FedEx Freight, the less-than-truckload arm of FedEx Corp., (NYSE:FDX) will pilot last-mile delivery services in five markets during the first half of its 2019 fiscal year, which runs June 1 to Nov. 30, as a step towards a possible nationwide rollout into the nascent but fast-growing segment of residential and commercial deliveries of large and palletized goods.
The Memphis-based unit, which is currently piloting the program, called “FedEx Freight Direct,” in the Dallas market, will add Atlanta; Tulsa and Oklahoma City, Okla., and Omaha, Neb., to the list next year, according to a copy of an internal memo obtained by FreightWaves. The program will be available as a “standard” product where drivers bring the shipment into the first point of entry of a residence, and as a “premium” product which involves carrying the shipment to the room of choice, unboxing the product and performing light assembly if necessary, according to the memo.
The unit is still tinkering with the equipment it plans to use, according to the memo. Each pilot market will work with a mix of company equipment and third-party vendors to determine what would be the best fit, according to the memo. An earlier report said the company had decided upon 20-foot straight trucks with the lift gate capabilities needed to execute deliveries of on-line orders of heavy goods.
Each market will handle their respective pilots in their own way, and none of the variations may resemble the look of a nationwide rollout, if one occurs, company executives said in the memo. The executives also emphasized that the expansion will take time to form. “We are committed to getting this right,” said Ken Frith, vice president of the unit’s southwest region.
FedEx Freight currently offers last-mile delivery services but only on an ad hoc basis. The pilots are the unit’s first efforts to formalize such a process. In the memo, executives emphasized that this is a ground floor effort and that they will seek much feedback from the field to determine what works and what may not. “We are relying on our operators to blaze the path for the rest of the company,” said Dale Davis, the unit’s vice president, operational innovation
Though still a relatively small part of the overall e-commerce delivery mix, demand for heavy goods e-fulfillment has been rising strongly as retailers make more of their stock-keeping units (SKU) available for online purchases. Heavy goods deliveries, now a $8.94 billion a year market, grew 10.5 percent from 2017 to 2018 after 9.4 percent growth from 2016 to 2017, according to SJ Consulting, a consultancy. Growth in the segment has compounde9 percent a year since 2012, according to the firm’s data.
The last-mile delivery of heavy goods is vastly different from the deliveries of small parcels, which are easily conveyable, can fit in a trailer without quickly cubing it out, and can be delivered by one person. Traditional parcel delivery firms like FedEx and rival UPS Inc. (NYSE:UPS) don’t covet heavy-goods traffic because of the strain it places on their infrastructures. However, as the FedEx Freight pilot indicates, the market is too tempting for the organizations to shy way from.
By contrast, other LTL and truckload carriers are eyeing the last-mile heavy goods market because it aligns more closely with the characteristics of their hauls and networks. The acknowledged market leader is XPO Logistics, Inc., (NYSE:XPO) which operates through a vast network of independent driver contractors. XPO does not handle parcel traffic in any form.