Jay's Parcel Notes: March 31 - April 11

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-stocks 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.?To mitigate costs and improve efficiencies, it’s important to understand the market.?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.

It’s never a dull minute in parcels and last-mile news. The market continues to evolve as FedEx announced it would become one FedEx, that is, incorporate FedEx Ground into the organization but keeping its business model, by June 2024. FedEx also plans to use more ground services, trucks, and rail, to move goods at a lower cost. FedEx Express, meanwhile, will be used to transport time-definite, more profitable goods. For other goods, FedEx Express will lean on 3rd-party airlines.

Remember back in 2020 when FedEx Express announced it would contract with FedEx Ground for the transport and delivery of select day-definite, residential Express shipments? The pandemic may have slowed this plan down a bit but instead of contracting, the two divisions will be integrated.

As noted in the 2020 announcement:

“This move makes residential deliveries more efficient by putting the right package in the right network at the right cost to serve our customers,” said Raj Subramaniam.

“This allows FedEx Express to continue to do what it does best—delivering business-to-business and premium business-to-consumer time-sensitive packages. The FedEx Express integrated air-ground network is precisely the type of innovative business model that our labor laws are designed to protect. This change leverages the strengths and investments in the FedEx Ground network, making it the network of choice for residential packages fueled by e-commerce,” Subramaniam added.

Meanwhile, retailer AEO is finding out that operating a 3rd-party logistics service is not as easy as it looks. Shekar Natarajan, president of AEO’s logistics subsidiary, Quiet Platform, left the company. According to an Insider article, AEO COO Michael Rempell said in a memo to employees that, while the logistics subsidiary had been "tremendously beneficial to AEO," it had "not achieved the plans we laid out for it." Citing macro headwinds, Rempell wrote that workforce reduction was necessary.?

In AEO’s Q4 earnings call last month, AEO noted:

• On Quiet Platform, we continue to see interest from prospective customers and remain optimistic about the long-term opportunity. Yet the demand has been pressured this past year.?
• ?Although Quiet's third-party revenue has grown significantly to last year, acquiring new customers has been slower than anticipated due to a tougher macro. For 2023, we are focused on reducing expenses to better align with growth trends. We will streamline investments in the platform and look to leverage Quiet's capabilities to continue to drive benefits both for our brands and for all of Quiet third-party customers.
• Quiet provides tremendous support for our brands and our business. It gave us the capacity and faster delivery times. And, of course, we've consistently reduced our delivery cost per order to customers. over the last couple of years, which is pretty unique in retail.?But as I said, the third-party business just hasn't ramped up to our expectations. It saw great growth. It grew almost 40%, but that was below what we expected, and it did at a margin that was below what we expected. So, while we're not giving up on the business at all, we still think it's going to be a very valuable business someday. We are resetting our plans. And we're going to pull expenses out of that business.?We're going to eliminate unprofitable service lines in that business. And we're very committed to reducing the loss on a full-year basis. So, on a year-on-year basis, it's going to go from something that was a headwind in 2022 to something that provides benefits in 2023. And again, over time, we still believe this is going to be a successful and profitable business for us.

On to Walmart, which had its Investor Day last week. One of the big announcements:

• By the end of Fiscal Year 2026, roughly 65% of stores will be serviced by automation, approximately 55% of the fulfillment center volume will move through automated facilities, and unit cost averages could improve by approximately 20%.

Over the past few months, Walmart has been laying off a number of employees at fulfillment facilities across the country. Automation is probably why.

The USPS announced another rate increase. “As operating expenses fueled by inflation continue to rise and the effects of a previously defective pricing model are still being felt, these price adjustments are needed to provide the Postal Service with much-needed revenue to achieve the financial stability sought by its Delivering for America 10-year plan,” USPS said in a statement. “The prices of the U.S. Postal Service remain among the most affordable in the world.”?

Pending approval from the Postal Regulatory Commission, USPS will increase its market-dominant products by an average of 5.4% on July 9. Market-dominant products include first-class mail, USPS marketing mail, periodicals, and package services.?

That’s it for now. Comments are always welcome. Let me know what I missed. Stay tuned for the next newsletter next week, and don't forget to hit the subscribe button to ensure you receive it in your LinkedIn notices.

-Jay