Wanted – More FedEx Ground Workers

December 17, 2021


Despite headlines of strong, overall operating income gains, FedEx continues to struggle with inadequate staffing, particularly in the Ground division. As such, staffing shortages contributed to a 12.9% decline in Ground’s operating income, year-over-year.

Overall, the company reported a 14.1% year-over-year increase in revenue, $23.5 billion, an 11.3% increase in adjusted operating income, $1.68 billion, and an 8.8% increase in operating income, as reported $1.6 billion. Net income, however, was not quite as impressive, declining 15.4% year-over-year on an as-reported basis and flat on an adjusted basis.

Staffing Issues

Staffing needs were a focal point during FedEx’s recent earnings call. “The difficult labor market once again had the largest effect on our bottom line, representing an estimated $470 million in additional year-over-year costs,” FedEx CFO Mike Lenz told analysts on the call.

According to Lenz, the break out of the $470 million is as follows:

  • An estimated $230 million was incurred in higher wage and purchase transportation rates. This included higher wage rates and paid premiums for team members and higher rates paid for third-party transportation services.
  • There was an estimated $240 million in network inefficiencies resulting from labor shortages and increased costs. These costs include additional line-haul, higher usage of third-party transportation, the cost to reposition assets in the network over time, and recruiting incentives, all to address staffing shortages.

Staffing issues are expected to continue into the next quarter, but improvements in staffing availability and improvements in FedEx’s network are anticipated to help mitigate costs.

Network Improvements

Indeed, a $90 million investment in its Ground network has helped add 14.4 million square feet to its network since June of this year.

However, according to FedEx’s CMO, Brie Carere, “constrained capacity has continued to support a favorable pricing environment. We are maintaining a brisk pace for repricing contracts, ensuring a high surcharge capture and yield improvements.” Carere further noted that they are “working with large customers to identify opportunities, to move their volume from our national network to our regional and local networks, freeing up additional capacity for small business customers.”

FedEx expects the U.S. domestic parcel market to reach 134 million pieces a day by the calendar year 2026, a 70% growth from 2020. E-commerce is expected to drive 90% of the parcel market growth.

Holiday Peak Season

“We are seeing strong levels of volume in our network given unprecedented levels of shopping and shipping this holiday season. FedEx Ground had an outstanding Cyber Week, with 100 million packages picked up during the first official week of peak,” FedEx’s President and COO, Raj Subramaniam, said on the earnings call.

However, FedEx’s on-time delivery is lagging behind UPS and USPS. Citing ShipMatrix data, the WSJ recently reported that on-time scores between Nov. 21 and Dec. 4 were 87.9% at FedEx, 96.1% at USPS, and 96.4% at UPS. That compares with 94.9% at FedEx, 92.8% at USPS, and 96.3% at UPS during a similar time frame last year.

In addition, local news outlets here in the Atlanta area are reporting FedEx delivery delays. FedEx’s response:

“We understand our customers’ frustrations and apologize for any inconvenience as we accelerate contingencies to resolve delays caused by significant package volumes and an ongoing industry labor shortage. We are doing everything we can to address this situation, including securing more package handlers and delivery resources. In the meantime, we kindly ask that customers refrain from visiting the station so that we can maintain safety protocols and minimize any operational disruption. Customers wishing to inquire about their package status should visit www.fedex.com for package tracking and customer service assistance.”

Despite FedEx’s network investments and “considerable traction in recruiting frontline positions,” as noted by Subramaniam, perhaps they should revisit their Ground business model and develop an overall strategy to attract and retain drivers.

 


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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Wanted – More FedEx Ground Workers

December 17, 2021


Despite headlines of strong, overall operating income gains, FedEx continues to struggle with inadequate staffing, particularly in the Ground division. As such, staffing shortages contributed to a 12.9% decline in Ground’s operating income, year-over-year. Overall, the company reported a 14.1% year-over-year increase in revenue, $23.5 billion, an 11.3% increase in adjusted operating income, $1.68 billion, and an 8.8% increase in operating income, as reported $1.6 billion. Net income, however, was not quite as impressive, declining 15.4% year-over-year on an as-reported basis and flat on an adjusted basis.

Staffing Issues
Staffing needs were a focal point during FedEx’s recent earnings call. “The difficult labor market once again had the largest effect on our bottom line, representing an estimated $470 million in additional year-over-year costs,” FedEx CFO Mike Lenz told analysts on the call. According to Lenz, the break out of the $470 million is as follows:
  • An estimated $230 million was incurred in higher wage and purchase transportation rates. This included higher wage rates and paid premiums for team members and higher rates paid for third-party transportation services.
  • There was an estimated $240 million in network inefficiencies resulting from labor shortages and increased costs. These costs include additional line-haul, higher usage of third-party transportation, the cost to reposition assets in the network over time, and recruiting incentives, all to address staffing shortages.
Staffing issues are expected to continue into the next quarter, but improvements in staffing availability and improvements in FedEx’s network are anticipated to help mitigate costs.
Network Improvements
Indeed, a $90 million investment in its Ground network has helped add 14.4 million square feet to its network since June of this year. However, according to FedEx’s CMO, Brie Carere, “constrained capacity has continued to support a favorable pricing environment. We are maintaining a brisk pace for repricing contracts, ensuring a high surcharge capture and yield improvements.” Carere further noted that they are “working with large customers to identify opportunities, to move their volume from our national network to our regional and local networks, freeing up additional capacity for small business customers.” FedEx expects the U.S. domestic parcel market to reach 134 million pieces a day by the calendar year 2026, a 70% growth from 2020. E-commerce is expected to drive 90% of the parcel market growth.
Holiday Peak Season
“We are seeing strong levels of volume in our network given unprecedented levels of shopping and shipping this holiday season. FedEx Ground had an outstanding Cyber Week, with 100 million packages picked up during the first official week of peak,” FedEx’s President and COO, Raj Subramaniam, said on the earnings call. However, FedEx’s on-time delivery is lagging behind UPS and USPS. Citing ShipMatrix data, the WSJ recently reported that on-time scores between Nov. 21 and Dec. 4 were 87.9% at FedEx, 96.1% at USPS, and 96.4% at UPS. That compares with 94.9% at FedEx, 92.8% at USPS, and 96.3% at UPS during a similar time frame last year. In addition, local news outlets here in the Atlanta area are reporting FedEx delivery delays. FedEx’s response: “We understand our customers’ frustrations and apologize for any inconvenience as we accelerate contingencies to resolve delays caused by significant package volumes and an ongoing industry labor shortage. We are doing everything we can to address this situation, including securing more package handlers and delivery resources. In the meantime, we kindly ask that customers refrain from visiting the station so that we can maintain safety protocols and minimize any operational disruption. Customers wishing to inquire about their package status should visit www.fedex.com for package tracking and customer service assistance.” Despite FedEx’s network investments and “considerable traction in recruiting frontline positions,” as noted by Subramaniam, perhaps they should revisit their Ground business model and develop an overall strategy to attract and retain drivers.  
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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