Fedex Freight spin-off – Christmas comes early
Santa FedEx
© Alexey Novikov | Dreamstime.com
Executives and logistics planners at some 1,400 US firms had their weekend wrecked, courtesy of FedEx Freight.
On Friday, the company notified customers it would no longer pick up their shipments, starting Monday.
The integrator’s trucking arm said the sudden measure constituted “customer-specific actions to control capacity and avoid backlogs in the most capacity-constrained freight service centres”.
Less-than-truckload (LTL) providers like FedEx Freight have been enjoying rampant demand. CASS Information Systems, which publishes a monthly index of freight shipments in North America, reported the second-highest monthly volume in 31 years for May.
LTL and truckload carriers have all been operating at or near capacity.
“This speaks a lot to the amount of volume that’s in the network,” said Cathy Morrow Roberson, founder and head analyst of Logistics Trends & Insights.
“It could also speak to the need for additional drivers; everybody in the trucking industry seems to need more drivers,” she added.
FedEx Freight’s move to jettison customers is reminiscent of the actions of both FedEx and UPS in the parcel sector, which is struggling with a similar imbalance between demand and capacity, she noted.
In both sectors there is a strategy in play that seeks to manage capacity through a combination of raising charges and dropping less-profitable clients, she added.
The week prior to the abrupt termination of business with about 1,400 customers, FedEx Freight announced a new surcharge to high-density areas – another tactic deployed by the two US integrators in the parcel business.
The cull of LTL clients has affected customers from a variety of industry verticals. Ms Roberson believes UPS and FedEx rank their clients by profitability and are weeding out the less-lucrative. This tallies with steps they have taken in the parcel sector, hitting first large-volume shippers that wield their size to negotiate larger discounts.
Both integrators have placed a lot of focus on small and mid-sized businesses, which yield higher margins.
“This used to be a race for volume, building networks with many warehouses and parcel processing facilities around the world. Not any more,” Ms Roberson said. UPS CEO Carol Tomé, who was CFO at Home Depot before taking the reins at UPS a year ago, has been unequivocal about the emphasis on profitability.
Now, with demand chasing capacity, shippers dropped by FedEx Freight are facing a hopeless quest to locate alternative capacity.
“Shippers are stuck between a rock and a hard place,” commented Ms Roberson. Their costs are rising all around, from raw materials and supplies to warehousing and transport, she pointed out.
And she thinks other LTL providers may adopt the same stance and shed low-yield business.
Capacity limitations and a heightened profit focus aside, FedEx Freight has not endeared itself to the market with the decision to give jettisoned clients virtually no notice of their predicament. And again, parcel shippers are no strangers to abrupt changes.
“That’s what happened last year. Both FedEx and UPS were not giving shippers long enough notice,” Ms Roberson said.
This disregard for customers may bite the integrators down the road, when capacity is chasing volume again.
Comment on this article
Gary Ferrulli
June 17, 2021 at 4:10 pmWhat does a manufacturing firm do with a product that proves to be unprofitable? What do retailers do with products that don’t sell? This isn’t a unique situation, it’s a business and someone made a business decision. done every day of the week, just that transport has a dozen or so publications daily that have to write about something.
David Herring
June 17, 2021 at 5:16 pmWhat do manufacturing companies with products that turn out to be unprofitable? Or retail firms who have products that don’t sell?
This is no different, they’ve made a business decision the same as virtually anyone who wants to stay in business does. Give more support to the profitable lines of business, and less to the least profitable business.
There are too many periodicals and publications on cargo transportation that disrespect the industry with “attack” articles like this one.
Enrique Romero
June 19, 2021 at 2:16 pmThe Pandemic has fundamentally changed the world and it has not reverted.
This is a realization in every aspect of our lives, yet people forget this when complaining about the manufacturing and transportation sectors being backlogged.
Backlogs that are caused by rising consumer demand amidst organizations operating with a fraction of the staffing required for normal volume levels–much less operating beyond capacity.
It would seem this author is looking to generate revenue quickly with this myopic clickbait type write up which has a hit piece type title that touches on the what without any whys or hows.
Here are some key missing bullet points which will help add context which is missing here:
* Driven by pandemic related consumer demand (see above blurb)
* UPS exited the Freight business, where do you think some of the displaced customers went?
* Which were the congested lane segments that impacted shippers?
* No mention of the Old Dominion Embargo
* No mention of how this years stimulus packages have prolonged people returning to work.
In summary, times are tough and despite all the rhetoric and moral imperatives…we still have to deal with the math.
There are real limitations that exist because of the lack of staffing resources.