FedEx Freight has launched a pilot program for last-mile delivery services using branded 20-foot-long flat trucks with lift-gate capabilities for shipping heavy goods ordered online, the less-than-truckload unit of transport and logistics giant FedEx Corp. (NYSE:FDX) confirmed today.
The program is being piloted in the Dallas/Fort Worth market, and may be expanded to four additional markets in the first quarter of 2019, according to a source familiar with the unit’s plans. FedEx Freight had experimented with different types of equipment, but appears to have hit upon the 20-foot straight trucks. It also decided to operate with in-house drivers and branded equipment rather than outsource the work to independent contractors. The latter approach has been used by XPO Logistics, Inc., (NYSE:XPO) considered the leader in the U.S. last-mile delivery market for heavy goods ordered online. Heavy goods are defined as shipments weighing more than 150 pounds and that can have unconventional dimensions.
FedEx Freight has offered last, or “final-mile,” residential deliveries for some time. However, it has done so only on an ad hoc basis, and has done little to market or promote it. If successful, the pilot would be the first step in what could be a deeper commitment to the fast-growing segment in terms of equipment, staff, capital, and the Memphis-based parent’s vaunted marketing and advertising prowess.
If the program is expanded, it would put FedEx Freight, the nation’s largest LTL carrier by revenue, in direct competition with Greenwich, Conn.-based XPO, which burst onto the last-mile scene in 2013 when it acquired delivery firm 3PD for $367 million. XPO is the third-largest LTL carrier by revenue, a position it gained in large part through its $3 billion acquisition in 2015 of Con-way Inc., whose portfolio included LTL carrier Con-way Freight.
Since the 3PD acquisition, XPO has opened 85 U.S. last-mile hubs, which the company said puts its network within 90 percent of the population. Drivers have been trained to interact with consumers at the residence, bring goods to a designated room or rooms, install the product if necessary, and remove the old item. Mastering those interpersonal skills may be challenging for LTL and truckload drivers alike because they are accustomed to bumping docks and having little contact with end users. Carriers eager to enter the final-mile segment either will need to train drivers in the nuances of home delivery or outsource the delivery operations to a third party.b
Since e-commerce demand caught fire 5 or 6 years ago, order flows have been dominated by parcels weighing less than 70 pounds that are easily conveyable and can fit in delivery vans without dramatically cubing out the trailer space. However, demand for heavy goods deliveries has accelerated as retailers put more of their stock-keeping units, or SKU, available for online purchases.
Deliveries of heavy goods ordered online grew by 10.5 percent from 2017 to 2018, following 9.4 percent growth from 2016 to 2017, according to SJ Consulting, a consultancy. Growth has compounded by 9 percent a year since 2012, and last-mile heavy-goods deliveries are now roughly an $8.94 billion a year business, according to the firm’s data.
In the results of an October survey released yesterday, 37 percent of U.S. consumers polled said they plan to make an online purchase of "big and bulky products” weighing more than 150 pounds in the next 12 months. The study was conducted by independent research firm Goodmind and was commissioned by XPO.
The increase in heavy goods fulfillment has become a pain point of sorts for traditional parcel providers because much of that merchandise is not conveyable and requires special processing and deliveries. It has also attracted the interest of truckload and LTL carriers who see a chance to incorporate last-mile services into their existing networks.
FedEx has imposed peak season surcharges on certain heavy, outsize shipments to offset the increased costs of handling them. Industry watchers believe that FedEx and rival UPS Inc. (NYSE:UPS) would rather not handle such items because of their handling challenges and because they occupy a disproportionate amount of space aboard their trailers.