FedEx recently announced it will discontinue Sunday delivery service in mid-August as the last-mile and freight delivery outfit faces slowing consumer demand and drivers calling for higher wages.
The company ramped up its doorstep deliveries to 95 percent of U.S. homes during the height of the pandemic after adding Sundays in 2019. Driven by increased demand, shuttered retail outlets, and people sheltering in place, FedEx officials called it “the exponential growth of e-commerce.”
At the time, the household name organization called the move “an important advantage over our primary competitor.” That competitor has traditionally been United Parcel Service (UPS), but the field tightened as Amazon increased doorstep deliveries in recent years. Both UPS and Amazon leverage relationships with the U.S. Postal Service to maximize their ground game. Second quarter earnings reports indicate UPS has flourished even as diesel and inflation negatively impacted the economy.
“Quarterly revenue — at $24.8 billion — rose 5.7 percent annually, and adjusted earnings per share — at $3.29 — saw a 7.5 percent increase, topping Wall Street estimates of $3.16 per share. Quarterly operating profit was up 8.5 percent to $3.5 billion,” Supply Chain Management Review reported about UPS.
Unfortunately, 2021 rising fuel costs and the highest inflation in more than 40 years have not been as kind to FedEx expansion. Consumers appear to be curbing their spending as the country experienced two quarters of economic retraction, largely considered a recession precursor. Slashing Sunday deliveries to rural communities will result in a 15 percent overall delivery reduction.
FedEx anticipates maintaining 80 percent of U.S. home and business deliveries heading into the fall. The policy shift comes on the heels of a contractor and driver revolt led by Route Consultant president Spencer Patton, who handles logistics for 200 routes across 10 states. Patton issued what amounts to an ultimatum, demanding FedEx increase per mileage rates, per-stop compensation, and an end to Sunday deliveries.
“By our estimates, Sunday deliveries are costing FedEx Ground upwards of $500 million in earnings drag. That $500 million figure is getting worse, not better,” Patton reportedly stated. “Likewise, Sunday deliveries erased more than one-third of CSP (Contracted Service Providers) profit margins in less than one year’s time. In parallel fashion, that margin erosion is worsening, not improving.”
Coincidentally, Patton scheduled a meeting of FedEx contractors in Las Vegas on Aug. 20-21 to “elect a committee of 10 CSP to speak as a unified voice to FedEx Ground.” FedEx reportedly works with more than 6,000 such providers to accomplish its deliveries.
Last-mile and semi-truck drivers working with FedEx would be well-served to monitor rate increases during August. Other organizations have raised pay scales to offset some or all of the diesel expenses and persistent inflation costs.
https://www.routeconsultant.com/updates/route-consultant-founder-spencer-patton-calls-for-network-wide-financial-remedies
https://www.cnn.com/2022/07/22/business/fedex-ground-sunday-service/index.html
https://www.scmr.com/article/ups_sees_q2_earnings_rise_while_volumes_decline/news
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