Questions Fedex is facing in 2021
Delivery robots, air cargo capacity set to grow?
While COVID-19 defined Fedex’s 2020, 2021 will raise questions of what business for the delivery giant looks like beyond the pandemic.
“Contactless” deliveries fulfilled by robots, a never-ending peak season and a changing landscape for commercial shipments are all on the table for Fedex this year, accelerated by the coronavirus’ effects on the shipping industry.
Here are three important questions Fedex is facing in the new year.
How much will autonomous delivery progress?
Fedex went “contactless” for many home deliveries in 2020, including suspending traditional signature requirements amid the pandemic.
“COVID-19 brought the term ‘contactless,’ ” said Rebecca Yeung, vice president of advanced technology and innovation at Fedex, during a virtual panel at TC Sessions: Mobility 2020. “Before that, not many people were talking about contactless (delivery). Now, it’s almost the preferred way of us delivering.”
Even after the pandemic, the share of Fedex’s home deliveries without human contact could grow.
Fedex’s under-development delivery robot Roxo, which uses artificial intelligence, is set to be part of that trend. Fedex announced in December that test deliveries of retail items via Roxo are being scheduled after initial on-road testing wrapped up.
How much Roxo’s testing will progress in 2021 is unclear, but seven states have passed legislation that allows Roxo to operate, according to Fedex: Tennessee, Arizona, North Carolina, Pennsylvania, Texas, Utah and Virginia.
“I think what COVID-19 has done is to accelerate the use of AI,” said Bill Fox, director of the Boyd Center for Business and Economic Research at the University of Tennessee. “... Just go through the list of things that have been challenges for the labor force during COVID, and you don’t have these problems with AI and with autonomous vehicles.”
Significant strides are being made in drone technology as well. Fedex is already involved in tests for package delivery by drone with Walgreens and Wing Aviation, highlighting its applications for rural deliveries. In April, Wing was the first drone delivery company awarded air carrier certification by the Federal Aviation Administration.
The FAA announced new rules allowing drone operators to fly over people and at night in certain conditions in December.
“The new rules make way for the further integration of drones into our airspace by addressing safety and security concerns,” FAA Administrator Steve Dickson said in a statement. “They get us closer to the day when we will more routinely see drone operations such as the delivery of packages.”
Remote flight is even being tested in cargo aircraft. In 2020, a Fedex feeder aircraft took a flight without a pilot aboard in a test for Reliable Robotics. Chairman and CEO Fred Smith has said this initiative focuses on smaller aircraft, with the possibility of larger planes flying pilot-less “is highly remote and not something that our crew force should be worried about in the foreseeable future.”
Still, experts have said remote flying of cargo planes is a strong possibility decades from now.
“Looking out 30 years, I think you’ll see a significant reduction in the use of piloted aircraft and a dramatic increase in the use of unmanned aircraft systems,” said Stephen Hofer, president of Aerlex Law Group, an aviation and business law firm, in September.
Will home delivery surge end?
Online shopping’s growth accelerated in 2020 as the pandemic kept people at home. U.S. e-commerce sales grew 33% from 2019 to 2020, Fedex Chief Marketing Officer Brie Carere said on an earnings call in December. This led to more home deliveries for Fedex, particularly at the e-commerce-focused Fedex Ground.
The rollout of COVID-19 vaccines will test if the surge in online ordering is here to stay beyond the pandemic. Jie Zhang, professor of marketing at the University of Maryland, believes it is.
“Consumers are being partly pushed by this pandemic to shifting their purchases online,” she said. “Once they get more used to the convenience and the benefit of online shopping and figure out how to deal with some of the hassle, they’re going to stay with it.”
In November, Ground CEO Henry Maier said he doesn’t expect Fedex’s delivery surge to end any time soon, and the company’s approach to surcharges confirms that. Some surcharges once expected to end after the peak holiday shipping season are now extended “until further notice,” albeit at a lower cost.
“The impact of the virus continues to generate a surge in volume, and we are experiencing extremely high demand for capacity and increased operating costs across our network this holiday peak season,” Fedex says on its website. “We anticipate volume to continue to surge into the new year.”
Carere said Fedex believes customer surcharges will be “a necessary part” of the company’s e-commerce pricing strategy moving forward. Peak-like surcharges popping up for weeks-long periods throughout the year may be the new normal, said Cathy Roberson, Logistics Trends and Insights founder.
“I think some of it is a revenue generator, but I also think their expenses are high,” Roberson said. “UPS and Fedex have made huge investments in their networks.”
Will air cargo industry, activity return to normal in 2021?
Amid business shutdowns in the early stages of the pandemic, Fedex’s commercial shipping volume — mainly done through Fedex Express — “hit bottom” in mid-april.
Commercial volume has since improved after that dip, as businesses reopened and gear to combat the pandemic continued to ship out. However, many passenger planes that carry cargo in their bellies remained grounded as flight demand cratered.
This meant there was reduced demand but significantly reduced supply, which benefited all-cargo airline Fedex Express. Between January and October, air cargo capacity fell by 24.5% while cargo tonne kilometres flown dropped by only 12.4%, per the International Air Transport Association.
“They’re taking advantage of the current market,” Roberson said of Fedex. “... They are going to their customers and renegotiating contracts to reflect the changes in the market.”
More passenger planes returning to the skies would mean more competition for Fedex Express and other cargo airlines. Carere said Fedex’s aim “is to profitably take market share and keep it beyond the capacity shortage internationally.”
Fedex Express CEO Don Colleran said on the call he believes pre-coVID-19 capacity in the air freight market will return in 18 to 24 months. Economies should recover at a faster pace than capacity, he added.
Additionally, how long it takes for the global economy to recover from the COVID-19 pandemic will also weigh on Fedex. Fedex Express struggled for several quarters during a global economic slowdown, particularly in Europe, before the coronavirus took hold.
Carere said in December that the near-term economic outlook is still unclear, but she added global industrial production and merchandise trade volumes have fully recovered to pre-coVID-19 levels.
“Positive developments on the vaccine front should strengthen the appetite for investment,” she said.
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.