FedEx Corp.

FDX 2.13%

said it would increase capital spending by 22% this year to add capacity to its network, after an increase in e-commerce plans caused delays in ground delivery and left some freight customers without service .

The packaging giant plans to spend $ 7.2 billion in the fiscal year that began in June to accelerate capacity expansion, modernize its fleet and facilities and increase the use of automation. It has spent approximately $ 5.9 billion on capital assets in each of the past two fiscal years.

The Covid-19 pandemic has triggered a surge in e-commerce orders that has strained shipping lines of all kinds, but FedEx has fallen behind rivals in keeping deliveries on time this year. Executives said the difficulty in finding enough workers added to his struggles.

“The job market in the United States over the past few months has been quite difficult, negatively affecting hiring and leading to a significant reengineering of parts of our networks to deal with the lack of these resources,” said the director. General Fred Smith at a conference. call Thursday. FedEx said package handlers were particularly difficult to hire, resulting in higher wages and inefficiency as it depended on overtime to fill the void.

The Memphis-based company said it will focus on improving its network over the summer to prepare for peak boating season at the end of the year.

Earlier this month, FedEx suspended about 1,400 customers from its freight forwarding service, a move that surprised customers and aimed to alleviate a congested network taxed by relentless package volume. FedEx resumed service to some customers this week.

A spokeswoman for FedEx said the cuts in freight services were “designed to minimize network disruption and balance our capacity and demand to avoid backlogs across the country, especially at the most important freight service centers. more limited in capacity “.

Colorado-based Diversified Innovative Products Co., a family-owned manufacturer of disposable printing press ink trays, had an order backing at their loading dock for a FedEx pickup that never happened.

“No correspondence was sent and we were notified on the day the shipment ceased via a phone call from our representative,” said Theron Johnson, president of the company. He has used FedEx for 30 years and made $ 304,000 in business with the shipping company in 2020, he said.

Finding an alternative has proven difficult and Diversified Innovative Products has prepared to lose up to 5% of its annual sales, Mr Johnson said. FedEx informed him on Tuesday that the company may resume shipments. In the end, the ordeal “just threw us into panic mode and delayed an expedition,” he said.

FedEx’s move “was a temporary step that provided needed volume relief and allowed us to start bringing some of the volume back in a controlled fashion,” the FedEx spokesperson said.

Shippers have cut customers off during peak periods in the past. In December, United Parcel Service Inc.

imposed shipping restrictions on some large retailers such as Gap Inc.

and Nike Inc.

due to the busy holiday shopping season.

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In addition to customer disposal, FedEx charges a $ 30 per shipment charge on FedEx Freight deliveries to certain postal codes after July 5. The Sacramento, California, Seattle and Miami areas, as well as parts of New Jersey and Long Island, NY. The FedEx spokeswoman said the surcharge and service reductions address “capacity constraints in specific geographies and across our network.”

FedEx in 2019 stopped handling ground deliveries for Amazon.com Inc.,

one of the biggest e-commerce shippers. The pandemic-fueled outbreak coincided with FedEx’s internal efforts to embrace more e-commerce deliveries as growth stalled in its larger and more profitable business-to-business shipment delivery business. It added sorting facilities for its ground operation, which handles the bulk of its e-commerce deliveries, and started delivering on Sundays last year.

FedEx processed 783 million ground parcels for the quarter ended May 31, up from 819 million from the holiday quarter, but up from 574 million from the quarter ended May 2019. Overall, it has reported quarterly profit of $ 1.87 billion on a 30% increase in revenue to $ 22.6 billion.

How will the pandemic affect U.S. retailers? As states across the country struggle to resume operations, the WSJ is investigating the changing retail landscape and how consumers might shop in a post-pandemic world.

FedEx has changed the long-standing roles of its individual shipping services. It now delivers packages that it dropped off at local post offices and has moved some of its Express service deliveries to its ground service where possible. Meanwhile, the Freight department began processing overland shipments in May 2020, delivering around 1.8 million shipments by the end of February.

Persistent delays have led some customers to turn to other shippers to fill orders. FedEx deliveries were 71% on time in May, unchanged from the previous month, according to delivery tracking software company Convey. This compares to 89% at UPS. The gap with UPS has widened since February, according to data from Convey. That month, many parts of the country suffered a deep freeze, including the FedEx hub in Memphis, Tenn., Causing weeks of significant delays.

FedEx said it disagreed with Convey’s numbers and maintained that its data was not historically aligned with the sender’s internal numbers. Convey says FedEx has maintained a 36% market share for more than three months, compared to 28% for UPS.

FedEx’s Freight division offers LTL services, in which cargoes from multiple shippers are combined into a single trailer. FedEx’s Freight division had revenue of $ 7.8 billion in fiscal 2021, compared to FedEx’s total revenue of around $ 84 billion.

UPS’s own freight division had revenue of around $ 3.15 billion in 2020, before the company sold it for $ 800 million. UPS CEO Carol Tomé recently hailed the divestiture as “the elimination of a low-margin, capital-intensive business.”

Write to Thomas Gryta at [email protected]

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