FedEx Looks To Woo Merchants With Low Air Freight Prices

As FedEx is nearing the end of its contract with Amazon, it is gearing up to raise the level of its competitive game by offering big discounts to pack its planes full.  The delivery and logistics giant is looking to reset its delivery network, which has fallen behind in the era of eCommerce, according to reports in The Wall Street Journal.

The price cuts will come for members of FedEx’s Express network, according to people familiar with the matter.  Customers will get guaranteed two-day air service for the same price as shipping items through its Ground division.  The move competes with Amazon to be sure — but also with rival United Parcel Service Inc. (UPS) — to motivate customers to  switch from what has usually been a lower-price shipping option in FedEx Ground.  FedEx Air was created to move things  like legal documents and medical supplies over long distances quickly.

The move comes as online shopping is projected to double the number of packages shipped in the U.S. to 100 million a day by 2026. FedEx itself does not acknowledge much of a change — a spokesperson told the WSJ that the firm has not changed its pricing strategy and that two-day Express service “has been very successful and continues to deliver tremendous value to small and medium businesses competing in the eCommerce market.”

And it is not the only firm making changes; a UPS spokesman said the company “competes aggressively to win and retain business” by providing a range of solutions. UPS is also in the midst of a network reset to catch more of the online shopping wave.

But FedEX has challenges, namely that its speedy air network wasn’t meant for eCommerce deliveries.  It was meant for goods that need to be there by 8 am or 10:30 AM.  Generally speaking, eCommerce orders are day-specific, not hour specific.  Digital commerce has also relocated distribution centers much closer to where people live, reducing the need for quick, cross-country flights to meet delivery commitments.  To adapt, FedEx is working with a service called Extra Hours, by which drivers do a sweep of AutoZone Inc., Best Buy Inc., Target Corp. and other stores late at night to pick up online orders bound for nearby homes.

Once packages are gathered, they go to a FedEx hub and are sorted with the material flown in by jet.  They all go out together on vans for delivery the next day.