FedEx, a Memphis-based global freight forwarding and logistics services provider, is preparing to cut its Sunday delivery service in remote and rural areas of the United States from 95% to 80% of the U.S. population in July. After stating that it is currently operating, it is now reducing its Sunday delivery footprint to around 50% of the country, according to various reports.
The development is not surprising as the company announced in September that it planned to implement various cost-cutting measures by the end of fiscal year 2023, with a focus on easing the decline in demand.
One of the key areas of focus announced at the time was the reduction of Sunday operations at many FedEx ground locations, and FedEx President and CEO Raj Subramaniam said FedEx is a priority when it comes to plans to cut costs. I said expensive. The company’s original 2023 business plan was revised up from $2.2 billion to $2.7 billion.
“As we continue to adapt and streamline our global FedEx network to meet customer needs in a rapidly changing environment, FedEx Ground will be expanding our Sunday home delivery operations to better meet current customer demands. We are making further adjustments to this,” the company said in a statement. Provided to LM. “Effective mid-March, our Sunday residential delivery service will be available to more than 50% of the U.S. population, primarily in areas with high population densities and demonstrated customer demand. FedEx Ground can increase efficiency while maintaining a competitive advantage with weekend coverage.”
Bloomberg reports that FedEx will decide in February which markets will be affected by the announcement. Reuters also reported that many of the company’s 6,000 U.S. contractors said there wasn’t enough demand for Sunday deliveries to cover the cost of providing the service.
Jerry Hempstead, president of Hempstead Consulting, explained that Sunday deliveries require a large capital expenditure.
“And 99% of the goods will be able to wait until Monday,” he said. “So the cost was not equal to what the model was charged. There are items that must be delivered on Sundays. For example, important medical or computer shipments. And if they absolutely must be delivered on Sundays. pays a premium. But e-commerce is rarely urgent, and the sweater I want for my birthday can wait.”
Keith Meyers, San Diego-based shipware senior consultant and professional services, also agreed with Hempstead, pointing out that Sunday deliveries aren’t as big of a market shift as FedEx thought.
“I think FedEx will pay contractors more to deliver on Sunday,” he said. “Now it makes no sense to pour money into this aspect of their business.”
As reported by LMFedEx said it was initially “serving the burgeoning e-commerce market better,” and that UPS, which quickly responded to USPS’ seven-day offer, was also considering seven-day deliveries a week. .
At the time of the announcement, FedEx was already delivering seven days a week during the peak holiday season, so this wasn’t all that surprising. And in September 2018, FedEx announced that it would increase its FedEx Ground US operations from five to six days a week. A company official said at the time that the move was made in response to a combination of an expected increase in e-commerce demand and a record amount of inflows after the 2018 holiday season.
Morgan Stanley analyst Ravi Shankar said in a research note that FedEx’s transition to seven-day deliveries in January 2020 was part of a move to deal with an unprecedented increase in deliveries after the Covid lockdowns. I wrote that it accelerated.
“However, the rapid introduction of Sunday delivery has also reportedly placed greater demands on FDX and its contractors,” writes Shanker. “[Management] A key factor in this decision is the changing economic situation. The decision also coincides with media reports of dissatisfaction with his FDX independent delivery contractor, which was partly linked to Sunday’s delivery.
Analysts added that the move by FedEx is surprising for several different reasons. There was also a competitive impact, as FedEx saw Sunday service as a competitive advantage over UPS, while Amazon Logistics and USPS continued to deliver seven days a week.
About the author
Jeff Berman, Group News Editor Jeff Berman is the Group News Editor. Logistics management, Modern material handlingWhen Supply chain management reviewJeff works and lives in Cape Elizabeth, Maine, where he routinely covers all aspects of the supply chain, logistics, freight forwarding and material handling sectors.Contact Jeff Berman
