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FedEx Caps Business With Certain Customers Due to Coronavirus Strain

By Lou Whiteman – May 14, 2020 at 11:52AM

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The pandemic is creating havoc across the company's distribution network.

FedEx (FDX 1.55%) has reportedly asked about two dozen retail customers to ease off on the number of shipments they are sending from certain retail locations, complaining the FedEx's network is being overwhelmed by retailer operational changes made due to the COVID-19 pandemic.

It might seem odd for a major transport and shipping company to limit the business it does with key customers, but according to a Wall Street Journal report, FedEx has done just that with a number of retailers including Kohl's, Nordstrom, Bed, Bath & Beyond, and Groupon.

A FedEx delivery vehicle on a city street.

Image source: FedEx.

The issue, according to the report, is changes in the way retailers are entering shipments into the FedEx system. With retail locations closed, companies have converted stores to warehouses to clear out inventory and fulfill a surge in online orders. Those shipments are inundating FedEx's delivery network, shifting packages that in typical times would enter FedEx's network via its dedicated distribution centers onto FedEx drivers.

While the caps might be necessary, it is certainly unusual to see companies shy away from added business. And FedEx has to walk the delicate line between keeping its employees safe, keeping its networks flowing, and not alienating key customers during unusual times.

FedEx is hardly alone in having to cope with changes to normal shipping patterns. Late last month, archrival United Parcel Service (UPS -1.08%) said that while volumes are up thanks to the pandemic, overall profitability is trending downward because the volume surge is focused on its lower-margin business-to-consumer operations.

Overall, UPS domestic shipping volumes climbed 8.5% in the first quarter, but revenue per piece was down 1% due to the changing product mix.

Lou Whiteman owns shares of FedEx. The Motley Fool owns shares of and recommends FedEx. The Motley Fool recommends Nordstrom. The Motley Fool has a disclosure policy.

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