Shopping is easier than ever. With a simple mouse click or finger tap, consumers can purchase just about anything from just about anywhere and have it delivered in only a few days. This convenience has powered sustained growth in the e-commerce sector, which increased 15% in 2019 alone, according to Digital Commerce 360. However, as sales grow, so do the demands on last-mile carriers.
Over the past several months, FedEx has instituted two important changes to help the company’s independent service providers (ISPs) leverage the growing e-commerce market. I’ve seen firsthand how these new initiatives affect route owners and how they may change the business going forward.
Year-Round, Seven-Day Delivery
In May 2019, FedEx announced that it would soon offer seven-day delivery service year-round in most parts of the country. This change comes in response to a sharp uptick in average daily small package deliveries that FedEx expects will double by 2026. When the service went live in January 2020, it immediately transformed the way many ISPs operate their delivery businesses.
For example, one of my clients who owns FedEx delivery routes in three states hired five new full-time employees and switched his drivers to a four-day workweek. At this point, Sunday delivery volume is roughly 60% of what the typical weekday volume would be, which my client estimates has added $1,400 or $1,500 to his weekly revenue. However, he’s decided to give most of that extra money to his employees, by upping Sunday per-package delivery rates. In the end, my client breaks even on Sundays. Still, the additional delivery day offers him more staffing flexibility, which he believes improves employee satisfaction and retention.
The change isn’t without its downsides, however. Where my client previously had a full day off, he’s now engaged in his business every single day. But because he’s paying his drivers more on Sundays, my client manages to keep his stress to a minimum.
All-in-all, my client is a proponent of seven-day delivery, but he notes, “the independent service providers who make money on Sunday are doing so with more stress.”
Expansion of SmartPost Deliveries
At the same time as the seven-day delivery announcement, FedEx also revealed it would dramatically increase the number of SmartPost packages delivered by its residential ground service providers. The United States Postal Service currently delivers two million SmartPost packages each day. However, technology advancements now allow FedEx to detect when SmartPost packages could instead be delivered by the FedEx ground network when another package is heading to the same or nearby address. In the months ahead, ISPs will increasingly deliver more SmartPost packages and enjoy substantial revenue growth.
The same client who owns routes in three different states was included in the expanded SmartPost rollout on day one. Because the company’s density delivery program is so effective, these deliveries added 20% to his overall revenue without any additional expense. He’s already using the truck, already paying the employees, and already has the scanner, but now, he’s delivering 24 packages to one apartment complex rather than 10. Plus, SmartPost packages are small, so they don’t take extra time or space to deliver.
As SmartPost continues rolling out across the country, my client expects to see continued growth for every route he owns. For instance, one ZIP Code he oversees averages 720 daily deliveries. When SmartPost is active in that ZIP Code, the program will add another 780 daily packages.
With increased profit margins, my client is contemplating how to use those discretionary funds in ways that weren’t possible before. One option would be to provide health care for his 36 employees. “It will change the business,” my client said. “It will allow owners the opportunity to create a sustainable business that employees can enjoy.”
An Exciting Time for Route Owners
While these changes present a few business challenges, my clients are excited about the delivery growth they’re seeing and what that could mean for their businesses. The future is certainly bright. As e-commerce growth continues, FedEx is well-positioned to meet that demand. In the end, route owners and consumers stand to benefit.
Kyle Rohner is the founder and principal of KR Capital LLC, a consulting firm specializing exclusively in the sale of FedEx ground, home delivery, and linehaul routes.