Jay's Parcel Notes: March 21 - April 3

I’m Jay Kent, managing director of SLB Performance, a consulting firm that helps companies reduce supply chain costs, implement BI tools, and improve in-stock and customer service. After 25 years of leading some of the most complex supply chains in the industry, I began advising companies in multiple industries and verticals. It’s important to understand the market to mitigate costs and improve efficiencies. So, twice a month, I’ll share parcel news and thoughts. Be sure to hit the subscribe button to receive the latest newsletter in your LinkedIn notifications.

FedEx and UPS

• FedEx announced its FY24 Q3 earnings (ending Feb 29) on March 21. YoY volume growth was minimal at best for Ground and declines in Express and Freight. However, the company reported strong gains in profitability with overall operating income up 19%. FedEx mainly achieved profitable improvements through its cutting initiatives. How much longer will they benefit from the cuts? A good Bloomberg story I shared a while back is worth the share once more - At FedEx, the Era of Large Price Increases Is Over
• Meanwhile UPS hosted its first Analyst and Investor Day since 2021. Among the takeaways include its One UPS Advantage which sounds similar to what FedEx is doing; Continued focus on Healthcare by doubling revenues by 2026; and its focus on B2B, SMB and “select enterprise volume”. In other words, UPS wants to be the ‘premier small package provider’ and the ‘premier logistics provider’. They plan to focus on the revenue per package to ensure it doesn’t dip below the cost per package. In other words, don't expect UPS to reduce rates any time soon, despite efficiencies gained via automation.

Among the cuts:

• UPS to close 200 sort centers in modernization push. The optimization plan, code-named Network of the Future, is expected to save $3 billion per year by 2028 through better productivity according to UPS.?
• FedEx initiates targeted layoffs; UPS sheds workers at Ontario airport

UPS and USPS

UPS also announced that it would become USPS’ primary air cargo provider and move the majority of USPS air cargo in the US effective in September. A mild surprise for sure, FedEx’s Brie Carere had recently told analysts in March, "We have made significant progress in negotiations for a new contract that aligns with our ongoing network transformation plan, while providing the USPS with the operational reliability and outstanding service we have delivered for them for more than two decades. A new multiyear agreement would provide a more efficient network with service to fewer markets. It would allow us to better adjust our overall network to demand.”

A statement from FedEx in its SEC filing: "The parties were unable to reach agreement on mutually beneficial terms to extend the contract."

How lucrative the USPS contract will be for UPS remains to be seen. Last year, FedEx earned close to $2 billion in revenue, a lower amount compared to years past.

According to USPS’ 10-K filing - USPS has been transitioning more volumes from air to ground. "We continued to reduce the Postal Service’s carbon footprint by making sure our trucks are fully loaded, optimizing routes, and concentrating our services on ground shipping over air transportation."

Meanwhile, for the period ending Dec 31, USPS' air transportation expense declined 30% yoy to $704 million. USPS noted in its quarterly filing, "this decrease was primarily due to the shift of certain package volume to highway transportation and the impact of lower average jet fuel prices."

UPS will announce its Q1 earnings later this month so I’m sure we’ll learn more on the contract at that time.

Other News

• DoorDash launched a delivery pilot with Wing in Christiansburg, Virginia, that will enable Wendy’s restaurant customers to order menu items and have them delivered by drone. Customers with eligible addresses will be able to select drone delivery at checkout and will have their order within 30 minutes.
• Pandion secures $41.5M in Series B funding. Pandion will use the new funding to accelerate the growth of its residential parcel delivery network, including building new technology offerings, expanding its geographic reach, and increasing delivery speed for customers like Saks Fifth Avenue.
• Amazon Air reduces smaller-volume routes while boosting US hub flows. ?According to the latest report from the Chaddick Institute at DePaul University, Amazon’s flight network has shrunk by 1.8% since last March, but capacity has risen 4.9% with the deployment of three more B767Fs and one A330F.

That’s it for now. Comments are always welcome. Reach out if you'd like to learn how to lower or even possibly eliminate any parcel fees. Stay tuned for the next newsletter on April 17, and don't forget to hit the subscribe button to ensure you receive it in your LinkedIn notices.