DC Velocity - Digital 2018

Special Delivery

S atish Jindel, the president of transport consultancy SJ Consulting, had a conversation recently with one of his clients, a large retailer. According to Jindel, the retailer, which spends millions of dollars a year with FedEx Corp., complained that its rep wasn’t keen on handling more of its parcel volumes.

Jindel, whose street cred frees him to administer tough love when deemed
appropriate, told the retailer he wasn’t surprised by the rep’s reaction. “It’s to be
expected when retailers want parcel carriers to deliver to residences at unprofit-
able pricing just because they’ve spoiled consumers with free shipping,” he said
in a phone interview. Retailers, Jindel added, “can’t expect FedEx to subsidize
free shipping. They have to come up with creative ways to recover that cost.”
So far, retailers have been about as creative as a sledgehammer. Caught
between offering a supposedly “free” perk and still having to pay parcel carriers
for their services, retailers have been forcing lower rates down their vendors’

throats. Memphis, Tenn.-based FedEx and its chief rival, Atlanta-based UPS Inc., cannot turn their backs on business-to-consumer (B2C) volumes given their growing relevance (see Exhibit 1). Realizing that e-commerce—and B2C— is the wave of the future, they are reconfiguring their networks to handle the business more cost-effectively. At the same time, however, the giants are sending signals to retailers that they should be prepared to accept compensatory rates or find another carrier.

MANY PACKAGES, NO PROFITS

Frederick W. Smith, FedEx’s founder, chairman, and CEO, spoke bluntly

UPS and FedEx have faced major challenges in B2C shipping, not least of which are shippers who expect something for nothing. Now, they’re sending clear signals that things are about to change.