Consultant Insight: November Memphis and Louisville data tell FedEx and UPS stories

FedEx and UPS touted their capabilities and preparedness for one of the shortest holiday seasons in recent years. Despite the confidence, there were some last-mile delivery hiccups along the way, including delays from higher than expected volumes during the Thanksgiving weekend through Cyber Monday, as well as weather-related delays.

In addition, all eyes were on FedEx’s performance during its first holiday season without Amazon as a Ground or Express customer. Unfortunately, bad news came out the week before Christmas, when Amazon announced that sellers on its site would not be permitted to use FedEx for deliveries to Amazon Prime customers until further notice. Sellers were blindsided by the news as Amazon cited concern about FedEx’s “delivery performance” and quality control, regarding package delivery during the high-volume holiday season.

Analysis from digital brokerage firm Convey on 2.5 billion shipping events on parcel shipments seems to support the delivery-performance concern. According to Convey, FedEx on-time delivery performance dropped to 68.3% from 77.5% during the same period in 2018. However, the same analysis also showed UPS’ on-time stats were also down, from 86% to 80%.

Amazon has since lifted its ban on FedEx Ground and Home shipping services. Marketplace sellers are now able to choose from FedEx, Amazon’s own shipping platform and UPS, as of Jan. 14, according to a notice from Amazon.

How well did FedEx Express and UPS Air do? We now have volume data from the providers’ major U.S. hubs, Memphis (MEM) and Louisville (SDF) respectively, through November that shows how the holiday season began. For FedEx, November domestic volumes in pounds were down 6.7% versus November 2018. Year-to-date domestic volumes at the Memphis hub were down 3.6%. The loss of Amazon as a customer is likely playing a role in the volume decline, but the fact that FedEx is in the midst of a $1.5 billion upgrade of the hub is a contributing factor.

While some volumes may have shifted to other FedEx locations throughout the U.S. during the hub work, this is difficult to determine. A look at FedEx’s second-largest U.S. hub, Indianapolis (IND), shows year-to-date FedEx volumes through October were down 3.8%, while October volumes were virtually flat compared with October 2018.

Meanwhile, UPS Air started the holiday season strong, reporting SDF domestic parcel volumes up 6.2% from November 2018. Year to date through November, domestic parcel volumes, measured in pounds, were up 11.7% year over year.

UPS completed upgrades to its Centennial Ground Operations Hub in Louisville earlier in 2019, and noted that package-sorting capacity roughly doubled to 85,000 packages per hour, or about 1,400 packages per minute. However, it is likely that increased business from Amazon was the primary reason UPS Air enjoyed impressive volume gains in 2019.

A look at YoY monthly volumes for 2019 reveals that, January through March, UPS Air parcel volumes declined by 3.3%, 4.1% and 4.4%, respectively, for each month. Beginning in April, when it appears Amazon first started shifting volumes to UPS, volumes increased by double digits, reaching a peak of 35% in July, and immediately following the expiration of the FedEx contract with Amazon, which was effective June 30. The November volume gain was the smallest gain to date in 2019.

December volumes likely followed a similar pattern for FedEx and UPS. For the full year of 2019, FedEx will probably report a decline in domestic volumes, while UPS will report positive domestic parcel volumes.

Looking ahead to the rest of 2020, FedEx will work on right-sizing its fleet to match lower domestic and international volumes. But UPS, which seems to enjoy its relationship with Amazon, will continue to increase its fleet. Volumes are certainly great, but profits are even better — managing capacity is key.