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FedEx is reducing Sunday service. Is 7-day delivery still necessary?

The carrier just made its third moves to scale back Sunday delivery this year amid cost-cutting and a dip in demand.

FedEx is reducing Sunday service. Is 7-day delivery still necessary?

FedEx is starting 2023 with its third cut to Sunday home delivery service in the last year.

The news: According to a memo obtained by Business Insider, FedEx Ground will make further cuts to Sunday residential service in select areas, effective March 19. This follows a move last summer to halt the seventh-day delivery service in primarily rural areas, which accounted for about 15% of its service area, and more cuts in September. The latest move signals FedEx is going deeper.

Where will service end? The locations are not yet finalized, but FedEx indicated it would maintain Sunday service for more than 50% of the U.S. population, with a primary focus on densely populated areas. In particular, it is targeting areas with “proven demand.”

Key quote: “As we continue to adapt and streamline the FedEx global network to meet our customers’ needs in a rapidly shifting landscape, FedEx Ground is making further adjustments to better align our Sunday residential delivery operations with current customer demand,” the company said.

Let's back up. When did FedEx launch Sunday delivery? About four years ago. Originally, the carrier added Sunday delivery during peak season 2019, then extended it to a year-round offering in 2020. It was seen as a competitive advantage over rival UPS, and a bulwark as Amazon expanded its own logistics network. When the pandemic increased ecommerce demand later in 2020, FedEx appeared to be well-positioned.

So why is it cutting back now? There are a trio of factors looming for FedEx:

‘Ecommerce reset.’ That’s what Raj Subramaniam is calling the pullback in demand that the carrier is seeing following the return to in-person activities. On the company’s most recent quarterly earnings call, Subramaniam told analysts that ecommerce has still grown overall since 2019, but is not at the highs of 2020-2021.This is leading to shifts in demand at FedEx.

Cost-cutting: As a result of the demand softening and as a means to reduce inefficiency, FedEx is seeking to cut $3.7 billion in costs this year. Scaling back Sunday service is one way to save money. With two years of data on Sunday delivery now in-hand, FedEx is identifying where the service is getting the most use.

Contractor relations: Sunday delivery was a key issue raised when FedEx Ground contractors pushed for better earnings and treatment amid rising inflation and pressure to make more deliveries. Patton Logistics and Route Consultant founder Spencer Patton called on FedEx to end the service entirely over the summer, according to Supply Chain Dive.

Reset = rethink?

At a time of change, it’s worth considering how delivery is changing as a whole. Here are a couple of areas for brands and retailers to consider:

Precision vs. speed. That’s a key tension point in customer demand we’ve heard among logistics professionals. For a time, the priority was on fast delivery. But now, many customers are prioritizing knowing exactly when a package will arrive, so they can plan for it, Zappos.com Chief Experience Officer Stacey Wagner said at Home Delivery World in September. In The Current’s 2023 predictions roundup, Pitney Bowes Global Ecommerce President Gregg Zegras predicted day definite delivery would be a trend of the year. “The goal of ecommerce sellers should not be to deliver as fast as possible, but to tailor the delivery experience to their customer’s schedule,” Zegras said. In that context, is seven-day service still needed? It's a question worth asking, especially given that many are seeking to preserve margins in the current economic environment.

Time to renegotiate? It remains to be seen how FedEx’s move to scale back Sunday delivery will affect rates. FedEx issued a general rate increase of 6.9% amid inflation. How will it balance scaling back the Sunday service with brands and retailers? Perhaps more importantly, who now has the power?

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