Why FedEx Freight is "Pruning" its Customer Base

Jun 16, 2021

Last week, FedEx sent tremors through the freight markets when they sent out a letter to about 1400 customers letting them know that as of this past Monday (June 14, 2021) FedEx would not be working with them anymore.

A recent FreightWaves article explained that this is part of an effort to "reduce terminal bottlenecks and shipping delays as unprecedented amounts of tonnage pour into the sector." Their reductions are focused in areas of high congestion. It is interesting to note that FedEx is also issuing peak season surcharges that begin next week on June 21. They are in the driver’s seat and they know it!

Suffice it to say, this move has surprised and caught shippers off guard. When one shipper asked: “Does this mean they are firing us?” I could not help but think that this is what we predicted could happen in a Code Red environment.

After all, when you see a large reputable and outstanding carrier like FedEx in essence be saying “Goodbye” to 1400 customers, it begs the question: What does this mean for shippers? In response, there are at least three things shippers need to understand:

First, right now, the LTL and truckload carriers are “flush with freight.” If you’ve ignored or avoided addressing this reality, the FedEx announcement should be your wake up call. Shippers need to have a written contingency plan that addresses how your company will respond if one of your primary carriers chooses to stop business with you or is unable to meet your service requirements.

Second, FedEx is not the only carrier that is making significant changes to address the bottlenecks and operational challenges resulting from having too much freight in their networks. Some carriers may not be firing customers but they are using extremely aggressive pricing hikes, or imposing embargoes to cull their customer base. That is why we recommend identifying at least two other carriers in your primary lanes, in case your primary carrier has issues.

Third, being a “Shipper of Choice” shouldn’t be an option for you, it should be a business requirement! Over at TranzAct.com, we have some great resources such as:

A few comments from the CMO of LTL carrier Pitt Ohio that will help you get a better understanding of what the carriers are looking for. In one of our Code Red webcasts, he explained how they look for fit for their network and how carriers can optimize their costs when working together. (Get access to the full webinar here).

Another resource we encourage you to take advantage of, if you haven’t already, is our Carrier Yield Test. This quick test will help you to understand how the carriers see your business and how your requirements impact their ability to serve you.

And if you want some great insights on what it means to be a “Shipper of Choice,” check out our timeless interview with Dave Venberg where Dave addressed the things his company did at the time to make their freight more attractive to their carriers.

One final note: FedEx has always been a pioneer. For example, a couple of years ago they shocked investors when they announced that they were ending their business relationship with Amazon. When I heard Fred Smith speak to us at a small CEO event, he highlighted that FedEx had a better use for those assets that would yield a higher return for shareholders. We think this most recent move is consistent with that objective. And we also predict that other carriers will follow suit and become more selective about who they include in their network.