June 30, 2020 / 7:51 PM / 14 days ago

COVID-19 delivery surge strains FedEx service, opening doors for UPS

LOS ANGELES, June 30 (Reuters) - A months-long flood of coronavirus-related e-commerce packages is straining service FedEx Corp, giving rival United Parcel Service Inc an opportunity to steal market share, customers and consultants told Reuters.

While every U.S. package carrier is fighting to manage unexpected demand for home deliveries of bicycles, patio furniture, medicine and food, FedEx entered the pandemic in turnaround mode and is grappling with an inflexible business structure that is contributing to service disruptions in California and Michigan.

FedEx reports quarterly results after the market close on Tuesday.

Reuters could not immediately determine whether it is suffering similar delays in other states.

For two Mondays in a row, FedEx told San Bernardino, California-based Pacific Mountain Logistics it would not make scheduled Ground pickups until Thursday, Chief Executive B.J. Patterson said.

The delay is not limited to FedEx's Ground division that focuses on e-commerce packages. Service at FedEx Express - which caters mostly to business deliveries - also is affected, said Patterson, who has been a FedEx customer for a decade.

In an email viewed by Reuters, a FedEx Services account representative cited a "lack of equipment" and a "backlog" at the delivery company's Rialto, California, hub.

A corporate spokeswoman, who did not elaborate on the reasons for the delays, said FedEx Ground is experiencing holiday "peak-like levels" of residential demand.

"All these guys got caught flat-footed with the volume increase," Patterson said, referring to pandemic package surges at U.S. delivery firms.

"I get it. But to not be able to handle it for almost a week, that's a little insane," said Patterson, who is moving some shipments to UPS.

The volume surge also is causing "significant" FedEx Ground delays in parts of Michigan, according company service alerts. Cathy Morrow Roberson, founder of consulting services at Logistics Trends & Insights, said it appears to have started in late May.

WDIV-TV reported that FedEx was addressing Detroit-area delays by hiring package handlers and drivers, and diverting packages from its Oak Park facility.

The pandemic is blurring the lines between FedEx's distinct Ground and Express businesses. It is also heaping additional operational challenges on company executives, who already were wrestling with last summer's split with Amazon.com, a major customer, and the problem-plagued TNT Express merger in Europe.

Business closures forced FedEx to reroute deliveries from shuttered offices to workers' homes, said Trevor Outman, founder of San Diego-based consultancy Shipware.

FedEx responded to the coronavirus spike by putting caps on the numbers of FedEx Ground packages customers could send. That prompted Patterson and others to shift some excess volume to the pricier Express network.

Over the years, FedEx got kudos for outsourcing costly Ground deliveries to lower-cost contractors. But now experts say the pandemic is highlighting the competitive advantage of UPS's single package network.

That unified model is more efficient and "allows UPS to manage unplanned volume better," said Dean Maciuba, a former FedEx executive.

Chase Flashman, CEO of consultancy ShipSights, said the disruptions open the door for UPS to woo FedEx customers, much in the way the 1997 UPS strike left an opening for FedEx.

"They're going to gain some market share," Flashman said of UPS. "It won't be a short-term shift."

Reporting by Lisa Baertlein in Los Angeles Editing by Chizu Nomiyama

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