FedEx makes surgical strike in peak-shipping-season battle with UPS
FedEx targets outsized shipments for surcharges while exempting small-parcel business; move seen protecting FedEx cost structure while preserving customer core.
Mark Solomon joined DC VELOCITY as senior editor in August 2008, and was promoted to his current position on January 1, 2015. He has spent more than 30 years in the transportation, logistics and supply chain management fields as a journalist and public relations professional. From 1989 to 1994, he worked in Washington as a reporter for the Journal of Commerce, covering the aviation and trucking industries, the Department of Transportation, Congress and the U.S. Supreme Court. Prior to that, he worked for Traffic World for seven years in a similar role. From 1994 to 2008, Mr. Solomon ran Media-Based Solutions, a public relations firm based in Atlanta. He graduated in 1978 with a B.A. in journalism from The American University in Washington, D.C.
By targeting peak holiday season surcharges at heavy, oversized shipments—often the main culprits in driving up peak shipping costs—FedEx Corp. appears to be betting it can protect its cost structure while retaining, if not gaining, small, low-cube parcel traffic that still accounts for most peak activity and isn't a drag on the company's operating network.
In diverging from rival UPS Inc., which will apply a 27-cent per-package surcharge on ground residential deliveries for three of the five weeks of the upcoming peak season, and 91-cent and 97-cent per-package surcharges on air and three-day deliveries, respectively, during the final week, Memphis-based FedEx will not impose any surcharges on the standard small-parcel deliveries its infrastructure is essentially built to handle. Instead, it will focus on the "large format" items that are not conveyable, may require extra or special handling, or both.
Delivery demand for those items is rising rapidly as retailers expand the stock-keeping units available for online purchase. This holiday season, 15 percent of all traffic will be comprised of the types of shipments to be affected by the new FedEx surcharges, according to SJ Consulting Group Inc. That translates into an exponential increase in the past few years, according to Satish Jindel, SJ's president. However, those shipments generally drive up line-haul costs because they are so unusually large and heavy.
In addition, while Atlanta-based UPS will not apply any surcharges during the middle two weeks of the five-week holiday cycle, the FedEx charges will be in effect from start to finish.
The biggest change occurs in a segment of the parcel delivery trade known as "unauthorized" packages, shipments with such outsized weight or dimensions that the company may refuse to handle them. That surcharge will soar by a whopping $300 per package, to $415 per package. The surcharge will apply to U.S. and international ground deliveries.
FedEx also boosted its surcharge on "oversize" packages—items not quite as outsized and somewhat easier for its system to handle—by $25 per package, to $97.50. The charge applies to all domestic air shipments and U.S. and international ground shipments. Finally, FedEx added a $3 per-package "additional handling" surcharge to U.S. express and U.S. and international ground deliveries, bringing that surcharge to $14 per package.
The announcement of the oversized and special handling charges was expected, though some observers were surprised by the magnitude of the jump in the "unauthorized" shipment surcharge. UPS also imposes surcharges on similar awkwardly shaped shipments.
For the past decade, the two companies have followed in virtual lockstep in implementing major pricing actions. There has been much speculation since UPS' June 19 announcement that FedEx would follow suit with similar surcharges. Even though FedEx went in another direction, Jindel doesn't expect UPS to lose peak business exclusively committed to it. However, shippers that are using both services and that aren't tendering the types of goods subject to the surcharge may tilt toward FedEx, he said.
Rob Martinez, CEO of consultancy Shipware LLC, said the FedEx moves will not result in a flood of UPS business to FedEx, but they will check UPS' ability to make all its surcharge increases stick. "Now that shippers have a choice and clear price difference, UPS customers will have more leverage to negotiate bigger residential discounts to offset the holiday rate hikes," Martinez said. UPS shippers will give the carrier a chance to adjust its increases before switching carriers, he added.
Several analysts said FedEx's pricing strategy is aimed at either discouraging the tender of very large items or forcing shippers to package them more prudently. Both carriers have adjusted their pricing based on package dimensions to make it more costly for customers shipping high-cube, low-weight items like pillows and lampshades.
This holiday, FedEx may end up sacrificing revenue should shippers of outsized items defect to UPS or to less-than-truckload (LTL) carriers whose forte is handling those types of goods. Yet the sacrifice may be worth it if FedEx drives down line-haul costs and frees up precious trailer space for 50 or so small parcels that could fit in the space equivalent of one or two outsized items.
Krishna Iyer, who spent nine years at FedEx and is today director, strategic partnerships and business development, at ShipStation, said merchants that fulfill on sites like Amazon.com, many of which are not sophisticated in the ways of shipping, need to be careful lest they get hit hard for surcharges on such items as a free-standing desk. Shippers also should be aware that the carrier determines which goods require special handling, and that the shipper may not become aware of the carrier's dictates until the shipment is delivered. "You will get the sticker shock after the fact, without much way to plan, in some cases," he said.
Most surcharges, which by definition are punitive in nature, are designed to force or influence changes in shipper behavior. In the case of residential deliveries, which for FedEx and UPS have poor delivery density, parcels tendered to them are often inducted deep into the system of the U.S. Postal Service, a low-cost operator that is required by law to serve every address, for final delivery. However, LTL and even truckload carriers are moving into the final-mile segment, drawn by the rapid growth triggered by the e-commerce phenomenon.
"The carriers seem to be focusing on 'beautiful freight,' or packages that are profitable and fit within their network constraints, rather than pure volume," said Iyer. The surcharges, he said, are part of a strategy to retain that good freight—largely high-density business-to-business deliveries—while sending more shippers to their final-mile services for residential deliveries, he said.
As a byproduct of that, more shippers of super-outsized packages could begin taking a closer look at residential LTL services, Iyer added.
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.