Dive Brief:

• FedEx Ground expects to lower its peak season volume forecasts as its customers navigate a "fluid and challenging economic environment," according to a memo sent to delivery contractors and viewed by Supply Chain Dive.
• Macroeconomic trends — such as high levels of inflation — noted in FedEx's most recent quarterly report have led to volume softness, Paul Melander, FedEx Ground senior vice president of safety and transportation, wrote in the memo. The "downward adjustments" to volume projections will be available on or about Oct. 21.
• "These changes will reflect the latest information from customers about how they anticipate current conditions are likely to decrease their volumes this holiday season," Melander wrote.

Dive Insight:

Shoppers are curbing their discretionary spending amid rising inflation, ending two years of frenzied consumer demand sparked by the pandemic. Experts predict that the slowdown will lead to a smoother peak season this year with more manageable volumes for carriers.

Consulting firm AlixPartners projects a 4% to 7% growth in U.S. holiday sales this year, which would result in a decrease in real sales for retailers when factoring in the rate of inflation. Additionally, retailers are taking expensive measures to clear out high inventory levels as consumer spending cools.

FedEx Ground has already felt the sting of lower home delivery demand. In its most recent quarter, revenue came in about $300 million below forecasts as volumes fell, driving the company to implement cost-cutting measures. FedEx Chief Customer Officer Brie Carere noted in a September earnings call that some of the volume decline was intentional for its Ground Economy service as the company prioritizes more profitable shipments.

"We are constantly collaborating with customers on their projected shipping needs and making adjustments as necessary to ensure our network is prepared to deliver outstanding service for this year’s Peak season and beyond," FedEx Ground said in a statement.

The contractors who provide Ground’s pickup, delivery and linehaul services have also been forced to adjust to softening demand and inflationary pressures on their independent businesses. These conditions led to a public campaign by the now-ousted contractor Spencer Patton for change ahead of the peak season, which is typically the most profitable time of the year for Ground’s delivery providers.