that it can still stay within its standard operating conditions. We also have Surround capability. Surround capability is one which gives extreme visibility to where the package is at any given point in time.
Which when blended with the physical SenseAware capability, marries the two that allows our customers to have a higher degree of precision and confidence in that their high-value package, one, is always secure. Second, is always in the conditions that they would want it to be so that it can operate normally and as expected when it arrives. It's always going to be arriving on time, or at least have visibility into when it's arriving ahead of time so that they can do any intervention that may be required. One evidence of the value our customers associate with these is 40% of our healthcare customers today use one of these two capabilities. We're increasingly finding customers asking us to go broader into more capabilities across our insights and signals or supplier visibility in insights platforms.
Yeah. Permit me to repeat what I said earlier to connect the dots here. I said AI, firstly, obviously we are using AI to improve our operating efficiency and network efficiency. That's a given. Then I said the next layer was the differentiation to drive new business. That's the example that Vishal just talked about. This has allowed us now to become the leader in the healthcare transportation segment because of the digital tools and technology and use of AI and predictability to really improve their supply chains, and hence our business goes with it. That's the driver of growth, the second layer, and we'll talk about the third layer next.
Okay. We'll spend a second on physical AI. At your Investor Day, you showcased a number of technology tools for things like unloading trucks and tracking shipments. What do you see as the most promising technology tools developed in terms of physical AI, and where the efficiency gains you envision could be realized from these tools? Where do humanoid robots in sorting facilities and autonomous vehicles fit in?
Yeah. That's a terrific question. On the physical AI front, like you said earlier, we are an inventory at motion system. If you go to some of our tremendously large FedEx Ground hubs in the United States, you'll be surprised at the lack of people. It moves through the whole facility in a matter of minutes. It's fully automated, except in two areas, truck unloading and truck loading. These are two areas where it's a very difficult physical AI problem to solve, but it's being solved. We've been at it for the last four or five years. Imagine the truck loading packages of all different sizes, shapes, weights, and the robot is playing Tetris to load the truck. Unloading is a little easier. You can have gravity to work with you can have claws, and so on.
But we are solving both those problems right now with physical AI, truck loading and truck unloading. You talk about humanoid robots. Actually, what I want is, and we have, is super humanoid robots. We want robots with two elbows, and we want to be able to have much more degrees of freedom, and they need to be bigger. In fact, that's exactly what we're deploying. Before this December in Hagerstown, Maryland, we have a series of robots to do exactly that. This is increasingly starting to get real and physical AI. Then you can look at that facility, then end to end, it becomes automated. You mentioned Middle Mile. We're working with Aurora to have automated trucks on routes today, and we already are deploying those to see. Because what you need on the highway, it's a lot easier to deploy these automated trucks.
We have so many facilities. They can take facility to facility, and then internally, you can have a human driver, but between those facilities on the highway can be automated. That's happening as well. There's a lot of physical AI activity that's underway today in our system, and you can imagine the scale. Like I said, 200,000 vehicles and 5,000 facilities. That's a huge amount of scale that we're talking about.
The one thing that I'll add to what Raj just said. You would sit here and think that, okay, this is a great example of how FedEx is leveraging physical AI across our business. What sometimes get lost is how this is also an added opportunity for us to create a brand new business for ourselves. You may ask how. Think in terms of the loading, unloading of the trailers that Raj just outlined. Think of autonomous driving. You mentioned humanoids as well. Who's going to train all of these? When you think in terms of a supply chain logistics platform, think of FedEx as the platform from where we can create the operating system for supply chain and logistics, and that operating system can sit in different applications of physical AI that do not exist today.
We are also thinking in terms of how do we leverage the breadth and the depth of our platform to create that operating system for supply chain. We are already doing it extensively by creating our supply chain graph on the digital side of the business. We are also exploring opportunities in active conversations on how do we bring that same applicability on the physical aspect of supply chain as well.
Let's circle back to the theme of data. Can you discuss your Dataworks initiative and how it leverages technology to create insights for customers on how to manage their supply chains? What has the customer feedback been on some of the tech-enabled tools that you've introduced, and how do you think about the revenue-generating opportunities?
Absolutely. When you think about FedEx, think about two distinct businesses. We formed Dataworks about four, five years ago with the sole purpose that we wanted to bring solutions in the arena of supply chain to our customers that were broader than just around transportation. We formed it because we started to increasingly get the pull from customers to bring our expertise in how we run our logistics networks to other areas within supply chain. When we look at Dataworks, we look at three distinct business capabilities. Raj spoke about the 2 PB of data. This is 2 PB of proprietary data, which it is our data, it's first-party data. That is pretty valuable when you want to go from intelligence to predictive intelligence.
You're not buying data off the market, which is after the fact, and then giving somebody the ability to do intervention after the fact or when the intervention window is closed. You're looking to give advantage to customers, where they still have the opportunity to intervene. The first line of business within Dataworks is we have created the signals and insights platforms from where our customers and others, any business, can tap into the insights to whatever is the use case that's applicable for them. The second is taking our internal solutions and externalizing them. A good example of that is we are one of the largest customs brokerage in clearing houses in the world. We extensively run a high volume of clearance through our network, and a lot of customers are now seeking that capability with what's happening with the volatility in tariffs.
Suddenly, tariffs is taking a center of focus in more supply chain conversations in Fortune 500 and G- 2000 companies and small to medium businesses as well. We are taking our clearance solution and bringing it to market. The third one, where the real value exists, is supply chain orchestration. We've been building a supply chain orchestration platform that has different modules in it, from inventory flow to supplier insights, to demand management, to forecasting management, to yard management. This is where we are seeing the most pull from our G- 2000 customers primarily, and especially in the high value verticals. This is where we start to address that $1.9 trillion of leakage systematically inside.
The number of conversations Raj and I have in the last couple of months with CEOs of high-tech companies, automotive companies, defense providers that are just dealing with teething supply chain issues that are basically saying, "If you can help us somehow connect the dots on this fragmented supply chain that we operate inside our network, we could add billions and billions of dollars of value both to our bottom line and our top line." What we are realizing is the combination of our vast physical network that generates a ton of first-party data, a subject matter expertise that we've built over 50 years of operating one of the most complex logistics networks that operates in the world at the high precision that Raj just outlined, where minutes matter, and the strong technology capabilities which have now become an equalizer.
When we take the power of all four of them and bring to our customers, we can't keep up with the demand that's coming through the gates for us at this point in time.
I will just make a couple of points. One, when we started talking about our first question, the projections we gave out had zero impact from any of these conversations we're just having now. This is clear upside to what we have committed on that front. Secondly, on each of these fronts, on the insights machine, we have now a Retail Momentum Index that we are working with Dun & Bradstreet, and that is actually a leading indicator for the U.S. retail sales because of the first party and the innate intelligence that we have working with Dun & Bradstreet. So we are actually six weeks ahead of predicting what's going to happen to U.S. retail sales, and has been pretty damn close to what we've said. The second one was the systems that we have and differentiating, we already talked about.
The third, on the supply chain orchestration, we are just proud of the fact that we just closed, announced a relationship with the U.S. Army. This is our FedEx Dataworks organization that concluded that deal just a few days ago, where we are working to orchestrate the supply chain for the U.S. Army. So we are really taking this one to the level. The word supply chain didn't mean much to a lot of folks seven, eight years ago, but now it's resonating. It is a CEO-level conversation, and we personally, the two of us, have had so many meetings in the last eight or nine weeks with so many different CEOs talking about orchestration of supply chains.
That defense comment got my attention, so let's go down that path. Looking ahead, what are your key priorities for the data and technology perspectives, and what are the technologies you're most excited about? You just talked about the military, so we can do other ones.
For us, our key priority is we absolutely just want to make supply chain smarter for everyone. The only way you make supply chain smarter for the world at large is by doing two things. One is you have to have them connected. Data is right now still siloed, not just within organizations, but across organizations as well. The second thing is you've got to embed intelligence into every aspect of supply chain so you can get to a predictive posture from a reactive posture. When we look at the plethora of technologies that are surrounding us at this point in time, we are excited by quite a few. We continue to be excited by what physical AI is going to do to autonomous logistics and the opportunities it's going to create for our customers and for us.
When we look at building the right supply chain orchestration platform with the interoperability capabilities, that's going to help get more systems connected inside companies, between companies, between public and private partnership. We are watching all of these technologies at scale. But if you ask me for a personal favorite, we as an industry have operated on printed labels for as long as we've existed. I think we're going to move towards an intelligent label system that is also an active, not a passive label. When that comes, I think it's going to provide a lot of opportunities for the industry at large, and we'll be ready to capture every ounce of it.
Yeah, I'll just say, if we put it together, supply chains have become very important conversations that the innate intelligence that FedEx is sitting on every single day, especially the high-value supply chains, is incredibly useful in its own right. It's the physical network that we have around the world that we operate every single day that allows us to have that innate intelligence. So it's a moat, meaning a supply chain tech startup can't just come in and start because it says you don't have the data. Tomorrow's data is different than yesterday's data. We are very excited about the possibilities of unlock, and especially now with the technology of the day, it just really makes it possible to open the door to really helping improve the efficiency of $1.9 trillion. It's a huge value to be created across the ecosystem.
This is very, very exciting times for FedEx.
I am going to squeeze in one last one. I know we are butting up time. How do you envision the future of logistics? How do you see the parcel market and your business evolving over time, and what makes FedEx a winner in that future?
Well, I think the market itself is very strong. We are the heartbeat of the industrial economy. We see that when you think about the artificial intelligence conversation we are just having, the supply chain of AI and DC work that is happening today, FedEx actually is a critical component of moving all these things. We see this market is significant. We see that there is a critical need for precise movements of parcels and air freight. We are well-positioned because of the network. I think, as I just said before here, there is even a bigger opportunity now with the ability for us to use our intelligence and think of FedEx as a platform. Others can plug into this platform. We are in the center of this ecosystem, 2 million shippers, 320 million recipients, and 18 million packages a day.
Think of that as an ecosystem, and people can plug into this ecosystem and create significantly more value. One example is the customs clearance. Maybe two years ago, that may not have been that important. Today, it is extremely important because tariff environment has completely changed. We have data for every package, every country, to every other country, for every commodity. We have the classification code, data, and information. This is very exciting times for FedEx from physical and digital perspective.
Yeah. Raj, Vishal, Jen, thanks for joining us at Citi's TMT conference.
All right. Thank you, too.
Thank you.
Thank you.
Thank you very much. Appreciate it. Thanks.