FedEx’s reduced holiday forecast no surprise to skeptical contractors

By Lisa Baertlein

LOS ANGELES (Reuters) – FedEx Corp (NYSE:) stunned investors last week by signaling that it was bracing for a further decline in the number of e-commerce packages it will handle in the year-end holiday season.

Many of its FedEx Ground delivery contractors were not surprised – they have not been adding holiday trucks and helpers on the bet that FedEx management had overestimated Christmas demand for a second year in a row.

“They’re just confirming what everybody probably already knew,” Florida contractor James Bush said of Ground’s planned holiday volume forecast reduction. Bush has delivered packages for FedEx Ground for 15 years, and in that time, he said, “they haven’t had accurate projections.”

Citing an internal FedEx memo, Reuters on Friday reported that FedEx Ground expects to lower volume forecasts to reflect customers’ plans to ship fewer holiday packages this year. Receiving the new outlook – expected around Oct. 21 – and learning whether that will alter expectations for contractors is critical because planning for the vital Christmas shipping season is underway, they say.

FedEx relies on a network of 6,000 independent contractors to handle delivery and trucking for its Ground division, whose customers include discounter Walmart (NYSE:), pet supply seller Chewy (NYSE:) and other retailers.

The updated holiday forecast will help ensure that contractors have appropriate resources for the peak delivery season while minimizing preparation costs, FedEx said in a statement. “(We) are working toward solutions that put all of us on a path to success.”

More than half the 20 contractors who spoke with Reuters for this story were not planning to bulk up operations to meet the company’s original holiday forecast.

Because that forecast also set bonus thresholds at what they felt were unachievable levels, those contractors planned to use some or all of the money FedEx is giving them to help rent extra trucks and hire seasonal workers to instead shore up profits drained by everything from soaring fuel costs to money-losing Sunday deliveries.

Their previously unreported silent work action shows the distrust many Ground contractors have in company leadership.

Last year, FedEx’s overly bullish holiday forecast left many contractors with losses after they geared up with trucks and employees for a surge that failed to materialize.

Contractors have long complained FedEx Ground’s daily volume forecasts are inaccurate and management disregards their feedback.

More than a dozen told Reuters their volumes are down from 5% to 15% so far this year versus the same period in 2021.

Last month, FedEx Corp pulled its forecast for this fiscal year, blaming an unexpectedly sharp downturn in business in late August. Meanwhile, rival United Parcel Service (NYSE:) stood by its forecasts.

FedEx’s warning came as it was gathering signatures on holiday agreements that lay out payments to help contractors prepare for package volumes that can double in the days leading up to Christmas, as well as the costs for failing to meet goals.

FedEx’s new Chief Executive Raj Subramaniam on Sept. 22 reassured skeptical analysts, saying 96% of Ground’s contractors had signed 2022’s peak season contract and dismissing contractor discontent as “much more of a perception issue than reality.”

That response stoked delivery providers’ anger over a new and previously unreported FedEx Ground program that this month could start charging contractors up to 3% of their revenue to offset accident liability costs.

One West Coast Ground delivery provider told Reuters holiday contracts are so underfunded – and bonus targets so hard to reach – that the extra money FedEx provides to partially cover holiday ramp-up costs was enough to convince most delivery providers to sign the agreement.

Contractors stung by the company’s Christmas forecasting misstep last year, said they were instead putting their business survival ahead of FedEx’s needs.

“We may not deliver every package, but we’re going to try to be profitable,” said one contractor from the South who asked not to be identified.

Experienced Ground contractors like Nick Ciardiello do not expect big surges in holiday delivery demand and some plan to handle the season with existing employees and equipment.

“We might have a little peak here and a little peak there, but nothing big,” said Ciardiello, who delivers in New Jersey.

Meanwhile, with the Black Friday holiday shopping season kickoff on Nov. 25 looming, contractors are without new guidance from FedEx Ground.

“We’re up in the air,” said Ciardiello, who has been delivering for Ground for more than 20 years and thinks the company/contractor relationship is due for a reset. “They need to sit down with every contractor and actually see what the operation costs are going forward,” he said.

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