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FEDEX shutdown: How surprising is the news?

FEDEX shutdown: How surprising is the news?

Experts predict significant changes in the supply chain operations as FedEx Supply Chain announced to shut down four of its facilities in 3 different states across the United States. The announcement of the FedEx shutdown came on the 28th of January when a company’s representative presented a letter to the government officials who concluded that; The company could no longer continue to run its facilities due to the expiration of the customer’s contract. It means that the businesses that FedEx was relying upon are now preferring other Third-party logistics over it or they believe that their services are not as reliable in other areas. In these areas, they’re going to shift their businesses. 

A shift in supply chain 

It is noted as a huge shift in the supply chain world, as usually well-established and renowned logistic providers such as FedEx don’t have a problem retaining clients. According to the details, the four facilities will be closed in 3 states: Pennsylvania, Tennessee, and California, all within a year.  

In another statement, the company representative reflected upon how the facility in Ontario, California, is affected by shifting businesses to a different location and other Third-party logistics providers in the market. The statement on the reason for closure stated; “Due to the customer’s decision to transition the business to a new third-party logistics provider in a different market”

This leaves the currently employed 450 people at risk, FedEx has already asked the employers to find an alternative to their jobs, as there’s no other way out of this situation. On another occasion, a FedEx representative claimed that this is not something out of the ordinary, facilities do open and close quite frequently, depending on the factors such as customer responses, revenue, and growth ratio. 

Another FedEx supply chain located in Moreno Valley, California is expected to switch its operations such as; packaging and shipping procedures to Columbus, Ohio because of the customer’s demands. 

3PLs Have changed the market

In logistics, massive layoffs don’t come as much of a surprise, especially since significant clients are not renewing their contracts. It’s pretty standard among 3PLs or Third-Party Providers since the market is more saturated than ever! 

If you’re unfamiliar with what 3PL is, then let us provide you with a brief. 3PL is the logistic provider that has changed the landscape of the logistics and supply chain world in the past few years. 3PL doesn’t just supervise the transportation procedures, along with that, it also provides guidance and manages the warehouse procedures. Most 3PL offer services such as inventory updates and order preparation. It’s a small network that offers much more than just logistics services and plays a vital role in the success or failure of businesses. 

Increase in the cases of major layoffs and shutdowns

A similar case of shutting down facilities happened in 2019, in which logistics provider “XPO Logistics” closed its multiple facilities. At the time, they were dealing mostly with Amazon, as it was their primary client. Last year, CEVA logistics also released 87 of its employees from the Carrollton, Texas facility due to a merger with another company. 

The point is, that the occurrence of these shifts has been quite rapid in the past few years, which creates an unstable environment for the employees. According to a 2019 report from UC Berkley Labor Center, “Contracts between major firms and logistics providers remain intact for around three to five years”. 

How can logistic companies survive in the current market?

The Competition is fierce, so each company has to be on its toes, in terms of quality, services, pricing, and everything else. When everyone is competing over prices, the quality of services is often affected, even major clients suffer from average or poor services that lead them to switch to the service provider more often than not. 

Regardless of losing clients and shutting down facilities, FedEx has noted a prominent increase in its quarterly income. Since it’s not dependent on just a single service or a single client, it has the liberty to implement new ideas and explore different markets. For instance, FedEx also offers warehouse and distribution management, and these services are worth more than just transportation and logistics operations. 

So, even though the market is saturated and the competition is at its peak, companies can still survive and make a good revenue if they continue to innovate and tap into different markets and services along with their primary niche.

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