Earlier this year, we told you about FedEx’s no good, very bad day. On September 15, FedEx shared that its end-of-quarter earnings were lower than expected. The response was swift. Stock prices dropped a staggering 21% in one day. The carrier blames economic conditions, but analysts and investors questioned how FedEx results differed from UPS results, despite operating under the same fuel increases, inflation, and consumer spending habits.
In March 2021, FedEx completed the several-year process of bringing its last-mile deliveries (SmartPost, now Ground Economy) in-house. Before, they relied on the United States Postal Service to deliver around 3 million parcels daily. The carrier underestimated expenses, forcing them to raise rates and restrict capacity. These factors led to a mass exodus of shippers to other carriers like UPS and DHL.
Since 2020 FedEx Ground’s daily volume has continued to diminish year after year. In October, Reuters reported that Ground delivery drivers said “volumes are down anywhere from 5% to 15% so far this year versus the same time in 2021. Many said the company’s holiday forecast was overly optimistic for the second year in a row.” FedEx reported that its Ground revenue was approximately $300 million below its projections for the first quarter, which ended on August 31, 2022.
FedEx is trying to get back in the game price-wise, but for the shippers that abandoned due to inconsistencies, it may be too little, too late.
FedEx, like UPS, is a solid, storied company and nobody should write them off. In the first few years after they acquired RPS to take on UPS head-to-head on the ground, there were similar complaints about the reliability of their standard (non-Economy) Ground and Home Delivery services; however, what was once marketed as a more cost effective alternative to UPS, has transformed into services which virtually matched UPS’ reliability until the volume spikes caused by the pandemic. Despite several bad headlines (and let’s not forget this one from last year), FedEx has a historical track record which should give them the benefit of the doubt with regards to “righting the ship” on their Economy offering.
Will 2023 be the year we say goodbye to Ground Economy? It’s unlikely. The carrier has a plan in place to cut costs and recoup revenue. They’re taking steps to make the best of a bad situation.
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