Fedex hits peak season with vaccine mission ahead
Unprecedented holiday volume tests capacity as critical shipments await
Fedex is waiting for the green light on COVID-19 vaccine distribution while grappling with unprecedented holiday shipping volume, an immense mission on top of peak season.
More shoppers are ordering gifts online and having them delivered amid the pandemic, leaving brick-and-mortar shops behind. U.S. consumers spent a record $10.8 billion online Cyber Monday, according to Adobe, a 15.1% increase from the year before.
Fedex expects its always-busy holiday season to shatter records this year. Its peak shipping volumes are projected to increase 22% from 2019, the company said in a statement Wednesday.
Cyber Week, an extension of Cyber Monday, is “shaping up to be the busiest week in our company's history,” COO Raj Subramaniam said last week. Volume had already been up for Fedex before the holidays.
The increased demand is putting supply chain capacity the test, and last-minute Christmas orders are less likely to arrive on time, said Scott Grawe, chair of Iowa State University's Supply Chain Management department. In November, Satish Jindel of consultancy Shipmatrix said delivery capacity will be short by 7.2 million parcels during the holidays.
“We've felt the pinch for the past few years,” Grawe said. “This year, it's going to be an even bigger problem for us.”
Fedex executives have expressed confidence that network investments made before the pandemic, capitalizing on the growth in online shopping, will keep service levels strong during peak season.
At the same time, Fedex has pushed a shop early, ship early message to customers through its “Shipathon” campaign. The company also says the pandemic “has created shipping volumes that are taxing logistics networks nationwide, which may cause delays” — the last day to ship through Fedex Ground for a Christmas arrival is Dec. 15, per Fedex's website, with later deadlines for Fedex Express.
Fedex said in its statement “strategic investments, plus hiring 70,000 new team members, will help better support the unprecedented holiday peak season.”
COVID-19 vaccines the top priority
The looming mass distribution of a COVID-19 vaccine will add another challenge to the peak season, as shipping doses are set to take top priority for Fedex.
The bulk of Fedex's holiday deliveries are fulfilled by its Fedex Ground network. Its separate Fedex Express network handles time-definite, critical shipments, like COVID-19 vaccine doses.
“Running discrete networks gives us the focus and the ability to make these vaccines a top priority for us,” said Richard Smith, Fedex Express Regional President of the Americas and Executive Vice President of Global Support, during a White House event Tuesday.
John Haber, CEO of transportation spend consultancy Spend Management Experts, said retailers could face trouble when they move volume to the Fedex Express network closer to Christmas when Ground can't satisfy tighter delivery windows.
“That's where problems really happen, is when people shift from the ground to the air network,” he said. “If you're (shipping) from Atlanta to California, you have to have a pretty big cushion via ground.”
Smith, who is leading Fedex's part of the vaccine distribution effort, said there is enough air cargo capacity in Fedex and UPS' respective networks to handle the incoming vaccine shipments. He noted Fedex's operation of 32,000 flights a month, with half of those using large, wide-body aircraft.
“Remember, it's not all going to hit us on a Tuesday,” Smith said of vaccine distribution. “It's a function of time. It's going to come over time. So, we've got this. Relax — it's Fedex and UPS.”
Hiring sprees, volume caps
Retailers are grappling with surcharges from both Fedex and UPS during the peak season. Certain charges for large Fedex customers depend on how much more they're shipping compared to earlier in the year. Fedex said it implemented the surcharges and fees so it could “continue providing our customers with the best possible service during this challenging time.”
If customers exceed their volume forecasts too much, Fedex and UPS have the leverage to turn them away with limited options elsewhere, Haber said. UPS placed shipping limits on large customers in Gap and Nike to manage their jumps in online orders, the Wall Street Journal reported.
“There's less flexibility than I've ever seen,” Haber said. “I've never seen capacity controlled this tightly.”
Fedex said in its statement it has been working closely with its customers on their peak season volume and how to ensure the best service.
Beyond capacity, the need for more shipping containers and trailers throughout the supply chain to replenish stock is one of Grawe's top concerns.
“Retailers did a good job of frontloading store shelves,” Grawe said. “Once that stuff sells through, replenishing those store shelves and the distribution centers fulfilling e-commerce is going to be an issue.”
As demand surges, Fedex has been renting more delivery vans during the pandemic due to automobile manufacturing plants trying to catch up from shutdowns earlier this year. Rival UPS, who will also be involved in distributing COVID-19 vaccines, is facing a van shortage as well, Bloomberg reported.
New drivers have been willing to rent vans because the current strength of the delivery business makes it worth it, said Aaron Hageman, CEO of Delivery Drivers, Inc., which provides contract driver management services.
“The challenge is sourcing drivers — that's definitely a fight this time of year,” Hageman said.
There are plenty of new delivery drivers in the fold. In November, Fedex Ground was hiring more than 8,000 people a week, CEO Henry Maier said then.
"Delivery drivers, warehouse employees, and support staff across the globe are tirelessly and safely working to meet the surge in demand this holiday season on top of volume increases created by the COVID-19 pandemic," Fedex said in its statement.
Fedex disclosed in September that the COVID-19 infection rate among its employees was about 1.7%, amounting to roughly 8,500 people.