Autonomous Delivery Will Reduce The Cost Of Residential Package Delivery Posted on : Jul 04 - 2020

On Tuesday’s quarterly earnings call, FedEx FDX Executive Vice President Brie Carere shared that the 72% of its recent US deliveries have been residential, compared to 56% a year ago.

COVID-19 dramatically reduced demand for business-to-business deliveries. The shift toward residential package shipments had the impressive effect of increasing FedEx Ground’s average revenue per package while decreasing its cost per package. The drop in per-package expense is particularly impressive because home delivery typically involves a smaller number of packages per stop, and thus higher costs.

Wall Street analysts on the earnings call were quick to question how FedEx achieved this result. FedEx Ground CEO Henry Maier emphasized the importance of automation:

“We run one of the most highly automated networks in the world, if not the most highly automated. Operating a seven-day network gives us the ability to efficiently utilize our assets seven days a week. The large package facilities that we've added over the last year, year and a half, put those package characteristics in a building that's more efficient and able to handle them, but it also makes hubs and automated stations more efficient, because it gets those packages off the belt and off the sorter.”

Even in light of FedEx Ground’s strong performance on residential packages this past quarter, home delivery still provides significant room for cost reduction. The average package costs FedEx about $8 to deliver, for which FedEx charges about $9.

Far and away the largest expense line item on FedEx Ground’s income statement is “Purchased transportation”, accounting for 53% of FedEx Ground’s costs. Much of this cost is paid to the United States Postal Service, which delivers packages on behalf of FedEx as part of the FedEx Smartpost program.

“Salaries and employee benefits” account for another 20% of FedEx expenses. After these two expenses, no other line items even come close.

Autonomous vehicles have the potential to dramatically reduce both salary expense and outside transportation costs. As automated as FedEx’s facilities are, there is still a driver in every vehicle, which adds expense and limits flexibility. A lot of companies are working to change that. View More