FedEx Corp. FDX -0.11% suspended about 1,400 customers of its Freight shipping service earlier this month, a move that surprised customers and was aimed at easing a congested network taxed by relentless package volume.
The shipping and logistics giant dropped the customers without notice, leaving some businesses hunting for a new option to move their products. FedEx resumed service to some customers this week. While a surge in e-commerce spending during the Covid-19 pandemic has strained shipping companies of all sorts, FedEx has lagged behind rivals in keeping deliveries on time this year.
A FedEx spokeswoman said the cuts were “designed to minimize network disruptions and balance our capacity and demand to avoid backlogs across the country—particularly in the most capacity-constrained Freight service centers.” The company is due to report quarterly financial results after the market closes Thursday.
Colorado-based Diversified Innovative Products Co., a family-run maker of disposable ink pans for printing presses, had an order waiting on its loading dock for a FedEx pickup that never happened.
“There was no correspondence sent, and we were notified the day that shipping ceased via a phone call from our rep,” said Theron Johnson, president of the company. It has used FedEx for 30 years and did $304,000 in business with the shipping company in 2020, he said.
Finding an alternative proved to be difficult, and Diversified Innovative Products prepared to lose as much as 5% of its annual sales, Mr. Johnson said. FedEx informed him Tuesday that the company could resume shipments. In the end, the ordeal “just threw us into panic mode and delayed one shipment,” he said.
FedEx’s move “was a temporary step that provided necessary volume relief and allowed us to begin bringing some of the volume back in a controlled manner,” the FedEx spokeswoman said. The company said it continues to work with customers to address service concerns and had lifted suspensions on hundreds of them by Wednesday. She declined to comment about specific customers or whether FedEx might implement such a move again.
Shippers have cut off customers during peak periods in the past. In December, United Parcel Service Inc. imposed shipping restrictions on some large retailers such as Gap Inc. and Nike Inc. because of the busy holiday shopping period.
Not all businesses depend on a single carrier for services. Airgas Inc., a Radnor, Pa., producer of cylinders of various gases, said any disruption from FedEx’s decision wasn’t having a meaningful impact. Airgas uses its own fleet for most deliveries, and FedEx isn’t its primary provider of third-party logistics services, an Airgas spokeswoman said.
Airgas is a unit of France’s Air Liquide SA . The FedEx Freight services changes were earlier reported by FreightWaves, a logistics publication.
In addition to culling customers, FedEx is imposing a $30 per shipment fee on FedEx Freight deliveries to certain ZIP Codes after July 5. Affected are the Sacramento, Calif., Seattle and Miami areas along with parts of New Jersey and Long Island, N.Y. The FedEx spokeswoman said the surcharge and the reductions in service are addressing “capacity constraints in specific geographic areas and throughout our network.”
FedEx in 2019 stopped handling ground deliveries for Amazon.com Inc., one of the biggest e-commerce shippers. FedEx has struggled to deliver packages on time this year. The pandemic-fueled surge coincided with internal efforts to embrace more e-commerce deliveries as growth stalled in its larger and more-profitable business of delivering shipments between businesses. It has added sorting facilities for its Ground operation, which handles the bulk of its e-commerce deliveries, and last year began delivering on Sundays.
FedEx has been changing the longstanding roles of its individual shipping services. It is now delivering packages that it had been dropping off at local post offices and has been shifting some of its Express service deliveries to its Ground service when possible. Meanwhile, the Freight service began handling ground shipments in May 2020, delivering about 1.8 million shipments as of the end of February.
The continuing delays led some customers to turn to other shippers to fulfill orders. FedEx’s deliveries were 71% on time in May, unchanged from the previous month, according to the delivery-tracking software company Convey. That compares with 89% at UPS. The gap with UPS has widened since February, Convey data show. That month many parts of the country endured a deep freeze, including FedEx’s Memphis, Tenn., hub, leading to weeks of significant delays.
FedEx said it disagrees with Convey’s numbers and contends that its data haven’t historically aligned with the shipper’s internal figures. Convey says FedEx has maintained a 36% market share for more than three months, compared with 28% for UPS.
FedEx’s Freight division offers less-than-truckload services, in which cargo from multiple shippers is combined in a single trailer. FedEx’s Freight division had fiscal 2020 revenue of $7.1 billion, compared with total FedEx revenue of $69.2 billion.
UPS’s own freight division had 2020 revenue of about $3.15 billion, before the company sold it for $800 million. UPS Chief Executive Carol Tomé recently praised the divestiture as “eliminating a low-margin and highly capital-intensive business.”