FedEx suspended service for 1,400 freight customers
FedEx Corp. suspended about 1,400 customers from its freight forwarding service earlier this month, a move that surprised customers and aimed to alleviate a congested network taxed by relentless package volume.
The transportation and logistics giant ditched customers without notice, leaving some companies looking for a new option to move their products. FedEx resumed service to some customers this week. While an increase in e-commerce spending during the Covid-19 pandemic has strained shipping lines of all kinds, FedEx has fallen behind rivals in maintaining on-time deliveries this year.
A FedEx spokeswoman said the cuts were “designed to minimize network disruption and balance our capacity and demand to avoid backlogs across the country, especially at the most capacity-constrained freight service centers. “. The company is due to release its quarterly financial results after the market closes on Thursday.
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Colorado-based Diversified Innovative Products Co., a family-owned manufacturer of disposable printing press ink trays, had an order pending at their loading dock for a FedEx pickup that never happened.
“No correspondence was sent and we were notified on the day the shipment ceased via a phone call from our representative,” said Theron Johnson, president of the company. He has used FedEx for 30 years and made $ 304,000 in business with the shipping company in 2020, he said.
Finding an alternative has proven difficult and Diversified Innovative Products has prepared to lose up to 5% of its annual sales, Mr Johnson said. FedEx informed him on Tuesday that the company may resume shipments. In the end, the ordeal “just threw us into panic mode and delayed an expedition,” he said.
FedEx’s move “was a temporary step that provided needed volume relief and allowed us to start bringing some of the volume back in a controlled fashion,” the FedEx spokesperson said. The company said it continues to work with customers to resolve service issues and lifted suspensions for hundreds of them on Wednesday. She declined to comment on specific customers or whether FedEx could implement such a move again.
Shippers have cut customers off during peak periods in the past. In December, United Parcel Service Inc. imposed shipping restrictions on some large retailers such as Gap Inc. and Nike Inc. due to the busy holiday shopping season.
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Not all businesses depend on a single operator for services. Airgas Inc., a Radnor, Pa., Producer of cylinders of various gases, said any disruption to FedEx’s decision had no significant impact. Airgas uses its own fleet for most deliveries, and FedEx is not its main provider of third-party logistics services, an Airgas spokeswoman said.
Airgas is a subsidiary of the French group Air Liquide SA. Changes to FedEx Freight services were previously reported by FreightWaves, a logistics publication.
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In addition to customer disposal, FedEx charges a $ 30 per shipment charge on FedEx Freight deliveries to certain postal codes after July 5. The areas of Sacramento, California, Seattle and Miami as well as parts of New Jersey and Long Island, NY are affected. The FedEx spokeswoman said the surcharge and service reductions address “capacity constraints in specific geographies and across our network.”
FedEx in 2019 stopped handling ground deliveries for Amazon.com Inc., one of the largest e-commerce shippers. FedEx has struggled to deliver packages on time this year. The pandemic-fueled outbreak coincided with internal efforts to adopt more e-commerce deliveries as growth stalled in its larger and more profitable business-to-business shipment delivery. It added sorting facilities for its ground operation, which handles the bulk of its e-commerce deliveries, and started delivering on Sundays last year.
FedEx has changed the long-standing roles of its individual shipping services. It now delivers packages that it dropped off at local post offices and has moved some of its Express service deliveries to its ground service where possible. Meanwhile, the Freight department began processing overland shipments in May 2020, delivering around 1.8 million shipments by the end of February.
Persistent delays have led some customers to turn to other shippers to fill orders. FedEx deliveries were 71% on time in May, unchanged from the previous month, according to delivery tracking software company Convey. This compares to 89% at UPS. The gap with UPS has widened since February, according to data from Convey. That month, many parts of the country suffered a deep freeze, including the FedEx hub in Memphis, Tenn., Causing weeks of significant delays.
FedEx said it disagreed with Convey’s numbers and maintained that its data was not historically aligned with the sender’s internal numbers. Convey says FedEx maintained a 36% market share for more than three months, compared to 28% for UPS.
FedEx’s Freight division offers LTL services, in which freight from multiple shippers is combined into a single trailer. FedEx’s Freight division posted revenue of $ 7.1 billion in fiscal 2020, compared to total revenue of $ 69.2 billion.
UPS’s own freight division had revenue of around $ 3.15 billion in 2020, before the company sold it for $ 800 million. UPS CEO Carol Tomé recently hailed the divestiture as “the elimination of a low-margin, capital-intensive business.”