Can Fedex deliver for holidays?
Logistics giant says pandemic has made company up its game
A logistics giant says the pandemic has made the company up its game.
Fedex's business is thriving during the COVID-19 pandemic, buoyed by package volumes comparable to the peak holiday shipping season.
The next challenge for the Memphis logistics giant: Handling an even larger surge of packages as the holidays fast approach.
Fedex expects a record-breaking peak season, company executives said in an earnings call Tuesday.
Fedex is already seeing residential demand it called “unprecedented” this past quarter, as average daily package volume at the home delivery-focused Fedex Ground increased 31% to 11.6 million.
“We are prepared for what we are calling the shipathon, and we are warmed up and we are ready to deliver,” Chief Marketing Officer Brie Carere said.
Executives described several initiatives to keep service levels high, currently a challenge amid COVID-19.
The volume surge has led to temporary service delays for some packages in the Fedex network. Customers and delivery experts flagged more frequent delays with Fedex Smartpost, which uses the U.S. Postal Service for last-mile transportation, in particular.
Fedex is adding several peak season surcharges, many focused on large customers shipping more than normal, which will help the company manage demand and maintain high service levels, Carere said.
The company is also working with its largest e-commerce customers to craft ways “to smooth out demand spikes during the peak season,” she said.
The next step is for companies to be realistic with their customers about shipping times during the holidays.
“The most important thing for our customers' customers is to set appropriate expectations and give them transparency to the appropriate transportation commitments," Carere said.
Satish Jindel, president of shipping consultancy Shipmatrix, doesn't foresee delivery delays being of much concern as consumers and businesses are already “seasoned to expect” delays. Service levels across delivery companies have been down since March, and UPS has only performed slightly better than Fedex, he said.
“Everything has been put on COVID-19 time,” Jindel said. “Luckily, in my industry, people are accepting it.”
Absenteeism, ‘social unrest’ among Ground challenges
Fedex is recruiting more workers to handle more packages. The company plans to hire 70,000 for the peak season, up 27% from the year before.
To boost recruiting competitiveness and employee retention, employees at the Fedex Express World Hub in Memphis will see pay rise to $15 an hour ahead of peak, a spokesperson said in August.
Ground CEO Henry Maier said his company won't have to adjust drastically for the upcoming peak season, with the company “operating at peak since March.” Ground currently has a “historic number of employees,” he said, as its delivery contractors have hired tens of thousands of new drivers.
However, the COVID-19 pandemic has resulted in “absenteeism” at certain Ground facilities, Maier said, with wildfires, hurricanes and “social unrest” adding to operational obstacles.
“All of that places some pretty difficult challenges on an operation when you're trying to run a national network that's as highly engineered and as precise as the ones we operate,” he said.
Still, Fedex Ground can accommodate most of what needs to be shipped during peak if customers are flexible, according to Maier. The company has “ample delivery capacity on Saturday, Sunday and Monday,” along with “ample pickup capacity on Friday, Saturday and Sunday,” he said.
“So, we are highly confident that we are going to have a great peak this year,” Maier said. “It's going to be busy, but nevertheless, I would say that the Ground team is ready.”
More room for packages a priority
Fedex Ground is increasing capacity at its facilities to handle more volume during peak, per a news release. Examples include: Six regional sortation facilities “strategically located” to serve large e-commerce merchants, eight new or expanded large package handling facilities and the expansion of more than 50 existing facilities.
Expanding Ground residential delivery to seven days a week year-round and keeping volume that once would have been handed off to the U.S. Postal Service will also help Fedex better handle this year's peak season, President and COO Raj Subramaniam said.
“I think the number one thing that the customer is now looking for is capacity, and we are working strategically with them to make sure that we can deliver that,” he said. “Again, having operations seven days a week helps a lot here, too, and the technology that we have.”
Jindel said he doesn't believe the peak season increase will match historical highs since package volume is already so elevated.
“This year, it probably won't be 50% over average daily volume,” he said. “It will be closer to 30%, because the average daily volume is at such high levels compared to other years.”
Max Garland covers Fedex, logistics and health care for The Commercial Appeal. Reach him at max.garland@commercialappeal.com or 901-529-2651 and on Twitter @Maxgarlandtypes.