05 Jun What’s Really Behind FedEx’s Decision to Deliver 7-Days a Week?

FedEx announced its plan to begin offering 7-day a week Ground delivery on May 30th.

From the company statement, “FedEx Ground delivers seven days per week during the holiday peak season, and beginning in January 2020, this service will continue year-round for the majority of the U.S. population. The company is also rapidly integrating FedEx SmartPost package volume into FedEx Ground standard operations and increasing large package capabilities.”

The full announcement is available on the FedEx website: here.

This action is an acknowledgment that the market for small parcel delivery has changed a lot in recent years, including the general shift towards more direct to consumer deliveries thanks to the growth of online retail and expectations for faster delivery by both shippers and their customers.

Small Parcel Delivery is Changing

In addition to heightened shipper and consumer expectations, the competition faced by FedEx is also changing. For example, Amazon is already providing 7-day a week delivery itself in many markets. The ecommerce company also continues to make significant investments in its own logistics infrastructure with the intention of providing consistent and cheap 1-day delivery across the country.

All the while, FedEx is facing more competition from tech start-ups like Uber. New regional small parcel carriers are also stepping up to compete.

What Does the Announcement Mean for the Competition?

This change will not be easy for FedEx to implement. It is also something the carrier’s competitor, UPS, and competitor/ partner USPS will have to deal with.

From an interview with Bloomberg the same afternoon the FedEx announcement was made, UPS CEO David Abney was asked if UPS would begin offering 7-day delivery to match FedEx. Abney said, “We are looking at it right now. And in our last [labor] contract…we have language that covers Saturday and Sunday, so we are pretty far down the path. We will talk about it when we are ready to review.”

Here is a link to the full video.

In any event, it seems UPS will be in a difficult position to follow suit. But with FedEx creating such a big competitive advantage there is urgent pressure to make a change as soon as possible.

Because the announcement concerns SmartPost, and how that volume will be “rapidly integrated” into the FedEx Ground network, the change is very noteworthy to the USPS as well.

The impact for the USPS is very clear. It means fewer packages and less volume in its network. The financial implications to the USPS, as well as the overall relationship between FedEx and the USPS, is yet to be seen.

Shippers should also take note of what this change will mean to their rates. Our 2019 GRI Analysis (click here to read) illustrated the premium SurePost (UPS) shippers are paying over SmartPost (FedEx). Since FedEx itself will be delivering more SmartPost volume (and not the USPS) moving forward the carrier’s operating costs will presumably increase. This means SmartPost shippers need to be aware of a potential mid-year rate increase. If FedEx doesn’t increase SmartPost rates before 2019 peak season, expect the 2020 increase to be hefty. This will likely close the price gap compared to UPS.

What’s Next?

It’s our opinion that the actions taken by FedEx and UPS in relation to mid-year surcharge announcements and GRIs present the companies as market leaders who are still trying to figure things out. The growth of ecommerce and entrance of Amazon into their marketplace are business threats both are still trying to figure out.

The impact on shippers is that FedEx and UPS continue to implement more frequent, and less predictable, fees and surcharges squarely aimed at the final-mile consumer delivery market. As the carriers work through actually delivering on the 7-day promise this will continue. Whatever year-end GRIs are announced for 2020 will be very interesting.