Dive Brief:
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FedEx CFO Alan Graf told the Wall Street Journal that e-commerce deliveries will most likely become more expensive to help the company make a profit on ground shipments.
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Thanks to a jump in e-commerce over the holidays, FedEx’s Q3 revenue from its e-commerce-dominated ground unit rose 30% to $4.41 billion.
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But higher costs—from the company’s network expansion but also from peak holiday demand—push the company’s ground-shipping income down to $557 million from $559 million, the company reported Wednesday.
Dive Insight:
FedEx’s results and challenges reflect many in retail fulfillment. While e-commerce continues to grow, in large part buoyed by omnichannel efforts at many brick-and-mortar stores, the costs are great, especially for retailers offering low or zero shipping fees for orders and returns.
“We can’t build these networks and spend this kind of capital and not get a return on it,”Graf told the Wall Street Journal.
FedEx CEO Fred Smith also said that the company will increase its fees for shipping large items and items that don't fit into its ground network, and said that the USPS is partially to blame for encouraging customers' expectations for low-cost delivery.
“The postal service’s rates, which are the primary driver of e-commerce…they’re going to have to go up as mail service goes down,” Mr. Smith said.
The rush for same-day delivery, driven by Amazon, also faces problems. Workers are increasingly filing complaints against delivery services like Lyft, Uber, Amazon and others, and regulators are warning that contractors can’t be treated as employees without being compensated as such—which means higher pay, employment taxes, and benefits. That could put pressure on same-day delivery costs; at the moment, many same-day delivery companies are floating with investment funds, which may be shielding the true cost from consumers.
Last summer, the California Labor Commission and the federal National Labor Relations Board made it clear that retailers and delivery services must tread more carefully in their treatment of workers they might consider independent contractors.
