Two weeks ago, global parcel transportation provider FedEx announced that the carrier would not renews its Air Express services contract with Amazon.com. This week provides news of the next consequential development, namely that FedEx intends to offer significant Air Express rate discounts to certain E-commerce retailers in order to make-up the shipping volume impacts of giving-up Amazon business.

According to a report by The Wall Street Journal citing knowledgeable sources, the rate discount for guaranteed two-day delivery could effectively be the equivalent of FedEx Ground offered to the same customer.  FedEx Express

The report acknowledges that FedEx built its Air Express services without the context to today’s changed, more demanding, time-sensitive online customer fulfillment business needs. E-Commerce customer fulfillment centers are now located closer for more U.S. population centers for more time-sensitive surface fulfillment needs. In essence, in today’s online customer fulfillment, as incorporated by Amazon, air movement is the means to move goods replenishment or fulfillment center re-balancing from distant or international manufacturing sourcing areas. An area that FedEx is likely to continue to explore is leveraged use of its Air Express vans to pickup at retail stores designated as regional customer fulfillment sites. Packages are then sorted at local Air Express centers and subsequently routed for retail customer delivery.

Like any airline with a large owned fleet, planes need to be filled in order to maintain margins. Further, FedEx is a prime contracted carrier to the United States Postal Service for that agency’s air movement needs. Declining overall USPS package volumes are likely placing additional excess capacity challenges on the domestic air fleet as-well.

All of these ongoing announcements are leading up to FedEx’s reporting of financial performance scheduled this week.

This latest rate reduction move is further another shot across the bow to rival UPS to either match the move, or risk losing certain retail E-Commerce business. Thus, our U.S. bases readers should expect other developments and counter moves.

In the end, these developments may well be positive for retail shippers both large and small. With the 2019 retail holiday surge period beginning in 3-4 months, this could be a year where parcel carriers do not raise rates.   The retail industry can thank Amazon for that situation.

 

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