Deliveries to Japan

International deliveries are among the services impacted by the nuclear power plant crisis in Japan following last week’s earthquakes and tsunami. FedEx has restarted flights to and from Tokyo’s Narita airport and is accepting inbound shipments except for perishable goods. FedEx has also suspended ground deliveries in eastern Japan.

UPS has suspended deliveries in northern, eastern and parts of central Japan due to extensive damage to the transportation infrastructure. It resumed flying to Narita this week after suspending operations immediately after the earthquake.

FedEx is offering relocation assistance to employees and their families in Fukushima prefecture near the quake-damaged nuclear plant. The company has about 12 workers in Fukushima, and they and the FedEx facility in the prefecture are outside the evacuation zone around the stricken facility.

The charitable arm of UPS – the UPS Foundation – has pledged $1m in relief for earthquake and tsunami victims in Japan. The funds will be used for in-kind transportation of emergency supplies, trained humanitarian logistics personnel and financial support. UPS is coordinating with the Red Cross and the Salvation Army to determine needs.

FedEx Announce Expansion of Express Services

FedEx Express announced this week that it is adding new services for customers – notably FedEx First Overnight Freight and FedEx 2Day AM. It will also be making further enhancements to FedEx First Overnight. The aim is to provide customers with faster, time-definite shipping options supported by a money-back guarantee. The new service offerings will be available starting February 28th 2011.

FedEx First Overnight Freight will provide early-morning delivery, with a 9am commitment in most markets, of critical air freight shipments. The service is targeting customers with time-sensitive critical deliveries who have palletized shipments weighing more than 151lbs.

FedEx 2Day AM is a new two-day service that will provide a 10:30am delivery commitment time in most areas of the US. The new service will also be available for return shipments.
There will also be an expansion of FedEx First Overnight to include most dangerous goods types including shipments inbound to the U.S. from Canada, Europe and Latin America. Additionally, the on-call pickup time for FedEx Express will be extended giving customer up to one additional hour at the end of the day to prepare shipments.

Said T. Michael Glenn, president and CEO, FedEx Corporate Services:

““FedEx Express continues to enhance its portfolio, adding new, relevant services to meet customer needs. Customer service is a top priority at FedEx and we are committed to providing an industry-leading suite of shipping options.”

While FedEx remains focused on overnight, for shippers who can’t wait until can’t wait until 9 or 1030 the next day and need same-day delivery, LaserShip offers a cost-effective service. Items large or small can transported across the country in just hours using LaserShip’s extensive world-wide network of expedited couriers and access to thousands of immediate flights daily. As experts in immediate expedited shipping, LaserShip supports just-in-time manufacturing logistics, critical parts replenishment and life science situations which might require an organ, blood, tissue or medical equipment to be in place for a 7am operation or a midnight emergency.

FedEx Ground Building New Distribution Facility in Norcross, GA

Last week FedEx announced plans for building a 215,000 sq. ft. facility on a site in Norcross, GA for their Ground distribution operations. It plans to develop the site into a major Southeastern hub employing several hundred including 240 full-time and part-time employees and 75 independent contractors. The cost of the development is estimated to be in the region of $55m. Preparation of the 52 acre site has begun and construction will begin shortly. The facility, which is scheduled to open in Fall 2012, is designed to process packages/hour with the capacity to dispatch up to 175 delivery vans daily.

The Norcross site was chosen because of its ease of access to major highways, its proximity to customers’ distribution centers and a strong local labor pool from which to recruit employees. Said Robert E. Holcombe, vice president of the southern region for FedEx Ground:

“Enhancing FedEx Ground’s distribution capability in the Southeast is critical to increasing the size, speed and efficiency of our network. This new facility is evidence of the Southeast region’s increased presence in the distribution and logistics business, and the growing confidence of local shippers that we are their best choice for their ground shipping needs.”

FedEx Ground is FedEx’s fastest growing business division. Since 2002, it has added 10 distribution hubs and more than 500 local facilities have been expanded or relocated. These enhancements have improved time to delivery with FedEx Ground now delivering more than 60% of packages in two days or less and more than 80% in three days or less. This year, it plans to continue to expand its nationwide network further in order to grow daily package volume capacity and enhance the speed and service capabilities of its network to meet increasing demand. Average daily volumes have increased by more than 60% from 2003 to over 3.5 million packages per day. In line with other national and regional carriers, FedEx Ground is benefiting from the increase in online retail sales which have risen 36% since 2009 and is set to remain high in 2011 (see previous blogs: Record Ecommerce Sales Push Delivery Volumes and Online Retailing Reaches New Highs).

Industry analysts are also speculating that FedEx may be positioning itself to benefit from the expansion of the eastern U.S. ports. The new Atlanta facility would be well placed to handle the increase in volumes of inbound shipping resulting from the expansion of the Port of Savannah to handle the larger container ships traversing the Panama Canal after 2014.

UK Parcel Delivery Service Targets Consumer Convenience

A new parcel delivery service started in the UK this month focused on solving the problem faced by many consumers: how to deal with deliveries when they are not at home. Not everyone lives in a place where parcels can be left – safe from the weather or thieves – and even if shipping to the workplace is possible, carrying packages home may be inconvenient particularly when travelling by public transport.

Collect+ claim to have a solution to this problem by allowing deliveries to be collected from over 3,500 local convenience stores and pubs UK wide. Unlike post offices, local convenience stores are typically open seven days a week from early morning to late at night, so customers will be able to manage their deliveries at a time and on a day that is convenient for them.

Consumers and small businesses will also be able to send parcels through the same network of stores. Sending a parcel will require users to place a delivery order online, pay by credit card or PayPal, print out a shipping label and then drop-off the package at the nearest PayPoint affiliated store.

Not only are Collect+ offering a more convenient method of drop-off and delivery, they are also pricing parcel deliveries at significantly lower cost than the UK’s Royal Mail. Parcels up to 5kg (11lbs) in weight will cost £4.99 (approx. $8) and between 5-10kg (11-22lbs) will cost £6.99 (approx.$11.2): prices which are around 45% lower than the Royal Mail.

Collect+ is a joint venture between Yodel, formerly Home Delivery Network, and PayPoint, a retail network for convenient local payment of household bills and mobile top-ups. Collect+ has been in operation since February 2009 facilitating returns from consumers to online and catalog retailers. Parcels are moved by Home Delivery Network, one of the UK’s largest courier networks, delivering over 100m parcels a year.

Mark Lewis, chief executive of Collect+, said:

“Customers tell us that it is inconvenient to drop their parcels off during the working day and that they want a more convenient option. Today’s launch extends that convenience to personal deliveries, allowing us to offer a simple parcel send alternative matched to modern lifestyles.”

In response to the Collect+ expansion, a spokesman from the Royal Mail said:

“Royal Mail is continually looking at ways in which we can invest in new services to give our customers even greater control over the delivery of items. As well as extending the opening hours of around 600 of our busiest delivery offices until 8pm on a Wednesday, Royal Mail has launched a trial of evening deliveries in the M25 area to give consumers even greater choice over the delivery of their items.”

Losses Grow at USPS

On Wednesday, the United States Postal service reported a $329m loss in the first quarter of federal fiscal year 2011. This compares with a loss of $297m in Q1 2010. Revenue fell 3.3% to $15.3bn. Net income was $226m in the quarter, excluding costs related to retiree benefits and adjustments to workers’ compensation liability. USPS lost $456m in fiscal year 2010 but would have netted $109m if not for healthcare funding and worker’s compensation liability.

USPS said that improving economic conditions suggest that the worst of the recession related decline might be over but mail volume has failed to improve significantly, rising only 1.5% in the quarter from 45.7bn pieces to 46.4bn pieces. Total mail volume remains below the 2006 peak. Cheaper bulk mail, rose by 9% in volume whereas first class mail, USPS’s most profitable service fell by 6%. Said a Postal Service spokesperson: “It takes the addition of three pieces of bulk mail to make up for the loss of one first-class letter.”

USPS continues to take steps to try to improve its profitability. Working hours were reduced in Q1 2011 by 6.4m hours resulting in a reduction of approximately 3,600 full-time equivalent employees. The number of full-time employees was down at year end by just under 1%. However, the major problem facing USPS is its obligation to fund future retiree health benefit premiums. It currently has a statutory obligation to pay around $5.5bn per year into this fund but is unable to meet this requirement from operations and has used up all its retained earnings and line of credit. Without changes made to applicable laws, it is likely to become insolvent within the next twelve months.

Said Postmaster General Patrick R. Donahoe:

“The Postal Service continues to seek changes in the law to enable a more flexible and sustainable business model. We are eager to work with Congress and the administration to resolve these issues prior to the end of the fiscal year.”

UPS Q4 Profits Jump 48%

Fourth Quarter profits at United Parcel Service Inc. leapt 48% in line with increases in revenue and margins. This week UPS reported a profit of $1.12bn up from $757m last year with revenues rising 8.4% to $13.42bn.

UPS said that they are seeing a rebound in package delivery volume as the economy improves. During the peak holiday season, UPS said it handled 440m packages compared with its forecasted 430m, led by strong demand from online retailers. Over the last quarter, average daily volumes increased about 2.3% world-wide and 1.7% within the U.S. Exports out of China, which include a wide range of goods from toys to electronics, rose more than 30 percent.

Said Chairman and Chief Executive Scott Davis: “Overall, on the global economy, we’re pretty optimistic for 2011,” adding “here in the U.S., increased consumer confidence, combined with slightly better employment picture, produced strong retail sales spurred by double-digit e-commerce growth.”

China Set to be the Focus for FedEx and UPS in 2011

For both FedEx and UPS, top of their strategic agenda in 2011 is expansion into China. China represents enormous expansion possibilities for both carriers. The current market size for import/export express carriers is estimated at $2.5bn. DHL accounts for one-third of sales with FedEx and UPS combined accounting for another third. While both FedEx and UPS have been expanding the import/export side of their business with China, growth within the domestic Chinese market has become a major strategic objective for the coming year.

The domestic market for express carriers is estimated to be in the region of $2bn-$5bn and growing (see: Delivery Services in China Grow with Surge in Online Retailing) but there are no figures available for the breakdown by carrier. The major share of domestic deliveries, however, rests with local companies and in particular China’s State Post Bureau which handles all domestic mail and most express packages. Other Chinese carriers involved in the domestic market include state-backed firms such as Sinotrans & CSC Holdings Co. as well as thousands of regional and local carriers. Of the non-Chinese carriers, it is probable that DHL has a larger share of the domestic market than UPS or FedEx based on the scale of their facilities in China and the number of employees located there. All three are poised to take advantage of Chinese regulators’ moves to license more foreign companies to carry out delivery services.

Despite the number of players in the domestic market, express delivery costs are higher in China than in the US, creating an opportunity for UPS and FedEx. Both are seeking to expand their domestic presence through alliances with local companies. In 2007, FedEx took over a joint venture with Chinese firm DTW which had licenses to deliver within China. UPS currently only has permission for deliveries between major cities but its stated goal is to build a local network either organically or with some acquisitions.

Earlier this month, FedEx announced it was starting direct cargo flights between Guangzhou in Southern China and the Indian cities of Mumbai and New Delhi to meet growing demand for express deliveries of good such as electronics, pharmaceuticals and clothing. This comes on top of last year’s route expansions including Hong Kong to Indianapolis (see: FedEx Investing in New Aircraft )

Overseas markets are critical to both companies. FedEx took in an average of $54.54 per international priority package in the quarter ended in November 2010, compared with $15.19 for parcels in the U.S. During that period, the volume of international priority shipments rose 11% compared with 3% in the US. Comparable figures for UPS are $35.76 per international package versus $8.95 for domestic deliveries and international growth of 13% compared with 3.6% in the US.

USPS Downsizes Executive Team

The United States Postal Service has announced that it will cut senior executive level jobs by 16% – from 44 to 37- and take steps to “flatten” its organizational structure. While the moves will produce some cost savings, the main objective is enhancing customer service and relationships and at the same time, making the agency more flexible and better able to adapt to market forces and continuing mail volume decline.

As part of the changes, a number of business units were realigned. Customer relations will be handled by the VP Consumer and Industry Affairs. The VP Domestic Products will be responsible for developing new, competitive products while the sale of those products will be managed by the VP of Channel Access.

In addition to the reduction in the executive team, USPS announced it would be closing the Southeast Area Office in Memphis which has119 employees. The number of job losses has not yet been determined as some of the employees may move to other positions within USPS.

In 2010, USPS saw a net loss of $8.5bn, with losses of $456m in November 2010 alone. These are the first major changes brought in by Patrick Donahoe, the new Postmaster General. Last year, Potter announced a 10-year plan to restore financial stability at USPS, including a $750m cut in administrative costs, proposed price increases and a move to 5-day home delivery.

FedEx and UPS under DOJ Investigation

Back in October, we reported on a lawsuit filed by Oregon based, shipping consultants AFMS. AFMS’s lawsuit claimed that FedEx and UPS had conspired to monopolize the package delivery business, refusing to deal with consultants and intimidating customers who used third parties. AFMS, said it had suffered damages of more than $20m as a result of the carriers’ actions. In a new development, it appears that the US Department of Justice have initiated their own investigation into possible antitrust violations in treatment of third-party consultants by UPS and FedEx.

“We are going to cooperate fully with their inquiry,” Susan Rosenberg, a spokeswoman for UPS, said, adding, “We defend our right to decline to work with third-party negotiators if we believe it is in the best interest of customers.” Maury Lane, a spokesperson for FedEx said: “We’re aware that the plaintiff’s attorney has asked the justice department to look into this issue.” The Justice Department, as its practice, declined to comment.

Third-party shipping consultants are used by companies to help them navigate through the complexity of rates and services offered by FedEx and UPS to find the most cost-effective solutions to their delivery needs. LaserShip, for example, assists its customers evaluate and renegotiate rates with Fedex and UPS to provide overnight services that are complementary and extend LaserShip’s own delivery network. A study by Morgan Stanley showed that 11% of all shippers use a consultant and that 49% of those using consultants obtained discounts ranging from 15%-30%.

AFMS whose customers include Sony and Guess, found that from 2007 to 2009, its customers saved more than $100 million in on their FedEx and UPS shipments. “The use of consultant-generated discounts has reinvigorated price competition between UPS and FedEx, which otherwise was at a reduced level,” said their lawsuit.

UPS and FedEx have filed motions to dismiss the lawsuit, which will be heard this month. In their responses, lawyers for the carriers argued they continued to deal with consultants, that it was, by definition, impossible for two carriers to monopolize an industry and that AFMS had presented no evidence of collusion.

FedEx Raises Ground Shipping Rates by 4.9%

FedEx is raising rates for ground shipping and home delivery by an average of 4.9%. FedEx also announced changes in rates for its SmartPost service but has yet to provide details. The new rates will take effect on Jan 3^rd 2011

According to FedEx, the FedEx Ground and FedEx Home Delivery full average rate increase of 5.9% will be partially offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel surcharge by one percentage point.

In September, FedEx announced  it would raise rates for its FedEx Express package by 3.9% and freight delivery services by 6.9% on Jan. 3^rd 2011 and that FedEx Express and FedEx Ground will implement a change to the dimensional weight volumetric divisor from 194 to 166 for U.S. domestic services.

FedEx has been feeling the effects of an uneven global economic recovery. While international shipments have been growing (see previous blogs) and making a significant contribution to overall profitability, slow economic recovery in the U.S. has caused the company to cut 1,700 jobs in its U.S. freight business.

The company is now ramping up for the holidays, when it expects to move nearly 16 million packages on the busiest day, about 11 percent higher than last year. Company officials have said they expect a solid holiday season but that predicting business trends into next year would be difficult.