After stating in July that it was preparing to cut down on its Sunday delivery services in remote and rural areas of the United States, from 95% to 80% of the U.S. population, Memphis-based global freight transportation and logistics services provider FedEx is now reducing its Sunday delivery footprint to around 50% of the country, according to various reports.
This development does not come as a surprise, as the company indicated in September that it planned to take various cost actions through the end of fiscal year 2023, with a focus on mitigating reduced demand.
One of the key focus areas it announced, at that time, was the reduction of Sunday operations at a number of FedEx Ground locations, with FedEx President and CEO Raj Subramaniam saying that, in regards to the company’s plans to cut costs, FedEx was prioritizing cost actions to generate around $3.7 billion in savings relative to the company’s initial fiscal 2023 business plan, which was upwardly revised from an initial estimate of $2.2 billion-to-$2.7 billion in savings.
“As we continue to adapt and streamline the FedEx global network to meet our customers’ needs in a rapidly shifting landscape, FedEx Ground is making further adjustments to better align our Sunday residential delivery operations with current customer demand,” the company said in a statement provided to LM. “Effective mid-March, Sunday residential delivery service will be available to more than 50% of the U.S. population, primarily in densely populated areas with proven customer demand. This adjustment will enable FedEx Ground to boost efficiencies while maintaining a competitive advantage in weekend coverage.”
A Bloomberg report said that FedEx in February FedEx will decide which markets will be affected by this announcement. And Reuters reported that a large number of the company’s 6,000 U.S. contractors had stated that there was not enough demand for Sunday deliveries to cover the cost of providing the service.
Jerry Hempstead, President of Hempstead Consulting, explained that delivering on Sundays requires a large capital outlay.
“And 99% of items most likely can wait until Monday,” he said. “So, the amount of cost was not equal to the money charged did the model in. There are items that must be delivered on Sunday. Critical medical or computer shipments, for example. And if you absolutely positively need it delivered Sunday, you pay the premium. But e-commerce is rarely ever urgent and the sweater you want to give me for my birthday can wait.”
And Keith Meyers, Senior Consultant, Professional Services, for San Diego-based Shipware, agreed with Hempstead, noting that Sunday deliveries aren’t as big of a difference in the market as FedEx thought.
“I would expect FedEx pays their contractors more to deliver on Sundays,” he said. “It doesn’t make sense to pour money into this aspect of their business right now.”
As reported by LM, FedEx initially announced its plans for residential delivery seven days a week, for most of the U.S., in May 2019, which took effect in January 2020, in an effort to “further serve the fast-growing e-commerce market” and match the USPS’s 7-day offering that was quickly followed by UPS stating it was considering seven day a week delivery as well.
This did not come as surprising, at the time of the announcement, as FedEx had already delivered seven days a week during the holiday peak season. And, in September 2018, FedEx said that it was upping its FedEx Ground U.S. operations to six days a week from five. Company officials said at the time that this move was made in response to a combination of increasing e-commerce demand and record influx of volume expected for the 2018 holiday season, and beyond.
Morgan Stanley analyst Ravi Shanker wrote in a research note that FedEx’s move to seven-days a week delivery in January 2020 accelerated after Covid lockdowns, in order to handle an unprecedented rise of deliveries.
“However, the rapid introduction of Sunday delivery also reportedly placed heavy demands on FDX and its contractors,” wrote Shanker. “[Management] attributed shifting economic conditions as the main driver for this decision. The decision also coincides with media reports of displeasure at FDX’s independent delivery contractors, which was partly related to Sunday delivery.
The analyst added that this move by FedEx was surprising for a few different reasons, including: being the first significant reversal of e-commerce service by a major delivery provider after 10-15 years of relentless service expansion; and competitive implications as FedEx had viewed Sunday service as a competitive advantage over UPS, while Amazon Logistics and USPS continue to deliver seven days a week.