Shipping industry facing upheaval. Can FedEx survive storm?
MEMPHIS: Between 10pm and 11.30pm, as most of this city is winding down for the night, the FedEx Express World Hub is revving up for its busiest hours of the day.
Some 10,000 workers pour into the campus, ready to begin a mind-bogglingly complex ritual of steering packages to customers’ doorsteps on time. Hundreds of equipment operators zoom around the 880-acre site on warehouse tugs, pulling behind them trains of silver shipping containers shaped like halfigloos.
In an ear- splitting operation dubbed “the matrix,” package sorters corral boxes into a single-file line for a trip down a tangle of conveyor belts.
On this particular night at FedEx’s largest global facility, workers will sort some 1.3 million express packages. That number only swelled when holiday shopping kicked into high gear.
This logistical symphony has been decades in the making, the product of billions of dollars in investment in automated sortation systems and Boeing 767 cargo jets. On this night alone, air traffic controllers in the Tennessee city will usher in about 150 flights, an average of one every 40 seconds.
Analysts say infrastructure such as this makes FedEx and its rival, UPS, extremely difficult to dislodge from their thrones atop the US shipping industry. And yet as dominant as they are, the stalwarts are also vulnerable, facing a fresh wave of potential disruption.
In the past year, Amazon. com has put 4,000 of its own truck trailers on the road and has leased 40 planes from an airfreight company, raising the spectre of the e- commerce giant possibly becoming a competitor of the major shippers instead of one of their biggest customers.
Uber, meanwhile, has built a fast- growing business out of ferrying people around cities, leading some analysts to wonder whether its network might also be effective at moving goods. Silicon Valley upstarts such as Deliv and Postmates also are making a play for local deliveries.
And then, looking to the not- so- distant future, a host of companies pitch drones and driverless vehicles as options that could reshuffle the economics of the delivery business. Amazon announced last Wednesday that it had made its first customer delivery via drone – a bag of popcorn and a Fire TV streaming device – to a shopper in Britain.
Together, these developments amount to a gathering storm for FedEx’s shipping empire.
“The last time the logistics industry has had a change this big was the introduction of the ocean shipping container in the 1960s,” said Ryan Petersen, chief executive of Flexport, a freight forwarding company.
It’s a transformation that will test whether sprawling, sophisticated facilities such as the World Hub are a bulwark that protects the company or an expensive anchor that makes it hard to reposition for the future.
To understand the business environment that FedEx is dealing with, consider the world’s changing shopping habits. With every purchase shoppers make online instead of at a store, they are contributing to a fire-hose gush of new demand for FedEx’s services.
But the e- commerce beast has a soft underbelly. Delivering those kinds of orders is hard to do profitably. Think about it: The labour and fuel costs required to drop off 50 sweaters at 50 homes is significantly higher than it would be to deliver those same 50 sweaters to a single brick-andmortar store. As supply chain geeks like to put it: Density equals profitability.
For years now, FedEx and UPS have been working to address this situation by squeezing costs out of their systems. They have introduced software to build more- efficient delivery routes, invested in automation and bought more fuel- efficient vehicles.
In some ways, FedEx and UPS are almost impossibly good at what they do: In non-peak season, each of their on-time rates is 98 per cent or greater, according to Shipmatrix, a logistics software firm. ( During this holiday season and previous ones, that performance has slipped slightly.)
And yet none of this erases their central challenge in the ecommerce era.
It is hard to deliver small packages to individual households cheaply and quickly.
And newcomers are plotting ways to attack that problem. Their efforts aimed at various points in the logistics chain could collectively eat into the big shippers’ business.
FedEx’s scale is, by any measure, enormous. It has 650 aircraft, a fleet bigger than most commercial airlines.
It has more than 150,000 vehicles, employs about 400,000 people and moves about 12 million packages a day. ( UPS moves even more packages, about 18.3 million a day.)
The express business relies heavily on the planes to provide overnight shipping around the world. Parcels that aren’t quite so urgent might be moved via trucks in the less pricey FedEx Ground service.
For e- commerce packages, the company has options for the “last mile” of delivery. Via Smartpost, they can hand off packages to the US Postal Service, which will drop off them off during regular delivery hours. Or uniformed FedEx drivers - often independent contractors, not employees - can bring them to your home.
But change is sweeping in from all directions. In addition to potential moves by Amazon and Uber, regional and local delivery networks are springing up or expanding. And then there’s the new, futuristic technology. — WP- Bloomberg