When overnight delivery doesn’t quite cut it
Things haven’t been looking so good at the shipping company FedEx. The company’s earnings last quarter came in well below expectations, with profits down 40% from a year earlier.
“We are at the bottom. Our adjusted operating profit decline year over year is horrific,” said FedEx Freight CEO John A. Smith on a conference call on Tuesday.
FedEx says it’s been struggling with weaker global trade, weaker global manufacturing, and lower volume after its fallout with Amazon, which cut off FedEx’s ground deliveries earlier this year. That performance is a far cry from FedEx’s early days in the 1970s and 1980s, when the company led the industry with fast overnight delivery.
Back then, overnight delivery had a key requirement: airplanes.
“You had to get to the stuff to the FedEx office by 5 o’clock. At 7, they’d put the planes in the air, and they’d be at the office before 10:30 in the morning,” said Dale Rogers, a professor of logistics at Arizona State University.
That model worked well when businesses had to mail documents back and forth all the time. Now, e-commerce dominates shipping, and the bulk of that shipping happens via ground.
Satish Jindel, founder of the shipping consultancy SJ Consulting Group, said that’s because shipping companies and retailers like Amazon are focusing on building warehouses to store goods closer to consumers. That lets them do next-day shipping on the ground.
Still, there’s a lot of competition in ground shipping. Plus, delivering bulky packages, especially to people’s homes, is costly for delivery companies.
“It will take time to build a network, and get the density, to lower cost of that delivery,” Jindel said.
FedEx said it’s expanding home deliveries to seven days a week. In the meantime, it’s reducing its flight hours by 8%.
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