FedEx Suspends Sunday Delivery in Some Markets

FedEx ground stepvan

FedEx is suspending Sunday delivery for its Ground network in some lower-density markets starting Aug. 21, citing a focus on “improving efficiency and reducing costs,” the move coming amid calls from contractors for relief from high costs, including elimination of Sunday service.

It may not be a union issue, as with UPS and the Teamsters, but it feels somewhat akin to it as the FedEx Ground model lives or dies with its contractors.

Volumes that would normally go out on Sundays will be allocated to the prior Saturday or the following Monday, FedEx said in an email to affected contractors. FedEx did not disclose the affected markets, or say how long the pause will remain in effect.

FedEx said the selected markets should not see a significant impact on shippers. “In fact, after this adjustment, FedEx Ground will still reach nearly 80% of the U.S. population with Sunday residential deliveries – an important advantage over our primary competitor,” the company said in the note.

According to data from parcel and LTL consultancy Shipmatrix, Sundays represent about 7% of FedEx Ground’s weekly volume, while rural ZIP codes are less than 9% of daily deliveries. “That’s hardly 2-3% of parcels not delivered,” said Shipmatrix president Satish Jindel. “People won’t care.”

The pause in Sunday delivery will also serve as an opportunity for FedEx Ground and its 6,000 contractors to “recalibrate operations for current market conditions.”

“We will evaluate the effectiveness of this change and continue to consider other operational initiatives to ensure FedEx Ground and service providers continue to provide safe, efficient and outstanding service,” the company said.

Contractors Looking for Relief

Spencer Patton, founder and president of Brentwood, TN-based Patton Logistics, one of the largest Ground contractors with 225 routes and 275 trucks, said eliminating Sunday delivery had to happen as it was putting a financial strain on both FedEx and its contractors. He also runs Route Consultant, which advises contractors on best practices.

In a letter Wednesday to FedEx executives, Patton asked the company to provide Ground contractors 50 cents more per stop for home delivery – to continue for 12 months before reevaluation – and 20 cents more per mile for line haul deliveries, with spot runs getting a 10% boost. The rationale was price shocks from fuel, salaries and vehicle purchase and maintenance. Last year, many Ground contractors made significant investments in anticipation of a massive Q4 spike that did not materialize as FedEx had projected, since many shippers had successfully pulled volume forward.

Patton noted that FedEx itself has acknowledged Ground service levels need to improve. He added the reason for that is more contractors exiting their territories due to rising costs, requiring FedEx to hire outside carriers to pick up the slack. Patton said FedEx executives had told him privately the company is spending well above its budget on contingency pay for these carriers.

Outside carriers for both delivery and line haul services were paid at rates significantly above those of contractors, Patton said, adding 30% or more of FedEx Ground line haul volume is handled by contingency carriers.

The symbiotic relationship between FedEx and the Ground contractors made it in the company’s best interest to provide some financial relief, Patton said. “FedEx has no network without its contractors, and contractors have no business without FedEx,” he said. “Our destinies are inextricably linked together to solve this problem.”

In 2020, as the pandemic took hold, FedEx of its own volition provided six months of relief for contractors in the form of a 25-cent bump in per-delivery fees.

As for Sunday delivery, Patton said it was a $500 million a year drag on FedEx earnings that wipes out one-third of contractors’ margins.

“It’s not turned out to be the financial proposition FedEx Ground nor us hoped it would be,” Patton said. “It hasn’t brought in the customers they envisioned. Eliminating it would be a substantial cost cut for both FedEx and contractors, and we’d certainly welcome that.

When it was pointed out that Sunday delivery has been a focus of Amazon and others using the U.S. Postal Service, Patton said, “Let’s let the taxpayer-subsidized USPS deliver on Sundays, and not have a for-profit business trying to figure that problem out.” UPS and FedEx began offering Sunday delivery in January 2020, with the former relying on the USPS.

FedEx: Making Operational Adjustments

In a statement, FedEx said it is constantly evaluating opportunities to optimize network operations based on market conditions and customer needs. Sunday delivery was rolled out to 95% of the U.S. population to meet pandemic-fueled demand.

“As economic conditions have shifted, we are making operational adjustments to suspend Sunday delivery operations in certain low-density, rural markets,” said a spokesperson. “This will enable FedEx Ground to increase efficiencies while maintaining a competitive advantage in weekend coverage by reaching nearly 80% of the U.S. population on Sundays.”

Another reason Patton felt FedEx owed some relief to contractors is the fact the company is profiting off fuel surcharges, with most of that benefit not flowing to the very companies hauling the deliveries that drive the business.

“FedEx has expanded its margins successfully through arbitrage of fuel surcharges, highlighted on its June 23 earnings call, without passing through all those charges to contractors,” he said. “That’s especially painful for us to see, because we’re the ones using the fuel, in an environment when the cost has more than doubled.”

Sunday Delivery Suspension Should Expand

Jindel said based on his data, elimination of Sunday delivery to low-density areas was a no-brainer. “They should be more aggressive in eliminating it in other parts of the country, except during peak, when there’s much more B2C,” he said.

As for the broader requests from contractors, Jindel said instead of offering relief in the form of temporary higher fees, FedEx should provide better data to avoid the scenario of CSPs over-investing to meet expected demand.

“Maybe I’m being inefficient, but FedEx is not sharing the kinds of details I need to operate efficiently,” he said. “If you say I should operate with 18 drivers instead of 20 or 30, you’re not giving me the package information I need to use those 18. If you give me better data on what my deliveries will be, I can route efficiently.”

Thomas Andersen, a partner and EVP, supply chain services with LJM Group, agreed with Jindel that better data should be available to help contractors improve network performance.

“The unpredictable volume over the past two to two-and-a-half years has certainly put strain on several aspects of the FedEx network, which was evident by the poor service performance in 2021,” Andersen said. “This appears to have been largely rectified so far this year, so better data and information should now be there to address these concerns.  It’s an evolving model, so having this dialogue simply makes sense.”

Adi Karamcheti, a professional services consultant with Shipware, said the timing of FedEx’s announcement of suspension of Sunday service, so soon after Patton’s letter, was a “clear indication the Ground contractors were right.”

“The whole contractor model of FedEx was, how to take share from UPS, and for years it’s worked well, and been lucrative for contractors, especially in a dense urban area,” said Karamcheti, who worked in sales and pricing at FedEx for 18 years. “Now with pressure from COVID and a massive increase in packages, then extending to Sunday delivery, it’s really put pressure on contractors, as well as rising fuel and labor costs.”