Why Are Delivery Delays Still Hurting FedEx But Not UPS?

FedEx avoided ecommerce at first, unlike UPS, because it was not as profitable as the company's traditional business-to-business service whereas UPS was accustomed to retail delivery. But as digital took off, FedEx embraced it. 

The problem is that soon after it made that strategic shift, the pandemic hit. The company was unprepared for the dramatic volume growth and made some other operational decisions to shore up profitability but which caused confusion on the ground. The question is - especially given workforce shortages - FedEx can catch up before back to school and holiday season picks up in a few months. JL

Thomas Gryta reports in the Wall Street Journal:

From March through April, 87% of FedEx Ground shipments arrived on time, compared with 95% at UPS. FedEx’s deliveries were 71% on-time in April, compared with UPS at 88% and the U.S. Postal Service at 90%. The gap with UPS has widened. FedEx avoided e-commerce because the deliveries generate lower revenue per package. In recent years, it has embraced the business as online shopping expanded and growth stalled in its larger and more-profitable business of delivering shipments between businesses. As part of the shift FedEx added dozens of sorting facilities in its Ground operation and started delivering the packages it had been dropping at local post offices.

FedEx Corp. FDX -0.25% is struggling to deliver packages on time, according to industry data, as a pandemic-fueled increase of online orders continues to tax the delivery giant’s network.

From March through mid-April, about 87% of FedEx Ground shipments arrived on time, compared with 95% for the similar service at UPS, UPS 0.85% according to ShipMatrix Inc., a software provider that crunches parcel shipping data. The delays are frustrating customers, some of whom say they have turned to other shippers to fulfill orders.

The pandemic has accelerated the shift to e-commerce by years, filling the streets of America with delivery trucks. FedEx and United Parcel Service Inc. handled a record number of parcels last year even as Amazon.com Inc. AMZN -0.22% is increasingly delivering its own packages.

“FedEx continues to experience a peak-like surge in package volume due to the explosive growth of e-commerce,” a company spokeswoman said in a statement. Despite this pressure, the average transit time for all FedEx Ground shipments delivered in the past six months was just 2.2 days.

“As always, we are working closely with our customers to manage their volume and identify opportunities to help ensure the best possible service,” the spokeswoman said.

According to delivery-tracking software company Convey, FedEx’s deliveries were 71% on-time in April, compared with UPS at 88% and the U.S. Postal Service at 90%. And the gap with UPS has widened since February, when storms sent many parts of the country into a deep freeze, including the company’s Memphis, Tenn., hub, leading to weeks of significant delays. 

The FedEx spokeswoman said it doesn’t endorse any third-party data provider and that Convey’s numbers haven’t historically aligned with the shipper’s internal figures. Convey said it stands by its data.

May Herz, who runs a small business selling fine Mexican folk art in The Woodlands, Texas, had used FedEx for more than two decades to import products from Mexico.

“We have never had a problem with FedEx until the end of last year,” she said. “They started losing boxes and not delivering on time.”

One delivery disappeared in transit in November, only to arrive in January. Another was lost in February although FedEx delivered something else: a huge box containing a helicopter part. She sent it right back, but FedEx called a week later asking if anyone had picked it up or if she still had the part. She has since stopped using FedEx and said she is “happy with UPS’s service so far.”

FedEx said it works with customers to resolve individual problems and provide the best possible service.

FedEx traditionally avoided e-commerce because the deliveries generate lower revenue per package. In recent years, it has embraced the business as online shopping expanded and growth stalled in its larger and more-profitable business of delivering shipments between businesses. As part of the shift, FedEx added dozens of sorting facilities in its Ground operation, which handles the bulk of its e-commerce deliveries, and last year it began delivering on Sundays. FedEx also stopped delivering packages for Amazon in 2019 to focus on companies like Walmart Inc. and Target Corp.

It made another change: FedEx started delivering the packages that it had been dropping at local post offices. The strategy was to increase the density of stops along the FedEx Ground routes.

“We’re seeing it have a direct impact on transit delays,” Convey co-founder Carson Krieg said. “There’s no way they could have predicted the additional amount of e-commerce volume that came from the pandemic.”

FedEx has said it is accelerating plans to increase its network capacity and is recruiting new workers. The company said it expects Ground capacity to remain constrained until the end of the calendar year and is giving priority to its small and medium-size business segment along with its premium home-delivery product.

Financially, FedEx isn’t struggling. In December, the company achieved its highest-ever monthly revenue and operating profits. On Friday, the company increased some package surcharges, citing higher volumes, high demand for capacity and increased operating costs. Shares of FedEx have risen 22% in the past three months and have more than doubled in the past year.

Sharna Campos, who runs a custom LED lighting business with her husband in Fullerton, Calif., recently ran into trouble with FedEx over delays and the loss of a crucial package.

The delayed equipment was for installation in several Mexican restaurants, and the company has orders pending from the same longtime customer totaling $8,000. The package was eventually declared lost, and Mrs. Campos now has to work with the supplier to determine the next steps. She ordered a second set of the same materials from another supplier at almost twice the cost along with additional fees to ship using DHL.

“We were able to complete pending orders, but it was obviously at a considerable loss to us,” she said. “We will probably have to use this new supplier going forward, but it will mean we have to increase the price to our customer. As a small business, we don’t like having to do that.”