Why the Latest FedEx Announcement Is More Than Just a Rebrand

 In Industry News

Change Signals Further Divergence of Its Operating Model from UPS’, and New Positioning Against Amazon

FedEx’s announcement that it has rebranded its mail-integration service SmartPost to FedEx Ground Economy is more than just a name change. It represents an important milestone in the evolution of not only that specific product, but also a big part of the company’s overall operating approach.

UPS, meanwhile, hasn’t given any indication it wants to move away from its own reliance on the USPS as the final-mile delivery provider with its SurePost service. This divergence would not be the only major one between the two major parcel carriers. FedEx has always been different from UPS in other ways too, such as the physical separation of its ground and air delivery networks and portions of its workforce not being unionized.

The rebrand itself is not a surprise in any sense. FedEx has said for several years that it planned to divert its postal business into its own delivery network. The impact of the COVID-19 pandemic on parcel deliveries meant it took a little more time, but here we are.

Mail-integrators Explained:

Here’s a quick primer on what FedEx SmartPost (now FedEx Economy Ground) and UPS SurePost are, and what each has to do with the USPS. Both small parcel carriers are well-known for their ability to consistently make fast Express and Ground deliveries, but historically each company’s “strength” was delivering packages to commercial addresses. Business-to-consumer deliveries are harder and more expensive for the two carriers, so to an extent they’ve avoided them in the past. To address the high cost of delivery, both carriers made agreements with the USPS, which is very well suited from an operational perspective to make B2C deliveries cost effectively, albeit with less tracking and consistency of service.

So, in the past, FedEx and UPS trucks would pick up the packages from the shippers, sort them, and then hand them off to the USPS for final delivery to residential addresses, because that is what the USPS is good at and could do more cheaply. The shippers (and their customers) in most cases benefit from much lower rates at the cost of slightly slower delivery times.

Is the Timing Good or Bad?

What’s interesting is that this change by FedEx has been planned for years and is all the more timely given the struggles the USPS has dealt with over the past year. The explosion of an already fast-growing ecommerce segment is something FedEx was already working hard to manage. And now Amazon has firmly established its ability to provide B2C delivery services on a par with FedEx, UPS, and the USPS.

So, in a sense, FedEx is now “all in” on ecommerce and is committed to managing this vital part of its business on its own — unsupported by the USPS and in the face of growing competition from Amazon.

What Should Shippers Make of This?

As with any change when it comes to the rates and service small parcel carriers provide, this one presents opportunity for shippers. One of the fundamental truths of creating the most efficient delivery operation is that scale matters. This means that FedEx desperately needs to put more volume into its residential package network to grow that scale. One way to look at it is that the company needs to scale somewhere closer to the magnitude of the USPS to get where it needs to be cost-wise.

The good news, if we’re honest, is that all things being equal, most shippers like the idea of FedEx making the last mile delivery over the USPS from a tracking and reliability perspective. This offers an advantage to FedEx over UPS SurePost. Less known is the eventual service advantage or disadvantage of how FedEx Ground Economy will compare to the service provided by Amazon if the company begins making third-party deliveries.

Also relevant is how both UPS and FedEx seem to be dragging their feet on reinstating their service guarantees, which were suspended at the start of the pandemic. Lacking a service guarantee and more time-definite delivery, FedEx Ground Economy and UPS SurePost have additional appeal for shippers.

Back to the opportunity. The present situation with FedEx’s rebrand is something all shippers with significant B2C volume should be looking at closely. FedEx is extra hungry for more residential volume, UPS is looking to protect volume in what it knows is the fastest growing segment of its business, and BOTH are nervous about what Amazon is doing.

In other words, the timing is perfect to revisit your carrier service level agreements. With the GRIs digested by the market and (hopefully) a more normal remainder of 2021 in store, the timing is right to secure lower rates.

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