Against the odds: Panic, no panic. Cracks and fixes
Whether or not your crystal ball works better than ours, we want to hear from ...
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.