The $1.4 billion acquisition of US third-party logistics (3PL) services provider GENCO earlier this year has added to FedEx's capability in helping e-commerce customers organise their supply chains, CEO Fred Smith has underlined.
Speaking at a conference call following the publication of the company's Q2 results, he said: "A big part of e-commerce is handling returns so, some years ago, as we saw the market evolving, we decided it would be a very good thing for us to have a supply chain capability to offer a broader portfolio of value-added services to our e-commerce customers because this was a huge part of the market place.
"It wasn't just planning how to get it (merchandise) to the end-customer but how to efficiently process the returns of merchandise. And quite frankly, through a serendipitous chain of events, we were led to this great company, GENCO," he explained.
"We think there are enormous synergies there (with GENCO) and couldn't be more pleased with GENCO being part of the FedEx portfolio. We think it will enhance our competitive position and problem-solving ability for our e-commerce customers."
Executive Vice President, Market Development and Corporate Communications, Mike Glenn, said FedEx's sales team has a solutions organisation that "works hand in glove" with large e-commerce customers to help optimise their supply chains.
"That includes everything from types of information management solutions to location and distribution facilities and selection of services – all designed to drive value for these companies.
"We are well engrained and embedded with our largest customers and work with them hand in glove throughout the year to prepare for peak season and for operations 12 months of the year," he added.
Glenn went on to describe GENCO as "a significant addition" to FedEx's portfolio. The company processes more than 600 million returned items annually through a network of 130 warehouses throughout North America for a wide range of customers in the technology, consumer and industrial, retail and healthcare markets.
"They have world-class solutions in the returns segment. Returns is a particularly big part of any e-commerce value proposition because they tend to be double-digits whereas a traditional brick and mortar retailer is in the mid to lower digits for returns. We are well down their (GENCO's) track of integration and see a lot of benefit going forward."
Asked about the reports of Amazon creating its own transportation network, Glenn replied: "It depends what you mean by a network. Virtually every major retailer in the United States today has a dedicated line-haul operation to move inventory between distributions centres and stores and Amazon is certainly no different in that regard.
"Amazon is a very large FedEx customer and we work closely with them to optimise delivery needs and create new solutions to support their future growth."
However, he said it was important to note that FedEx "is a highly-integrated global transportation network, in fact one of only two operating at a significant scale in the United States and only one of three delivery networks in the US the other two being UPS and the US national postal service.
"And that's not likely to change in the foreseeable future. The networks are very capital-intensive and information-intensive."
Glenn commented that FedEx's network was "a lynchpin in the e-commerce market and customers rely on us to support their growth”, adding: "So we feel quite comfortable where we're situated today."
Continuing the e-commerce theme, Fred Smith said "a couple of developments" were worth flagging. "First, oversize packages are increasing and secondly, a number of e-commerce shippers continue to use extremely inefficient high-cube, low-density packaging."
Asked whether in the event of e-commerce customers not changing their behaviour on packaging, FedEx would lean more on pricing, Smith replied: "The answer to that is yes (on pricing) and of course we've already done some of that and we've announced more. That's where dimensional pricing came from. We were getting lots of packages that were one or two cubic feet and inside was a 6 ounce stuffed toy and that comes from the way e-commerce is processed. These large or perhaps not so large fulfilment centres are using a lot of effort, particularly during the holiday season, to speed up order fulfilment and they put things in boxes.
"It's quite different to Procter & Gamble packing toothpaste in the most efficient and dense way in order to minimise transport costs. So the reason this continues quite frankly and the lack of effort on the part of the e-tailers, is that the postal service does not have dimensional pricing.
"Over time, all markets are rational and it does not make a lot of sense for an e-tailer or transportation company or delivery company, in the case of the postal service, to pay money to deliver air. So I think pricing will rationalise it."
Smith bemoaned the fact that there had not been across-the board approval for the introduction of 33 foot-long double trailers on US roads (they are currently only permitted in 18 states) arguing that this would have gone some way to facilitating the growing capacity requirements for e-commerce shipments.
"It's just a terrible shame that the 33 footers were not approved. They give about 18% more cube (than the standard-size 28-footer twin trailer). It was a great opportunity to have a win-win-win solution in terms of national productivity for e-commerce, a reduction in fuel and environmental emissions and that would have mitigated the inefficient cube developments we've been talking about.
"The forces that opposed it (the 33-footer) were frankly not well-informed on the issue and hopefully the Department of Transportation will move smartly to correct this," he said.
Asked how FedEx managed the unpredictability of online sales and its impact on the company's planning predictions, Smith said: "Within our sales group we have a wonderful solutions organisation. So for our good customers, who work with us on a partnership basis, we can do an excellent job of anticipating what their needs are and provide the equipment at the right place and the sortation equipment.
"The people who have real problems in the e-commerce business are by and large those who view the transportation companies as some sort of utility or vendor and they make some really, really bad decisions. I mean we've just watched in amazement as several of them dig themselves into a hole.
"But our good customers….we work very closely with them. But despite all of the best efforts, sometimes they grow faster (than anticipated) or grow in different places with their customers, one example this peak season being the north-east US, where demand was just extraordinary."
However, he said FedEx Ground's "unique" network had been up to the task. "Our hubs are essentially automated and what that means is that if we are over-volumed say, in our New Jersey hub, we can divert that traffic to other neighbouring hubs."
Smith added: "A lot of our mid-size customers are figuring out what the e-commerce business means and they are doing some very smart and creative things. And in part that's why the market is growing to the extent that it is."
FedEx has geared up to move an expected record-breaking 317 million shipments globally between Black Friday (November 27) and Christmas Eve (December 24) – a 12.4% increase compared to 2014. This includes more cross-border e-ecommerce shipments in Europe.
"With an increasingly strong European presence, including a fleet of more than 3,000 vehicles, 39 aircraft and 327 FedEx stations located across Europe, FedEx is well positioned to handle the large volume of shipments expected to come throughout the region as the rise in e-commerce and changes in consumer purchasing behaviour continues to drive volumes," the company said in a statement yesterday.
It quoted figures from E-commerce Europe, which revealed that 15% of all individuals in the EU purchased goods and/or services through the internet from sellers outside their country of residence – an increase of 25% compared to the year before.
“We are delighted that both retailers and private consumers increasingly put their trust in FedEx at such a crucial time of year to ensure a successful holiday period,” said Alain Chaillé, the company’s Vice President Operations for Southern Europe.
“Increases in shipment volumes year-on-year is a direct indication that our significant pre-planning, additional seasonal workers, product offering and team member commitment is appreciated by our customers.
“We take several measures throughout the year both globally and across Europe to prepare for this busy peak season to ensure it is hassle-free for retailers and shoppers,” Chaille added.
“In addition to investing in our network and product offering, we maintain close collaboration with our customers to understand their needs and forecast for anticipated volumes.”
