FedEx Corp. is stretching its parcel delivery offerings to meet soaring demand from the fast-growing e-commerce market, expanding its FedEx Ground delivery service to seven days a week.
FedEx Ground already delivers seven days per week during the holiday peak shopping season, so the additional service will cover "the majority of the U.S. population" when it launches in January 2020, the company said today.
In additional moves, Memphis-based FedEx is also integrating its "FedEx SmartPost" package volume—marketed as "cost-effective service for your low-weight residential shipments and returns"—into FedEx Ground standard operations. The company will also increase large package capabilities, mirroring similar moves by transportation and logistics provider XPO Logistics Inc. and other providers.
By adding extra days to its parcel delivery service, FedEx is continuing a trend of ratcheting up its features to meet both consumer demand and challenges from rival carriers. In 2018, the company expanded its domestic FedEx Ground operations from five to six days a week all year round in a move to match logistics and delivery giant UPS Inc., which launched that feature in 2017.
The latest move comes as e-commerce trend-setter Amazon.com Inc. said in April that it had begun upgrading the nationwide delivery terms of its Amazon Prime subscription service from two-day shipping to next-day shipping. The announcement tightened the thumb-screws on logistics providers trying to meet "the Amazon effect" of rising consumer expectations for fast, free delivery.
Keeping up with those expectations can be expensive, as the U.S. Postal Service (USPS) recently noted when it reported a $2.1 billion loss for its fiscal second quarter, saying thatboth consumers and businesses are using decreasing volumes of postal mail and increasing amounts of e-commerce parcels.
Despite those challenges, FedEx thinks its new approach will be both effective and profitable. In addition to keeping FedEx competitive with its customers and competitors, the changes will also increase the company's utilization of its assets and enhance its delivery density, according to Raj Subramaniam, FedEx Corp.'s president and chief operating officer.
"We have made significant investments in capacity, technology, and automation at FedEx Ground over the past 20 years. These investments have allowed us to gain ground market share for 19 of the last 20 years, and we are now ideally positioned to extend that growth as the average daily volume for small parcels in the U.S. is expected to double by 2026," Subramaniam said in a release. "Expanding our operations to include Sunday residential deliveries further increases our ability to meet the demands of e-commerce shippers and online shoppers."
The changes will also help FedEx Ground enhance its efficiency in last-mile deliveries, he said. Nearly two million FedEx SmartPost packages that were previously given to the U.S. Postal Service for delivery to homes every day will be increasingly integrated into FedEx Ground operations and delivered by the same service providers currently handling FedEx Ground residential packages. "Delivery density has consistently been a challenge with e-commerce," Subramaniam said. "We anticipate substantial density improvement and efficiency opportunities when all residential packages are sorted and delivered within the same ground network."
Despite justifying its expansion to seven-day delivery as a profitable venture, FedEx' hand was probably forced in making the change, as it needed to add new features to basic parcel delivery, one expert said.
"A lot of the 'easy' money has already been squeezed out of the parcel and overnight delivery business," said Jeff Shockley, an associate professor in the department of Supply Chain Management & Analytics at Virginia Commonwealth University. "Traditionally, 3PL providers like FedEx have tried to offer additional services to their core business to show they can create additional value for customers. For example, FedEx was one of the first in the business to offer online tracking capabilities on packages; now everyone in the business offers these services."
Under pressure from Amazon, WalMart, and other large e-retailers moving aggressively toward same-day delivery in select markets, FedEx needed to clear a rising bar in the parcel delivery sector, he said. "Industry competition over the long-term may be increasing the burden on these businesses to offer more varied types of capabilities. Those that survive will be the ones that can manage their logistics service capabilities in the most cost-efficient manner so that they allow e-retailers to deliver the supporting functions they need to sell these types of products," Shockley said.
As it works to keep up with those rising standards, FedEx' decisions to expand delivery days and to blend its SmartPost and Ground volumes will have ripple effects on other company operations, another expert said. For example, adding a seventh delivery day means FedEx will also have to add work shifts to support longer hours in its e-commerce fulfillment centers and customer service operations, said Joe Vernon, a senior manager in the supply chain technology practice at consulting firm Capgemini.
Despite the risk of investing capital to add the necessary facilities, delivery vehicles, and technology for seven-day delivery and for oversized packages, FedEx had no choice but to make the moves, he said. "There is no other option except to create the capability and then attack the costs. Think of Amazon and all the DCs they built with no obvious ROI," Vernon said.
However, one way that FedEx may be able to make the new network work is by creating new delivery patterns, he said. "The interesting twist with Fed-Ex is the bundling of large size orders to packages, to take advantage of delivery density," said Vernon. "Fed-Ex is blurring the lines between parcel and [less than truckload] shipments. This opens up the possibility for Fed-Ex to garner more delivery opportunities and to possibly change where a Fed-Ex truck goes to pick up a delivery, in the case of drop-ship large items for example."
Editor's note: This story was revised on May 30 to include commentary from Capgemini.
