Is FedEx Between a Rock and a Hard Place…and will UPS be Next?

Wall Street Journal Reporter, Paul Ziobro is reporting that FedEx Corp is launching an aggressive program to increase the number of packages it is currently moving in its Air Express network.  This need has obviously been created by a variety of changing dynamics in the express package delivery business.  First and foremost is the fact that e-commerce businesses are continually opening up multiple distribution sites throughout the US to ensure they meet their customer delivery demands for two day service.  These initiatives obviously reduce the demand for moving express packages cross country.  But that is “yesterday’s news” because the new “industry delivery standard” is now moving to next day delivery; thank you Amazon!

In addition to the continually changing e-commerce delivery standards, is that fact that just about a week ago FedEx announced it was not renewing its Express Delivery contract with Amazon, obviously taking an awful lot of e-commerce packages out of FedEx’ Express delivery network.  Was this decision by FedEx the result of the fact that Amazon is and has been competing directly with FedEx, (and UPS for that matter), for Express delivery services?  Or was it because the pricing Amazon was paying was well under FedEx’ out of pocket costs that FedEx felt it could no longer hold the pricing line for the Amazon business?  We suspect it is the latter.

Having said that, FedEx is now apparently offering extremely competitive prices for guaranteed two day air service at similar prices it is charging for its Ground delivery services.  What we don’t know however is will these new prices result in higher revenue yields for FedEx compared to the former Amazon pricing; that’s any ones guess.  It is fairly obvious though that when you combine a reduction in demand for specific services a company offers and combine that  with drastically reduced prices for those same services, the result is a recipe for financial disaster.  One other important point here…now is obviously the time for other FedEx Express shippers to request lower prices from FedEx for the services they are utilizing.

So this is obviously a beginning salvo for FedEx; can UPS be far behind!