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Why FedEx Stock Fell 5% This Morning

By Rich Smith – May 14, 2020 at 12:22PM

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Will FedEx fumble a big boom in store-to-customer delivery?

What happened

Shipping giant FedEx (FDX -1.07%) stock fell more than 5% in early trading Thursday in response to a Wall Street Journal story detailing problems the company may be having in keeping up with demand from its customers.  

As of 11:30 a.m. EDT, FedEx shares have recovered some of their losses, and are trading down "only" 3.3%.

Uniformed delivery man standing on a sidewalk and reacting in surprise as the boxes he's carrying are tumbling out of his grasp.

Image source: Getty Images.

So what

As WSJ reports, closures of retail stores and stay-at-home orders for consumers have resulted in an increase in online ordering -- and demand for transportation companies such as FedEx to deliver items ordered online. On top of that, the store closures have disrupted supply chains as retailers convert what used to be walk-in locations into ad hoc warehouses for storing items that are ordered online.

All of this has "strained" FedEx's supply network -- the company has apparently begun informing customers such as Abercrombie, Bed Bath & Beyond, and Kohl's that they need to curb the number of items shipping directly from store to customer in order to "limit any negative impacts to the FedEx Ground network."

Now what

FedEx says it is working to retool its network to deal with the shift to from-store delivery, hiring more workers and expanding Sunday delivery, for example. It's also asking customers to work with it to simplify the structure by bringing packages to nearby FedEx Ground facilities where they can be inserted into the delivery supply chain, so it's possible that the company's restrictions on shipping volume will be temporary.

In the meantime, though, the implication of all the above is that FedEx has been given a boon in the form of increased online ordering -- orders up 49% in April alone, according to WSJ -- but it can't take full advantage of it due to its own limited capacity. The longer it takes for FedEx to work things out, the greater the chance its retailers will figure out a way to do home delivery on their own -- and that FedEx will miss out on this opportunity entirely.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends FedEx. The Motley Fool has a disclosure policy.

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