FedEx offers discounts to lure online customers
FEDEX Corp is seeking to attract online merchants with significant discounts as it looks to adjust its delivery system to cope with the boom in e-commerce demand that more often requires delivery over comparatively shorter distances
FEDEX Corp is seeking to attract online merchants with significant discounts as it looks to adjust its delivery system to cope with the boom in e-commerce demand that more often requires delivery over comparatively shorter distances.
The shipping giant, which is ending an air-shipping contract with Amazon.com Inc that accounts for 1.3 per cent of FedEx's annual revenue, is offering guaranteed two-day air service for the same price as shipping items through its Ground division for some customers of its Express network, according to people familiar with the matter, reported The Wall Street Journal.
The deals aim to win over shippers from FedEx rival United Parcel Service Inc (UPS) and to encourage them to switch from what has traditionally been a lower-price shipping option in FedEx Ground, the sources said.
FedEx is grappling with how the Express air network fits in a shipping economy increasingly dominated by online orders for everything from toothpaste to T-shirts. Founder and chief executive Fred Smith launched the Express unit four decades ago to ferry shipments, such as legal documents and medical supplies, over long distances.
The company predicts growth in online shopping will double the number of packages shipped in the US to 100 million per day by 2026. It is trying to capitalise on that growth after initially balking at handling too much of the lower-margin e-commerce shipments.
A FedEx spokeswoman said the company hasn't changed its pricing strategy and added that the two-day Express service 'has been very successful and continues to deliver tremendous value to small and medium businesses competing in the e-commerce market'.
The problem for FedEx is that its legacy air network, where shippers pay premiums to have goods delivered by 8 am or 10.30 am, wasn't built for e-commerce.
For customers ordering online, it is more important to deliver shipments by a particular day rather than by a particular time.
The e-commerce revolution also has put distribution centres much closer to where people live, reducing the need for quick, cross-country flights to meet delivery commitments. Some retailers also use neighbourhood shops to pack and ship orders placed online, so their shipments travel dozens, not hundreds, of miles.
FedEx expects that delivery distances will continue to contract. 'We know the vast majority of growth will be fulfilled and delivered in the same metropolitan area,' FedEx chief marketing officer Brie Carere said in an interview.
The company still needs cargo for its planes, and one way it is luring customers is with the discounts. Its domestic Express business has already seen yields, or the average revenue per package, drop by two per cent to US$17.93 in its third quarter.
That was led by a decline in its deferred shipments, which includes two- and three-day deliveries but excludes the costly overnight deliveries by aircraft. The yield there decreased 5.7 per cent year on year to $14.76 a package. The decline was attributed to a higher number of lighter, smaller e-commerce packages.
Discounting air shipments to close to what FedEx charges in its Ground network would drive yields down further. FedEx Ground's yield was $8.87 in the third quarter.