As far as FedEx is concerned, the seemingly unstoppable growth of e-commerce came to a screeching halt in September.
Instead of straining to boost capacity for the busiest time of the year, FedEx parked aircraft, cut flights, deferred projects and closed offices in an effort to seek US$2.7 billion in savings in the current fiscal year.
This came after the integrator’s results for the quarter ended August 31, which saw earnings per share slump to US$3.44, way below US$5.14 that had been projected, while revenues of US$23.2 billion fell short of predictions of US$23.59 billion.
The slump in the integrator’s results shocked financial markets Analysts at Deutsche Bank called it the worst miss they had seen in 20 years. FedEx management also withdrew its full-year guidance, stating that it was expecting the economy to enter a worldwide recession.
FedEx blamed the reversal primarily on worsening conditions in the trans-Pacific arena. Most of the flight cuts and aircraft groundings that it implemented were targeting this sector. This tallies with a slowdown of U.S. imports from Asia, particularly from China, in August and September.
DHL announced strong preliminary results for its third quarter on October 10, reporting solid gains in its express, freight forwarding and supply chain divisions. However, the firm’s e-commerce segment suffered a decline, with earnings before interest and taxes sliding to €85 million (US$83.7 million), down from €91 million (US$89.7 million) a year earlier.
Expectations for the peak shipping season have been scaled down across the board. On October 7 Fed Ex warned the market that it was paring down volume projections for the peak season.
In stark contrast to the last few years, which were marked by a frantic scramble to recruit personnel to cope with the elevated volumes in the fourth quarter, Walmart announced on October 11 that it would lay off nearly 1,500 employees at a fulfillment facility in the Atlanta area by December 2.
In a statement, Walmart said that it would be converting the facility to support its Walmart Fulfillment Services business, which supports its marketplace sellers.
An early taste of the impending peak parcel shipping season came from Amazon, which ran a two-day Early Access Prime shopping event on October 11 and 12. The ecommerce giant did not disclose any numbers, but Bank of America analysts estimated that the event generated US$5.7 billion in revenue, which is down from US$7.5 billion from the Amazon Prime sale held in July.
According to third-party data service provider Numerator, the average order value was US$46.68, down from US$60.29 at the Amazon Prime event in July.
The annual parcel outlook from ShipMatrix, which was released in September, envisages a shortfall of demand to fill capacity in the coming peak. ShipMatrix forecast capacity to move 110 million parcels a day, versus expected average daily volumes around 92 million parcels.
This is a sharp reversal from the past couple of years, when available capacity fell short of demand by 1.3 million parcels a day last year and by 7.2 million parcels in 2020.
Consumers have become more restrained in their shopping, showing signs of the impact of inflation.
A survey of over 8,000 consumers and about 800 merchants in eight countries conducted by ShipStation found that 58% of US consumers were expecting to spend less on non-food purchases this holiday season. ShipStation’s analysts noted that this would mean a US$30 billion reduction in spend by U.S. consumers, while overall they see a possible shortfall of US$46 billion for the season.
One-third (34%) of consumers responding to the survey stated that they were facing distress heading into the holiday season.
The holiday sales forecast from Adobe is more positive, predicting 2.5% growth in sales between November 1 and December 31 this year. Nearly half the money will be spent on three categories – electronics, apparel and groceries.
Industry observers have commented that ecommerce deliveries will also be affected by the return of shoppers to stores and by the growing trend to order online but pick up the orders at stores. Retailers have heavily promoted this option, as it cuts the high cost of final mile delivery.
The rising return of consumers to services is also cutting into their spend on shopping.
Despite the signals of slowing momentum, FedEx announced a general rate increase of 6.9% for parcel customers next year, which marks the company’s largest year-on-year rate increase. Analysts had anticipated a rise of about 6% to compensate for elevated costs.
This may prove ambitious, if online sales continue to lose momentum.
Moreover, delivery capacity is on the rise, as merchants are moving to embrace regional parcel fulfillment providers. One development of interest is the establishment of a national delivery network by the marriage of regional providers LaserShip and OnTrace.
Todd Benge, senior vice president parcel solutions of Transportation Insight, commented that this came too late to affect shippers’ fulfillment arrangement for this year’s peak season, but he reported lively interest among shippers in this option for 2023.
By Ian Putzger
Air Freight Correspondent | Toronto