FedEx Ground Results Disappoint as Costs Rise for Labor

September 23, 2021


FedEx heads into the holiday peak season a little wobbly after reporting less than stellar quarterly earnings for the period ending Aug. 30. Despite total revenue inching up to $22.0 billion from $19.3 billion a year ago, operating profit fell 11.0% due to higher costs associated with staffing shortages particularly within its Ground division.

“The impact of constrained labor markets remains the biggest issue facing our business,” FedEx Chief Operating Officer Raj Subramaniam said.

An estimated $450 million year over year increase in costs were attributed to a constrained labor market which impacted labor availability and resulted in network inefficiencies, higher wage rates, and increased purchased transportation expenses.

As an example of the tight labor situation, Subramaniam noted that FedEx’s Portland hub was operating at 65% of total staffing and that 25% of volumes intended for the hub were being rerouted to other hubs for sorting and deliveries.

In total, 600,000 Ground packages are being rerouted each day because of staffing problems throughout FedEx’s US network.

As we head into the peak holiday season, while staffing problems will be a major concern for not just FedEx, but other last-mile carriers including Amazon, UPS, and the USPS, FedEx is making sure it has enough capacity.

For example, a new hub in Chino, California opened in August and includes large package sortation which has the capability to process up to 30,000 packages per hour and is located near the ports to help address ongoing port congestion challenges.

FedEx has also invested in several technology projects including the modernization of multiple sortations, transportation management, and safety systems, which, according to FedEx, will help to increase Ground's network capacity by “hundreds of thousands of average daily volumes as well as its flexibility and resiliency”. In total, this will bring the total capacity increase of more than one million average daily volume compared to the last peak.

During the fiscal first quarter, total US domestic package volumes increased year-over-year by 1.5%. According to the company, continued supply chain disruptions slowed US domestic parcel demand. However, FedEx Ground commercial volumes grew double digits in the quarter.

For the first time, the company has split out Ground average daily volumes (ADV) by type – Commercial, Home Delivery, and Economy.

For the quarter, Commercial ADV increased 11.6% year-over-year, Home Delivery ADV increased 1.8% and Ground Economy declined a whopping 31.4% year-over-year.

The company noted it would focus on Ground commercial volumes. According to Chief Marketing and Communications Officer, Brie Carere, “We are focused on protecting and growing volume in high yielding commercial segments including commercial ground and small and medium segments. We have an incremental opportunity to improve large customer yields through contract renewals and providing large customers an ability to procure incremental capacity at current market rates.”

Meanwhile, the overall residential package volume remains higher than pre-pandemic but is lower than the same period as last year, at 57% compared to 62%.

All eyes will be on FedEx and its competitors this holiday peak season in terms of on-time performance, capacity availability and more as shippers pay higher prices to ensure goods are delivered to their customers.

 


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing, and service for our clients. We deliver your competitive edge.

Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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FedEx Ground Results Disappoint as Costs Rise for Labor

September 23, 2021


FedEx heads into the holiday peak season a little wobbly after reporting less than stellar quarterly earnings for the period ending Aug. 30. Despite total revenue inching up to $22.0 billion from $19.3 billion a year ago, operating profit fell 11.0% due to higher costs associated with staffing shortages particularly within its Ground division. “The impact of constrained labor markets remains the biggest issue facing our business,” FedEx Chief Operating Officer Raj Subramaniam said. An estimated $450 million year over year increase in costs were attributed to a constrained labor market which impacted labor availability and resulted in network inefficiencies, higher wage rates, and increased purchased transportation expenses. As an example of the tight labor situation, Subramaniam noted that FedEx’s Portland hub was operating at 65% of total staffing and that 25% of volumes intended for the hub were being rerouted to other hubs for sorting and deliveries. In total, 600,000 Ground packages are being rerouted each day because of staffing problems throughout FedEx’s US network. As we head into the peak holiday season, while staffing problems will be a major concern for not just FedEx, but other last-mile carriers including Amazon, UPS, and the USPS, FedEx is making sure it has enough capacity. For example, a new hub in Chino, California opened in August and includes large package sortation which has the capability to process up to 30,000 packages per hour and is located near the ports to help address ongoing port congestion challenges. FedEx has also invested in several technology projects including the modernization of multiple sortations, transportation management, and safety systems, which, according to FedEx, will help to increase Ground's network capacity by “hundreds of thousands of average daily volumes as well as its flexibility and resiliency”. In total, this will bring the total capacity increase of more than one million average daily volume compared to the last peak. During the fiscal first quarter, total US domestic package volumes increased year-over-year by 1.5%. According to the company, continued supply chain disruptions slowed US domestic parcel demand. However, FedEx Ground commercial volumes grew double digits in the quarter. For the first time, the company has split out Ground average daily volumes (ADV) by type – Commercial, Home Delivery, and Economy. For the quarter, Commercial ADV increased 11.6% year-over-year, Home Delivery ADV increased 1.8% and Ground Economy declined a whopping 31.4% year-over-year. The company noted it would focus on Ground commercial volumes. According to Chief Marketing and Communications Officer, Brie Carere, “We are focused on protecting and growing volume in high yielding commercial segments including commercial ground and small and medium segments. We have an incremental opportunity to improve large customer yields through contract renewals and providing large customers an ability to procure incremental capacity at current market rates.” Meanwhile, the overall residential package volume remains higher than pre-pandemic but is lower than the same period as last year, at 57% compared to 62%. All eyes will be on FedEx and its competitors this holiday peak season in terms of on-time performance, capacity availability and more as shippers pay higher prices to ensure goods are delivered to their customers.  


ABOUT SPEND MANAGEMENT EXPERTS

Spend Management Experts has united with Transportation Insight to become North America’s #1 provider of small parcel management and optimization services.  Our team of best-in-class analysts employs cost modeling techniques to help clients optimize their supply chain spend, reducing costs by 20% or more.  Our approach is non-invasive to daily supply chain operations as we employ unparalleled market intelligence and proprietary cost modeling technology, targeting hidden costs and identifying savings opportunities. After establishing the success criteria, SME leverages proven project plans, data warehousing, and milestone documents to ensure an optimized and implementable solution. We build strong business cases based on your data to negotiate better terms, pricing, and service for our clients. We deliver your competitive edge. Connect with Spend Management Experts on TwitterLinkedIn, and the Spend Management Experts blog.

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