In May, FedEx announced that its Ground service would begin delivering packages seven days per week year-round.
The parcel carrier has offered extended delivery days during the holiday season for several years. At the beginning of 2019, it made six-day delivery standard. And in January 2020, Saturday and Sunday delivery will be standard with Ground service — a level of service matched neither by UPS or the U.S. Postal Service.
“The average daily volume for small parcels is expected to double by 2026,” FedEx president and COO Raj Subramaniam said in a statement about the expansion. That growth in volume will come primarily from the e-commerce market.
And it would be easy to chalk it up to the e-commerce market’s largest storefront: Amazon. But that’s where FedEx’s second recent announcement comes in. In June, FedEx announced that it would not renew its Express domestic contract with Amazon.
FedEx insists that cutting this tie with Amazon will have little impact on its bottom line. The company says only 1.3% of its total revenue comes from Amazon, and it expects plenty of growth in e-commerce that does not depend on Amazon. As for Amazon, the company recently promised to bump some Prime shipments up from two-day delivery to one-day delivery. FedEx may have thrown a wrench in that goal.
FedEx Seven-Day Delivery
The rest of FedEx’s services already operate Monday through Sunday. Truckers move packages, warehouse workers organize them, and customer service representatives field calls. What seven-day delivery means is that FedEx Ground will now deliver packages to commercial and residential customers every day of the week.
It’s been a long time since home delivery was limited to business days. The United States Postal Service has made standard Saturday deliveries for years. Some of its Priority Mail options also include Sunday delivery.
UPS Ground added standard Saturday delivery in 2017.
At that time, FedEx Ground was already delivering on Saturdays — but it operated on a five-day delivery week that ran from Tuesday to Saturday. In 2018, FedEx Ground expanded that to six-day delivery.
Adding a seventh day of delivery service will allow FedEx Ground to grow its capacity. And if Sunday delivery service makes the average ground shipment slightly faster than its competitors, it could also make FedEx a more attractive partner for shipping-based companies — which would help FedEx fill all that new capacity.
Also of note: FedEx plans to integrate SmartPost packages into Ground operations. Currently, those parcels move through the FedEx Ground network for most of their journeys. But instead of completing the last-mile delivery, FedEx Ground turns them over to USPS at the local post office. Supply Chain Dive called the SmartPost-Ground integration “surprising, given the high costs associated with last-mile deliveries” — which was the rationale for moving those packages off Ground trucks and into USPS trucks in the first place.
Whatever happens with SmartPost, UPS and FedEx both typically follow where their competitor leads — so FedEx may not have sole claim to seven-day delivery for long.
Will FedEx Express lose Amazon?
Just weeks after FedEx Ground announced seven-day delivery, FedEx Express chose not to renew its contract with Amazon, by far the world’s largest e-commerce marketplace.
It’s important to note that the decision affects FedEx air delivery services in the U.S. — not Amazon shipments sent through FedEx Ground. But it’s still a big change.
For years, FedEx and Amazon described one another as partners. Amazon depended on shipping carriers like FedEx, UPS and USPS, even as Amazon began assembling the necessary components for a shipping service of its own. (Amazon’s shipping capabilities are still far too small to handle its enormous volumes.)
But designing delivery robots and assembling a fleet of cargo aircraft may have been enough for FedEx. “By breaking ties with Amazon for air shipments, FedEx seems to convey a lack of interest in delivering packages for a company building out its own air network,” Supply Chain Dive suggested.
Amazon has already begun an effort to cut Prime delivery time in half, from two days to one, according to The Verge. It will need support from air delivery services to do that. Without FedEx Express, Amazon may struggle to fulfill its promise.
How this decision will impact FedEx is less clear. FedEx is bullish on the continued growth of e-commerce, as evidenced by the decision to add Sunday delivery. The company insists Amazon makes up only 1.3% of its revenues. And Amazon may continue using FedEx Ground services.
But almost by definition, Ground segment customers are not Amazon Prime customers, since a package shipped via Ground service usually takes at least three days to reach its destination.
FedEx is not betting on Prime — possibly because its leaders believe Amazon will provide same- and next-day service for itself. Amazon’s recent delivery innovations, including its residential delivery robot Scout, suggest that the company may focus first on completing deliveries to the Prime customers who expect packages right away. The deliveries that Amazon needs help completing will be the slower ones.
FedEx’s contract with Amazon ends June 30. Investors may hear more about the impact of the Amazon decision on the company’s next earnings call.