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Supply Chain News: After Tough Half Year Plus, FedEx Finally Heeds Calls to Merge Some Last Mile Ground and Express Deliveries


 

Express Driver Says often Saw Ground Deliveries when Dropping Off Express Packages at Same House

Fed. 12, 2020
SCDigest Editorial Staff

It has been a tough year plus for FedEx.

In mid-2018, FedEx made a series of announcements that it was not going to renew a series of contracts with Amazon for various delivery services. Some applauded the moves, saying the Amazon business provided not much more than near break-even operating margins.

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Since the news broke, FedEx's share price has risen from $143 to $158, a gain of more than 10%.


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However, the cancelled Amazon contacts did pull revenue from FedEx's top line, and left it scrambling to find somewhere to get the now lost Amazon volumes back into its network.

The lost Amazon business contributed to some missed expectations in quarterly earnings reports, leading to some painful times for FedEx shareholders. As can be seen in the graphic below, FedEx's share price fell from a recent high off nearly $200 last April to just $139 in October, a fall of some 30%. FedEx's share price was as high as $275 in early 2018.

The share then recovered a bit after the October low before falling again to about $143 per share a week ago.

So founder Fred Smith and company were under some pressure to change its Wall Street dynamic. And that was surely a key factor in the news the Wall Street Journal brole last week that FedEx would combine package deliveries in some circumstances between its Ground and Express (air) businesses, which had operated independently until now.

Under the plan, some of the packages from the more time sensitive Express unit will be given to the Ground division for last-mile delivery in residential areas.

This is the same structure employed by UPS for its ground and air shipments, and something a number of Wall Street analysts have called for FedEx to replicate for many years to reduce costs.

 


FedEx said it will redirect slower residential Express packages, such as two-day deliveries, to the Ground division once they get near their destination.

The company believes the strategy as a way to address the inefficiencies that arise when Express and Ground trucks appear in the same neighborhoods bringing packages to homes. The Express hand-offs will give Ground drivers more packages per route, critical to reducing costs.


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"I drive for FedEx Express and if I had a dollar for every door I walk up to that already had a ground package on it I would have thousands of dollars. It will save millions," said one feedback on a short story on the FedEx news on the Seeking Alpha web site.

The Wall Street Journal reported that the program will start with packages that originate in Greensboro, NC, and expand to other markets in April, according to an internal memo the Journal reviewed.

Since the news broke, FedEx's share price has risen from $143 to $158, a gain of more than 10%.

"We are duplicating efforts and diluting our delivery density, including the number of packages delivered at each stop," FedEx President and Chief Operating Officer Raj Subramaniam wrote in the memo reviewed by the Journal.

The Express operates globally, while Ground only runs in North America. Express is also the larger business, with revenue of $37.3 billion in the fiscal year ended last May 31, compared with Ground's $20.5 billion in sales.

FedEx is making other moves to fill up its Ground network capacity after the loss of the Amazon business. That includes working hard to gain shipping share at retailers such as Walmart and Target.


FedEx has also be shifting millions of last-mile ecommerce packages to its own Ground network instead of handing them off to the US Postal Service under its SmartPost service.


What do you think of  FedEx's new strategy? Are you surprised? Let us know your thoughts at the Feedback section below.

 

 

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