FedEx Corp. (NYSE: FDX) has begun implementing a key change to its flat-rate shipping program that would let customers use their own packaging when they tender a box rather than require them to use the company’s packaging and logo, according to a person familiar with the matter.
FedEx will accept customer packaging for the program as long as the total shipment weighs less than 50 pounds and cubes out at 644 cubic inches, the person said. The change is being piloted among select customers, according to the source. It will likely be expanded across FedEx’s customer base either later this year around the time rival UPS Inc. (NYSE: UPS) discloses its 2020 rates, or by the end of the first quarter, the source said.
UPS launched its own flat-rate shipping program in late September, six years after FedEx. UPS’ entry into a market that has been dominated by FedEx and the U.S. Postal Service (USPS), which began flat-rate parcel deliveries in 2004, could have been the catalyst behind FedEx’s decision. FedEx did not respond to requests for comment.
The FedEx program, OneRate, allows customers, mostly small to midsize businesses shipping small, low-value goods ordered online, to stuff up to 50 pounds of product into one package. In return, they are supposed to receive attractive pricing and a simplified rate structure. However, the program has struggled to gain traction. Current and prospective FedEx customers have complained that the packaging requirements prevent them from building brand awareness because their brands and logos are not displayed on the box. Some customers also ship packages with outsized dimensions and may not be able to configure their products to meet the FedEx package dimensions.
FedEx has structured its product around three geographic tiers, which according to some experts may have added complexity to what should have been a simple process. UPS’ and USPS’ rates are the same regardless of origin and destination points.
FedEx offers the flat-rate program as an Express product with one- to three-day transit times. It does not make the product available through its ground network. UPS offers second-day deliveries by air, three-day deliveries by a variety of options and traditional ground service with transit times that can run five days or more depending on the length of haul. USPS promotes its service as available for one- to three-day deliveries. USPS and UPS accept up to 70 pounds per box.
One challenge FedEx has faced — and UPS will confront — is competing with USPS on price. Most users want two- to three-day deliveries, which, on the early end, will require that many boxes move by air, a costly option. That makes it hard for FedEx and UPS to match or better USPS, already the low-price provider on lightweight shipments. USPS charges $17.60 for a large flat-rate box tendered under contracts with high-volume shippers and $19.95 for the same box tendered at a postal counter or online, according to its website. It will be very difficult for either competitor to undercut those rates on large boxes without margin-compressing discounts, experts have said.
Non-retail accounts make up about 70% of the flat-rate shipping market, according to estimates from the consultancy The Colography Group Inc.
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