Dive Brief:

• FedEx is currently working to "substantially" increase its capacity ahead of the holiday season by building out its infrastructure, President and COO Raj Subramaniam said during the company's Q4 earnings call Thursday.
• The infrastructure build-out will include 16 new automated facilities expected to be ready in time for peak season, Subramaniam said. A spokesperson for FedEx confirmed that the facilities will be added over the current fiscal year "in time for the approaching Peak season."
• CEO Fred Smith said the company is also adding a "very large hub" in Chino, California, in addition to the regional sortation facilities.

Dive Insight:

FedEx referred to last year's holiday season as a "peak on top of peak," and it's expecting more of the same to close out 2021.

"I think we’re looking forward to another Shipathon, quite frankly," Chief Marketing and Communications Officer Brie Carere said Thursday. "So especially in the Ground network, we are absolutely expecting a robust peak in volume growth."

Last year, it highlighted technology that would help it handle high volumes. By adding 16 automated facilities, FedEx is expanding the reach of this technology in its network. It already has "more than 140 fully automated facilities," a spokesperson said.

"The technology employed in these facilities includes advanced automated material handling and sortation systems as well as six-sided high speed scanning systems," the spokesperson said in an email. "Our state-of-the-art facilities increase efficiency and enable us to quickly adjust to fluctuations in package volume."

But as the company heads into peak season, one issue it could have is getting enough workers needed to run its expanded network.

"The inability to hire team members, particularly package handlers, has driven wage rates higher and [created] inefficiency in our networks," Subramaniam said. He named examples such as FedEx using overtime to cover shifts and adjusting routes around known constraints.

Smith said the hiring challenges have led to "significant reengineering" of parts of its network.

"And while the situation has begun to abate, delivering a successful peak season when we anticipate significant year-over-year volume increases will require additional flexibility and creativity," he said.

As it works to bring on new team members, Smith said technological upgrades can help fill in some of the efficiency gaps. He specifically pointed to upgrades to its route planning software which resulted in a 3.6% uptick in the average number of stops the service providers made per hour.

It will also continue to use surcharges as a way to manage capacity heading into peak season. It already announced a new set of surcharges last month that took effect earlier this week. Carere reiterated that surcharges are the "new normal," a description she also used last summer.

"Structurally, as I mentioned, we will continue to use surcharges," she said yesterday, "not only for peak, but to cover large package and to really just make sure that our pricing, quite frankly, aligns to our cost."