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Integration Issues At FedEx Are A Major Problem Against Amazon Prime

Summary

FedEx Express and FedEx Ground run separate operations leading to large inefficiencies across the Fedex network.

Integrating FedEx Express and Ground to work with each other would make FedEx a much stronger competitor against upstarts like Amazon Prime.

Utilizing its resources more efficiently could allow FedEx to accept many more packages during peak periods such as the Christmas season.

Img 1: A FedEx Sorting Center

I recently had the opportunity to work with a company that does a lot of shipping via FedEx (NYSE:FDX). It was an interesting experience and brought to light some of the issues I believe FedEx has when competing against upstarts such as Amazon (NASDAQ:AMZN) Prime. These issues while leading to some inefficiencies are not major problems at the moment but as Amazon becomes more aggressive with their delivery solutions and possibly pitch them as an alternative to FedEx and UPS (NYSE:UPS) I see them becoming bigger issues for FedEx.

The Optimal Route

Img 2: Actual FedEx Package Routing (Red) vs Optimal (NASDAQ:BLUE)

During my time I tracked the journey of a package from Tampa to Honduras. This package took a route that was far from the most optimal. It was sent from Tampa - Memphis - Miami - Tegucigalpa rather than the more optimal route of FedEx Ground from Tampa to Miami followed by Air from Miami to Tegucigalpa. An additional issue resulting from this was that when the package arrived in Miami after its detour via Memphis the flight to Honduras for that morning had already left and the package was stuck there for an additional day. Had it traveled by ground to Miami and then by air from Miami to Tegucigalpa, FedEx would not only have generated substantial savings by traveling less than half the distance, but it would also have made it to its destination a day quicker.

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