Supply chain news is vital to all of us nowadays. When a product is not on the shelf we don’t blame the store manager anymore, we think about the supply chain. Because of the rapid changes, news media is reporting on supply chain issues and we are experiencing them as well.
As readers of “Freight Freak” know, there is always significant thought that goes into planning for peak season. We came across an article about Amazon reducing its selection of private label products and blogged about that. We also recently saw that Amazon has announced a peak season fee on its fulfillment services for third-party sellers! That’s very big news.
But even bigger is the reporting at Fox Business that FedEx Ground contractors are in enormous financial stress and they are demanding inflation help to prevent delivery collapse.
We took our questions and concerns to the “Freight Freak.” John B. is a fulfillment professional and blogger well versed on the FedEx and UPS operations. The following is his report about what we’re really looking at in the news.
Thank you John B.!
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FedEx has come a long way since the late 90”s looking to build a ground network to add to their air express services. They acquired Roadway Package System in 2000 and branded it as FedEx Ground. However, FedEx in the clever strategy to beat UPS in their ground game decided to create and model in which contractors would own the routes throughout the country. This allowed them to avoid being unionized since they are regulated under the railroad labor act (RLA), while UPS ground service is regulated under National Labor Relations Act (NLRA), which has allowed UPS drivers to form their own teamsters locals across the country.
For years there have been court battles between the two rival companies due to UPS stating that FedEx should also be regulated by the NLRA. It seems obvious that two companies that directly compete in the same business should be governed by the same labor rules. However, the battle continues. An article form MotherJones.com/politics states, “The House passed a bill in March that would bring FedEx under the NLRA. But Sen. Lamar Alexander, a Republican who represents Tennessee, the home state of FedEx CEO and GOP donor Fred Smith, has pledged to kill the measure. And that gets us to what is perhaps the most interesting part of this story: the battle on Capitol Hill between FedEx lobbyists on one side and the Teamsters and UPS lobbyists on the other. This story gets at the heart of how Washington really works. Most legislative battles aren’t fought between disinterested parties looking for a common-sense solution—they’re fought between powerful interest groups with money at stake. FedEx vs. UPS + the Teamsters.”
The initial strategy that FedEx put in place in the early 2000s when they acquired RPS is now becoming the bigger issue. Since the ground network is private contractors, running their own delivery businesses, margins or operating profits have begun to shrink due to the soaring inflation and fuel costs. Since these contractors are not FedEx employees, they do not enjoy the benefits and/or cost of living increases of those that employees are enjoying. They have to try and survive by running their business and still be profitable on the fees paid to them from FedEx.
As FedEx profits soar it’s the ground network that is suffering and looking for a life line. We are already seeing a degradation in the ground delivery service with the ‘time in transit’ stats dropping below 75%, while UPS maintains around 94%. In addition, Sunday deliveries are being suspended in certain areas. This is certainly something to keep a close eye on if it doesn’t get resolved soon, especially as we approach the Peak Holiday Season. Stay Tuned!
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About the Freight Freak: John Bevacqua is the former VP of Logistics at AMS Fulfillment. He currently serves, in semi-retirement, as Logistics Advisor. His area of excellence is in creating distribution and fulfillment operations that function as a capable interface between suppliers, retailers, and wholesale distributors. His experience includes developing and leading FedEx/ Kinko’s Distribution Services into the FedEx post acquisition, USA Wireless Technologies, and a top Logistics Management company. He has also worked with third party fulfillment companies, preparing him for his current position with AMS Fulfillment.